RealD shares rise in market debut

3D movie technology provider raised $200 mil in its IPO

NEW YORK -- Shares of 3D movie technology firm RealD opened with a pop in their market debut Friday, closing well above the $16 that they were priced at.

The stock opened Friday at $19.55 and closed down 0.8% from there at $19.51. But that was still up 22% from the $16 a share price that the IPO had been priced at late Thursday, which was above the range of $13-$15 it had previously expected. Friday's closing price gave RealD a market capitalization of $928.5 million.

The higher pricing and the early market gains point to strong initial investor appetite for the 3D play.

Looking to cash in on enthusiasm for 3D, Beverly Hills-based RealD, which leases 3D projectors to exhibitors and provides 3D glasses, raised $200 million in its IPO. It plans to use the cash for debt repayment and general corporate purposes.

The company recently predicted its first quarterly profit. It reported a loss of $51.2 million on revenue of $189 million for the fiscal year ended in March.

IPOs have been rare since the financial crisis first hit and even rarer in the entertainment sector. But some on Wall Street hope for more IPOs in the just-started second half of the year, helped in part by sparks ignited by the likes of RealD.

Some warn though that RealD's stock price may not be able to stay as high as it opened.

BTIG analyst Richard Greenfield on Friday initiated his coverage of the stock with a "sell" rating and $16 price target. "While there was tremendous demand for the RealD IPO that has now spilled over into the after-market, we believe the current valuation is unwarranted," he said in a note to investors.

While the next two years promise a "robust" outlook, "long-term risks to RealD's model warrant a more conservative valuation," he said.

He had earlier warned that "long-term risks loom in its core theater busines"² due to "too many unanswered questions about the future of the 3D competitive landscape."

Not only could competitors cut into RealD's market share, but a potential reduction in 3D attendance over time and therefore lower fees paid per RealD screen could also affect the stock, Greenfield said.

He also suggested that Hollywood studios could look to reduce or do away with their contributions to 3D glasses, pushing off more of that burden to RealD.