Helios and Matheson Analytics Inc (NASDAQ: HMNY) is having an incredibly strong start to the trading session this morning, following up on the gains that we saw yesterday. The gains are ultimately the result of a bullish article published on Seeking Alpha. However, while this is the second straight session of strong gains for the stock, the truth of the matter is that the stock is going nowhere. Today, we’ll talk about:
- What the Seeking Alpha article that’s pushing the stock upward said;
- why we believe the author is very wrong about HMNY; and
- what we’ll be watching for with regard to the stock ahead.
Seeking Alpha Article Sends HMNY Upward
As mentioned above, Helios and Matheson Analytics is having an overwhelmingly strong start to the trading session this morning after strong gains on the stock yesterday. Ultimately, the gains are the result of an article written by Seeking Alpha author, Plato Management that was published yesterday. In the article, Plato Management pointed to the fact that MoviePass’ owner, HMNY recently disclosed that its new “one movie” policy is working. Under this policy, HMNY said that it has greatly reduced fraud and brought down its utilization rate by around 35%. The author points to the fact that the high utilization rate is leading to the losses the company is experiencing and believes that the new one movie policy will help the company reach a profit.
Why Plato Management Is Wrong
The truth is that it’s impossible to argue that bringing down the utilization rate is a good thing for MoviePass, and therefore, Helios and Matheson Analytics. However, at the end of the day, even this isn’t enough to help the company generate a profit. Think about it, while utilization rates may have fallen, the company still pays FULL PRICE for movie tickets used by its subscribers. Considering that the cost of the MoviePass subscription is slightly higher than the cost of a single movie theater admission ticket, consumers aren’t likely to subscribe unless they intend on visiting the movie theater at least twice per month. This creates a bit of an issue for HMNY.
At the end of the day, the company is paying full price on movie tickets, and has created a service that is only appealing to those that go to the movies often. Unfortunately, the second time the subscriber goes to the movie theater, the company generates losses. So, MoviePass isn’t likely to be profitable on its own… Strike One!
Recently, HMNY has announced that it intends on making movies. Of course, MoviePass originals could drive a stronger audience and lead the company to profit right? Well, yes… that is, if the company had the money and the know-how to create blockbuster films. The truth of the matter is that it costs around $100 million to produce and market a feature film. That’s a ton of money, and the company says it intends on creating 12 to 15 of these movies in a relatively short period of time. The only problem… HMNY has no money! The company had $15 million in cash on hand and was burning through $22 million per month at the end of the most recent quarter. Considering that it intends on creating 12 to 15 movies relatively soon, we’re wondering where the $1.2 billion to $1.5 billion this would cost is coming from. Can anyone say… Strike Two?
Finally, considering the current financial state of the company, the last thing that it should be focused on is acquiring companies and making movies. Instead, the company needs to focus on what it’s going to do to make its MoviePass service profitable, if it can. That’s where things get interesting. If HMNY had the ability and a strong plan to make MoviePass profitable, don’t you think it would be working to do so? Instead, the parent company of the popular movie theater subscription service is grabbing for straws, trying to find a way to turn a profit elsewhere. Well my friends, very few companies have made it big without a dedicated focus on their flagship product. Without this core focus, it seems that the company has come to grips with the fact that MoviePass is a black hole that does nothing but eat cash. So, they’re looking for a way to impress investors before they figure that out, moving away from the core product and trying to find something… anything that works! Strike Three! You’re Out!
What We’re Seeing From The Stock
While the writing is on the wall that Helios and Matheson Analytics simply isn’t going to do well from here, the article on Seeking Alpha is clearly exciting investors. Unfortunately, we believe that many of these investors are on track to lose. Nonetheless, the stock is climbing for the second straight session. Of course, our partners at Trade Ideas were the first to alert us to the gains. At the moment (9:19), HMNY is trading at $0.40 per share after a gain of $0.024 per share or 6.53% 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 company and their creative ways to tell investors that they are working toward a profit as they sink to the bottom. While we could be wrong here, of course anything happens in the market, we’ve learned that when it walks like a duck and says quack, it’s probably a duck. Well my friends, chances are that HMNY is a duck that will soon be cooked!
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