Helios and Matheson Analytics Inc (NASDAQ: HMNY) had a pretty rough week last week. While the stock did find its way toward the top on Monday, those gains were quickly given up and turned into losses throughout the week. The biggest point in the decline came on Thursday, when the company announced that it would be moving forward with another offering of shares to the public. Of course, this dilutive move proved to be concerning, and the stock tanked, continuing downward on Friday as well. Nonetheless, after dramatic declines, HMNY seems to have found the bottom and is heading up. But is there any hope here?
It’s Important To Understand The Issue HMNY Faces
Ultimately, Helios and Matheson has a very interesting problem to contend with. It all starts with their majority-owned subsidiary, MoviePass. There’s no doubt that MoviePass is a great deal for consumers. In fact, it’s such a good deal that the company is seeing dramatic growth in subscribers. At the most recent count, MoviePass had more than 2 million subscribers, and the company expects that number to grow to 5 million or more by the end of the year.
So, HMNY has essentially taken MoviePass and turned it into a popular cornerstone in the entertainment industry. So, what’s the big deal? Where’s the problem? Well, the problem is simple. Every time a new subscriber signs up for MoviePass, losses at HMNY grow. The truth of the matter is that MoviePass costs only $6.95 per month – less than the average price of a movie ticket in the United States. However, when MoviePass subscribers go to the movie theater using their MoviePass subscription, the company pays the full price of the ticket purchased by the subscriber. That means that if MoviePass subscribers do exactly what the service was designed for, even just one time per month, the company is taking a loss.
Mitch Lowe And His Data Plans
One of the reasons that MoviePass has been rejoiced by investors had to do with Mr. Mitch Lowe himself. Mitch Lowe is the CEO at MoviePass and has a strong history in the entertainment space. In fact, he was one of the co-founders on what may still be the most popular premium video streaming service in the world, Netflix. And, it’s hard to argue his data plans.
You see, Lowe knows that, at just $6.95 per month, turning a profit from MoviePass is going to be impossible. However, with the help of HMNY, the data being mined through the service can be turned into dollars. After all, data is one of the most valuable assets in today’s information-driven world, and MoviePass has a ton of it.
The bulls believe that between Mitch Lowe and his history in the entertainment space and Helios and Matheson and their history in the data space, while it may take some time, this team will be able to pull profit together. I’ve heard it time and time again when writing about HMNY, “Don’t bet against Mitch Lowe.” At the end of the day, this is where the bulls are finding their fuel to attempt to drive MoviePass to the top.
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I’m Betting Against Mitch
Look, I’ve got nothing against the guy. In fact, I highly respect him as a professional and visionary. However, in this particular case, I’m not sure that even Mitch Lowe’s talents will be able to turn MoviePass into a profit any time soon. At the end of the day, it’s going to take quite a bit of marketing and data sales to even put a dent in the tens of millions of dollars the company is likely losing per month. As the service becomes more successful in terms of subscribers, it becomes more of a loss generator as these subscribers take advantage of the service they have signed up for. In order for HMNY and MoviePass to be successful here, they are going to have to do something to taper down the losses quickly. While the Ted/Mitch team is a great one, I’m not sure that even experts of this caliber have the ability to turn the company around quickly enough. While I’ve been urged not to, and I hope that I’m making the wrong move here, I am indeed betting against Mitch Lowe here.
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