Helios and Matheson Analytics Inc (NASDAQ: HMNY) is a stock that I’ve talked about quite a bit recently. In fact, just yesterday, news broke that Verizon made a pretty sizable investment in the company, triggering yet another update. If you’ve read my thoughts on the stock in the past, you know that I’m not quite as impressed with Verizon. In fact, I’ve warned of several issues with HMNY, and MoviePass in particular, in the past. Nonetheless, I’ve got to be honest here, the fact that Verizon made such a large investment has me questioning whether or not I’m right. While I will say that this was a very positive piece of news, I still have a very standoffish feeling when it comes to the stock. Today, we’ll talk about:
- The positive bits of news we’ve seen out of HMNY as of late;
- why I’m concerned that this thing could fall hard;
- what the case would be if I am wrong; and
- what I’ll be watching for ahead.
HMNY Has Been At The Center Of Pretty Positive News Lately
At the end of the day, Helios and Matheson Analytics has been in the spotlight quite a bit as of late, and to be honest, the news has been positive. We all know about the fact that Verizon is now the second largest shareholder in the company. However, that’s not the only news the company has released as of late. Here are some of the key headlines that we’ve seen this year:
- MoviePass Teams Up With iHeart Radio – On April 13th, HMNY announced that its subsidiary, MoviePass, has teamed up to promote its services alongside iHeart Radio services at a deep discount for 3 months. The idea is to group two of the most popular forms of entertainment at a great discount to increase subscribership on both services.
- Moviefone Acquisition – On April 5th, Moviefone was acquired. Moviefone is a service that combines access to a streaming ecosystem of content as well as movie theaters, which perfectly aligns with the company’s flagship product, MoviePass.
- Reduced Pricing – On March 23rd, MoviePass announced that it reduced its price from $9.95 per month to just $6.95 per month.
While the above releases are the three most recent, if you have not been keeping tabs on HMNY press release, I strongly suggest that you catch up here. The company has released a massive amount of news as of late, and most of it has been positive news like the highlighted releases above.
Why I’m Still Concerned
While MoviePass is a positive service, I’m still concerned about Helios and Matheson’s ability to actually turn a profit here. Since the acquisition of a majority stake in the unlimited movie theater subscription service, the company has reduced the price twice, from nearly $50 per month when it first acquired the product to the current price of just $6.95 per month.
In most cases, when prices are reduced, subscribership grows. So, I understand why HMNY is doing this. My big concern is whether or not they can afford to do so. When digging through the press releases section of the company’s website (linked to above), look for offerings and fundraising attempts. You’ll see that since HMNY acquired the majority stake in the company, it has had to go to investors with its hands out multiple times. Don’t forget that this deal happened less than a year ago!
While dilutive transactions are being used to fuel the MoviePass machine, the goal is to turn the data that is currently generating massive losses into a profitable venture. Ultimately, by selling data, advertising, and other services through the culmination of data using MoviePass as a mine, HMNY plans to turn this money burning hole in the ground into a money printing machine.
Ultimately, my concern isn’t whether or not the company will be able to do this. My concern really is whether or not they will be able to do this fast enough. At the end of the day, investors aren’t going to be OK with continued dilution over the course of several years. We’ve seen tons of examples of this over time, and it never ends well. So, Helios and Matheson is going to need to act quickly to sell the data and start to turn a profit. Considering the fact that the company pays full price for most movie tickets purchased by subscribers, and that the cost of the service is less than the average cost of a movie ticket per month, even the most talented monetization specialists will have a hard time turning a profit quickly. With the company reducing subscription fees at the same time, this job becomes even more difficult.
What Happens If I’m Wrong?
At the end of the day, I can’t argue with the fact that big money is putting their dollars into HMNY, and I’d never be ignorant enough to think that I am the end all be all and that they can’t be right! So, what if I’m wrong? First and foremost, if I’m wrong, many are going to become rich! Here’s the deal. If the company does have the time to monetize this system before investors lose hope, Helios and Matheson and its flagship brand MoviePass will become a cornerstone in the entertainment market as a whole. With the amount of data they can create through the MoviePass service that continues to grow exponentially, HMNY can provide meaningful resources to just about every facet of the entertainment industry, and that will be overwhelmingly valuable.
What I’ll Be Watching For Ahead
Moving forward, I along with the rest of the CNA Finance team will continue to keep a close eye on HMNY. In particular, we’re interested in following what the company does with MoviePass. First and foremost, the company is still generating massive losses, and, as the subscribership grows surrounding MoviePass, these losses will likely continue. So, we’re going to be watching for creative ways the company will be raising funds in the near future, as more funds are definitely going to be needed.
Also, we’re interested in following the potential success of the partnership with iHeart Radio. With reduced pricing and cross-selling, this could greatly expand the audience of both services. Once again, however, growth at MoviePass will likely lead to serious growing pains, as each new subscriber means an addition to losses.
Finally, we’ll be following the company’s efforts to bring MoviePass to a profit through the sale of data, advertising, and other solutions provided to the entertainment industry. While we hope that the company will be able to bring its vision to life, we hold some serious reservations as to whether or not HMNY has the time they need in order to do so with losses that are growing at a rapid pace!
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