The big-screen cinema company's China revenue tumbled in the first quarter, returning to normal levels after a year-ago boost from animated blockbuster ‘Ne Zha 2'

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Key Takeaways:

• Imax's Corp.'s (NYSE:IMAX) Greater China revenue fell 49% in the first quarter due to a high year-ago comparison fueled by the blockbuster "Ne Zha 2"
• China's overall Lunar New Year box office also plunged 39% this year absent the year-ago hit that went on to become the world's best-grossing animated film

When "Ne Zha 2" dominated the Lunar New Year box office last year, rewriting Chinese box office history, the tale of mythical devil child had a halo effect on Imax China Holding Inc. (1970.HK), whose trademark big-screen theaters were packed during the period. By the first quarter of 2026, however, Imax's results cooled sharply as the market returned to reality.

The massive 2025 boost, and a subsequent crash as the box office returned to more normal conditions this year, were both center stage in the first-quarter results of Imax China's parent, the Canadian firm Imax Corp. (IMAX.US). The results, contained in a filing this week by Imax China, showed Imax Corp.'s revenue fell about 6% in the first quarter to $81.37 million from $86.66 million a year earlier. The company's net income also fell about 25% to $6.07 million from about $8.15 million.

A closer examination of Imax Corp.'s regional breakdown reveals that nearly all of the weakness came from China. The company's revenue from Greater China plunged by nearly half to $20.57 million in the latest quarter from about $40.13 million a year earlier. The region's contribution to total revenue also shrank from 46% to roughly 25% over that time, highlighting how rapidly the company's single most important overseas market contracted.

As a Hong Kong-listed company, Imax China is only required to report its financial results twice a year. But the weak first-quarter showing by its U.S.-listed parent, which files quarterly, hints that Imax China's midyear results won't be pretty when they're released in August.

According to data from China's National Film Administration, China's 2026 Lunar New Year box office was worth 5.75 billion yuan this year ($845 million), down 39% from 9.5 billion yuan in the same period of 2025. Total movie attendance this year also fell about 36% from approximately 187 million viewers to about 120 million. More importantly, there was no encore blockbuster to pick up where "Ne Zha 2" left off. The entire 2025 holiday season was effectively carried by the animated hit, which generated about 15.44 billion yuan at the box office, making it the fifth-highest grossing film in global box office history and the best grossing animated film of all time. By comparison, the top-grossing title during the 2026 holiday period, "Pegasus 3," earned only about 2.9 billion yuan — less than one-fifth of the bounty for "Ne Zha 2."

Imax's China business is heavily dependent on box office revenue-sharing and related services, making the company, in essence, a "box office amplifier." Like film studios, the company relies on hit films to keep its cash register full. During its earnings call, Imax Corp. management said that due to the exceptionally high comparison base from last year, Imax's Greater China box office revenue in the first quarter plunged about 62% year-on-year, significantly underperforming its global box office.

Rather than passively waiting for the next local blockbuster or a Hollywood hit, Imax is taking a more active role in content production in China to secure a more stable and larger share of box office revenue. Imax China's annual results last year already showed a noticeable shift in its content mix. Chinese-language films accounted for more than 66% of its box office revenue, while eight of the country's top 10 films nationwide that year were domestic productions — a clear sign of shifting tastes towards domestic films.

Betting on local content partnerships

Imax benefits from the trend toward Chinese-language films because such domestic productions typically generate a higher revenue-sharing ratio for the company. Compared with Hollywood studios, which generally wield strong bargaining power, local Chinese production companies allow greater commercial flexibility in their Imax partnerships. At the same time, Imax often becomes involved earlier in the remastering and marketing process for Chinese-language films, shifting its role from a pure exhibitor to a content partner, enabling it to secure a larger share of the box office.

Meanwhile, the company's approach to network expansion in China has also changed. The number of Imax theaters in China was essentially flat last year, increasing only from 809 at the end of 2024 to 810 locations by the end of last year, with 19 underperforming theaters closed. This suggests the company's focus has shifted from simply expanding its screen count to improving revenue per screen. As Imax gradually increases its reliance on revenue-sharing arrangements in China while reducing one-time equipment sales, the linkage between box office results and its revenue performance has become more closely linked.

In the first quarter of this year, the parent Imax Corp. still recorded notable box office growth in markets outside China. But the steep decline in China offset those gains, highlighting how heavily the company's performance can be tied to a single market or hit film. It also means the company's profitability has become increasingly linked to Imax China. Looking ahead, management remained optimistic about the rest of 2026, forecasting the company would bring in global box office revenue of $1.4 billion this year, with content supply expected to improve in the second half of the year.

From a stock performance perspective, Imax China looks relatively solid. The stock is up about 13.7% over the past 52 weeks, though it's down about 10% this year, suggesting investors are gradually reassessing its earnings outlook after last year's blockbuster-driven rally. That includes a 2.1% decline this week on the first trading day after the earnings release, reflecting investors' immediate reaction to the company's tepid near-term performance.

Imax China currently trades at a price-to-sales (P/S) ratio of 3.2 times, in between Ruyi Film Entertainment's (002739.SZ) 1.9 times and Bona Film's (001330.SZ) 11 times. Such variance suggests investors continue to assign higher valuations to companies with stronger control over content and greater blockbuster potential, while Imax China, as primarily an exhibition and revenue-sharing company, remains more dependent on external content supply, limiting its valuation upside.

As online streaming platforms continue to divert business from traditional movies, attracting audiences back into theaters has already become increasingly difficult. Imax is shifting from simply expanding scale to try to improve efficiency, from relying on equipment sales to box office revenue sharing, and from relying on Hollywood to betting on local content. Such strategies show the company isn't just sitting and waiting for viewers to come to its theaters based on old formulas, but instead is trying to figure out where the market is headed.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.