Helios and Matheson Analytics Inc (NASDAQ: HMNY) has had a pretty strong run in the market over the past two trading sessions, ending both sessions in the green and starting the third off on a strong note this morning. However, while these gains seem to be relatively strong, they are actually minimal when compared to the massive declines seen on the stock as of late. In fact, while the stock is trading for well under $1.00 at the moment, it was nearing $2.00 per share just 5 days ago and it was over $4.00 per share 30 days ago.
Nonetheless, regardless of the declines the stock has produced, there are still plenty of bulls that believe that, with these declines, they are getting in at a discount. Today, we’ll talk about the bullish argument, the bearish argument, and what we’re expecting to see out of HMNY ahead.
The Bullish Argument On HMNY
The bullish argument on Helios and Matheson Analytics is a relatively simple one. The argument revolves around the fact that the company owns a 92% stake in an overwhelmingly popular movie theater subscription service. That service, known as MoviePass, gives consumers the opportunity to go to the movie theater as much as they want for one low monthly fee of just $9.95 per month.
As a result of the incredible offering at an incredible price, MoviePass has seen some serious growth in subscribers since HMNY took over in August of last year. In fact, when the company purchased the majority stake, there were under 100,000 users. Today, less than a year later, that number is up to 2 million, and the company expects to have 5 million paying subscribers by the end of the year.
The bulls argue that the fact that the company isn’t making a profit right now is nothing to be concerned with. Essentially, they believe that the company will likely take on losses while it grows. However, the bulls also believe that, as MoviePass continues to become a household name, HMNY will eventually become profitable by leveraging the sheer volume of subscribers and taking advantage of data mined through these subscribers, making the stock a big win for all involved.
The Bearish Argument
Before we get into the argument here, it’s important that you understand that this is a BIASED post. While I do not hold a position in the stock, I am a diehard bear when it comes to Helios and Matheson Analytics. Ultimately, I don’t believe that the company is going anywhere good nor that they will be able to return any substantial value to shareholders. Here’s why…
At the end of the day, HMNY isn’t just losing money. No, they are driving it in by the truckload to be destroyed. With their most recent earnings report, the company showed that it is sending about $22 million to the incinerator every month. Unfortunately, the company simply doesn’t have the money to keep this going. In fact, as of the close of Q1, the company had about $15 million in cash on hand. Let’s do the math here – that’s about enough money to make it through three weeks!
The big problem is in the pricing of MoviePass. When HMNY took the company over, the service was relatively sustainable; generating about $50 per month per subscriber. However, at $9.95 per month, it is suggested that the company generates a loss the first time a subscriber uses their subscription to purchase a movie ticket. While the first ticket may not push the company in the red every time, the second ticket surely does.
At the end of the day, this is what we call a too-good-to-be-true offer. The reality is that while HMNY wants to turn this into a profit, the economics of the service simply don’t work. Regardless of how much money is made in concession stand agreements or marketing, chances are that this will never outweigh the massive and growing losses taken on by the company each and every month.
What We’re Seeing From The Stock
Although the writing is indeed on the wall here, some investors are still trying to hang on, and with prices so low, they’re even buying more, as they see this as a discount. So, we’re seeing continued gains in the pre-market today. However, I urge you to do your due diligence before making a move here; these gains won’t last. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. At the moment (8:08), HMNY is trading at $0.70 per share after a gain of $0.019 per share (2.79%) thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on HMNY. In particular, we’re interested in following the story surrounding MoviePass and the expanding losses the service creates for HMNY. While we’re hoping that we are wrong here and that we are surprised in the future, the truth of the matter is that we believe we’re watching the beginning of the end as the company crashes and burns due to growing and overwhelming losses. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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