Helios and Matheson Analytics Inc (NASDAQ: HMNY) has been in the midst of a downward spiral for some time now. Unfortunately, the company is far from profitable, and as its subscriber base on its lead product (MoviePass) grows, so too do the losses. Nonetheless, yesterday, the stock ended in the green and it’s starting in the green this morning. So, what’s the deal? Citadel disclosed a large ownership stake in the company yesterday, exciting investors. Nonetheless, we believe that Citadel made a big mistake. Today, we’ll talk about:
- Why we believe Citadel made a BIG mistake;
- what we’re seeing from HMNY today; and
- what we’ll be watching for ahead.
Citadel’s Stake In HMNY Is A Big Mistake!
As mentioned above, Helios and Matheson Analytics hasn’t had the best time in the market over the past several sessions. That is, until yesterday, when the stock soared on news that Citadel disclosed a 5.4% stake in the company. While many see this as a vote of confidence for HMNY, we believe that it actually represents a huge mistake made by Citadel.
The move is somewhat understandable. As of late, the stock has been spiraling downward as investors grow more and more concerned about the company’s ability to stay afloat with mounting losses. Nonetheless, due to the dramatic declines that we’ve seen on the stock as of late, it has been hitting new record lows seemingly every other trading session. At the end of the day, Citadel may believe that the stock has bottomed out. However, we don’t see it that way. In fact, we believe that HMNY won’t bottom out until it reaches ZERO!
The reason for this is relatively simple. At the end of the day, the structure surrounding the company’s core product (MoviePass) is one that will likely never be profitable. We all know that MoviePass gives users the ability to go to the movies on an unlimited basis for a very low monthly fee. In fact, the $9.95 fee is about what it costs to go to the movie theater and see a single movie. Unfortunately for Helios and Matheson as well as their majority-owned subsidiary (MoviePass), every time a user goes to the theater, the company pays the full price of the movie ticket. So, each user that goes to the theater more than once in a month generates a loss for the company.
These losses were clearly seen on the earnings report that was recently released by HMNY. In fact, the company’s report showed that it is burning through a massive amount of money. The truth is that the company is burning more than $20 million each and every month. Interestingly, by the end of the first quarter, the company only had about $15 million in the bank, showing just how much financial pressure these losses are putting on it.
While HMNY plans on selling data, advertising, and other services through the use of data compiled by MoviePass, that process is likely a long way off. Even if it was right around the corner, chances are that the funds earned simply wouldn’t be enough to cover the losses. At the end of the day, the MoviePass system is a broken one that is destined to fail, whether Citadel sees it or not!
What We’re Seeing From The Stock
As investors, one of the first lessons that we learn is that the news moves the market. In the case of HMNY, the news has definitely done that. After strong gains yesterday, the stock is slightly in the green this morning as excitement surrounding Citadel’s involvement continues to move the needle. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (9:17), HMNY is trading at $0.48 per share after a gain of $0.0078 per share (1.66%) 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 the company’s efforts to bring MoviePass to a profit. While we don’t believe that the company has what it takes, anything can happen in the market. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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