Helios and Matheson Analytics Inc (NASDAQ: HMNY) had a relatively strong run in the market as of late as Citadel disclosed ownership of a 5.4% stake in the company. Of course, investors like to follow the big money, so the news led to excitement and sent the stock on a run for the top. However, when the news broke, we warned that the gains would be temporary and that Citadel made a huge mistake! Well, the stock is falling today as reality sets in. Today, we’ll talk about:
- Why the HMNY business model is broken;
- what we’re seeing from the stock today;
- and what we’ll be watching for ahead.
The HMNY Business Model Is Broken
Helios and Matheson Analytics, as the name would suggest, is a data and analytics company. However, that description changed in a big way late last year when the company announced that it had acquired a majority stake in a product known as MoviePass. MoviePass is a service that allows subscribers to go to the movie theater on an unlimited basis for a low monthly fee.
When HMNY took over the majority stake of MoviePass, the service came with a monthly fee that was just pennies shy of $50. That fee made sense. Maybe the general population wouldn’t find it worth while, but the die-hard movie buffs, well, this would be a great value for them. Nonetheless, when HMNY took the majority stake, it wanted to change the service so that all consumers would want to get involved. So, the company reduced the price of MoviePass to only $9.95 per month. Of course, that led to a flurry of new subscribers, pushing the service from tens of thousands of subscribers to more than half a million over night. From there, subscribership has grown tremendously, now sitting in the millions.
All sounds good right? Where’s the problem?
The problem is a simple one. While Helios and Matheson Analytics did what it set out to do by growing subscribers dramatically, it seems as though the company didn’t consider the cost of what would prove to be a MASSIVE MISTAKE! At the end of the day, MoviePass pays full price for movie tickets used by its subscribers. This means that with the new low price, in most cases, the second time a subscriber visits the movie theater, that subscriber generates a loss for HMNY. In some cities, like New York, Los Angeles, and others, where living expenses are higher, the first time a user visits the theater generates a loss for the company.
HMNY has been clear that they plan to remedy this issue by selling data and marketing services as well as negotiations with movie theaters to take a percentage of concession sales. However, this process is likely a slow moving one, and based on the fact that the company is going through a monthly cash burn that accounts for quite a bit more money than it has on hand, HMNY doesn’t have time to waste.
At the end of the day, while the MoviePass product seems like an overwhelmingly strong value proposition, it is nothing more than a loss generator. In fact, Helios and Matheson Analytics has moved forward with multiple offerings to cover the cost of these losses while purchasing a larger stake in MoviePass. Nonetheless, as the stake and subscriber base gets larger, so too do the losses, and HMNY simply isn’t going to be able to stay afloat like this forever.
Now, the company is doing whatever it can in order to excite investors. In fact, the company recently announced that it just launched a film production company, acquiring another company in the process. Nonetheless, these seem to be nothing more than tactics to excite investors and buy time to figure out what they are going to do with the massive loss producer that is MoviePass.
What We’re Seeing From The Stock
Now that excitement surrounding the Citadel stake has faded, investors are looking to the facts, and realizing that there’s not much in Helios and Matheson Analytics to be excited about. So, the stock fell dramatically yesterday and is starting on a decline in the pre-market hours this morning. Of course, our partners at Trade Ideas were the first to alert us to the declines. Currently (8:00), HMNY is trading at $0.42 per share after a loss of $0.012 per share or 2.69% thus far today.
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The takeaway here is a very simple one. At the end of the day, HMNY is in over its head with MoviePass. By accepting losses, the company saw exceptional growth in the product, exciting investors. However, once investors saw just how big those losses were, the excitement faded. Now, the company seems to be realizing that its mistake is not only expensive, it could be damning. So, it’s pulling for straws, trying to find another way to generate revenue and keep MoviePass alive. However, in our view, HMNY has screwed the figurative pooch! There’s really not much value left here and the stock will likely continue declining, proving that notion.
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