Helios and Matheson Analytics Inc (NASDAQ: HMNY) is having yet another incredibly rough day in the market today. Following recent short-side posts, which started with a post from Citron, investors seem to have lost faith in the company. However, are these investors sorely mistaken? Is there something that we’re just not seeing here? In my opinion, the answer is yes. Now, it may take some time for the opportunity to be fully realized, but at the end of the day, HMNY has some tremendous potential. We’ll get to why in a minute. Before we do, I’d like to extend a thank you to our partners at Trade Ideas for being the first to alert us to the declines. Currently (10:34), HMNY is trading at $14.13 per share after a loss of $2.15 per share (13.21%) thus far today.
Why HMNY Is Falling
Before we get into why I believe that Helios and Matheson Analytics represents a potentially profitable opportunity, it’s important that you understand just why the stock is falling. It all started back in August when the company acquired a majority stake in a product known as MoviePass. A month after the acquisition, the company announced that due to the drastic reduction in the price of the service, the subscriber base had grown substantially, from around 20,000 subscribers to more than 400,000 subscribers. While this led to gains in the stock, causing it to grow by more than 1,000% in one month, it’s also the reason for today’s bearish opinions.
You see, Citron announced that it was short on the stock, essentially bashing the company for selling a dollar for ninety cents. Digging into the details, it’s clear to see why Citron has this view. The MoviePass product is a product that allows consumers to go to the movie theater on an unlimited basis for only $9.95 per month. While this seems great, on the HMNY side of the coin, this could be damning. After all, in order to fulfill the MoviePass service, the company pays full price for each movie theater ticket used under the service. So, if consumers use MoviePass more than once, a loss is generated.
Essentially, investors are concerned that HMNY will quickly become a victim of its own success. With the masses finding interest in MoviePass, the losses associated with the product could quickly be expanded, leading to some serious financial pain for Helios and Matheson Analytics. When we look at the service from the outside in, it’s easy to understand this point of view. However, when we dig deeper into how HMNY plans on profiting from MoviePass, the initial investment on movie tickets for those who use the service more than once per month (which will likely be a very small percentage of subscribers) could grow to be massive. Ultimately, this outlay of money is concerning to investors.
Looking Into The Details Makes HMNY Attractive
At the end of the day, while looking at the basic details above may seem damning to HMNY, the truth of the matter is that there’s much more to MoviePass than movie tickets. The reality is that MoviePass isn’t a product that’s designed to produce a massive profit. Instead, it’s a product that’s designed to produce a massive amount of data.
In today’s data-driven world, there are few assets that are quite as valuable as big data. In fact, billions of dollars are spent on data each and every year. This is where the true value of MoviePass is created. You see, with MoviePass, Helios and Matheson is collecting massive amounts of data. Not only are they collecting general information from the consumers that sign up, they’re collecting information with regard to what types of movies these consumers enjoy watching. All of this data is overwhelmingly valuable to other companies like Uber, Google, and many others.
So, HMNY isn’t looking to make money on the monthly service fee of MoviePass; instead, they are looking to make money on the data that’s centered around the MoviePass subscribers, which they can sell. However, this isn’t the only thing that’s going to turn MoviePass into a profitable idea either.
Another factor that we have to consider here is the product ecosystem factor. Apple has done a great job inventing the product ecosystem. Essentially, with one massively popular product, the iPhone, Apple has cross-sold and cross-sold, lifting the sales on each of their other products. HMNY has the opportunity to do the exact same thing with MoviePass. As more and more subscribers get involved, HMNY has the ability to cross-sell their RedZone Map application to these subscribers. Not to mention any other products the company comes up with down the line.
Finally, another factor that we need to consider here is how much consumers actually go to the movie theater. The reality is that an overwhelmingly small percentage of the population even goes to the movie theater on a once-per-month basis, let alone a more than once-per-month basis. Believe it or not, the cost of a movie ticket has very little to do with this, it’s the overall cost of going to the movie theater, most of which is charged through concessions. So, chances are that most MoviePass subscribers won’t go to the movies more than once per month, or even once per month. So, this should offset the cost to HMNY of those that do go more than once per month.
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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 ongoing work surrounding making MoviePass profitable, and we’re excited to see the results. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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