Look Out Below! MoviePass Dive Continues

By Robert Marich
   June 27, 2018-Losses are accelerating, competition is popping up and its stock price continues to plunge with near-worthless in sight, as the MoviePass saga continues.
   Movie marketing, Wall Street and penny stocks converge in the unfolding collapse of once-promising cinema ticket
Unsophisticated "retail" investors are impressed with big subscriber counts

subscription service MoviePass, which is 92%-owned by penny-stock Helios & Matheson Analytics (ticker symbol HGNY). MoviePass has over 3 million subscribers paying $9.95/month for once-a-day movie tickets.
   The nation’s #2 cinema chain AMC Theatres on June 20 announced its own $19.95/month subscription service offering up to three cinema tickets per month and other perks, and dine-and-movie circuit Alamo Drafthouse unveiled a beta test of its own subscription service June 25.
   Meanwhile, sector leader MoviePass/HMNY, whose stock peaked at $38.86 in autumn, dived to around 20 cents a share today, as HMNY apparently issues new stock (no matter how low priced!) to cover operating losses, once pegged at around $20 million a month. In a June 21 disclosure filing, HMNY provided this sobering assessment: “Due to our greater than anticipated subscriber growth in May 2018, our cash deficit for the month of May 2018 was approximately $40.0 million and we anticipate our cash deficit for the month of June 2018 will be at least $45.0 million due to significant subscriber growth and strong box office results of recently released films.”
   On June 19, HMNY said it will seek shareholder authorization to increase authorized shares to a staggering 2 billion, from 500 million now (that’s a huge share authorization for a company this size) and separately execute a reverse stock split to increase the price of single shares (reverse splits usually have no positive impact on company value).
   What’s going on?
   It seems MoviePass/HMNY is being run to impress unsophisticated small investors with a big subscriber count (raising the low monthly subscription cost would certainly narrow financial losses, but also reduce the number subscribers) and lofty pronouncements about being disruptive. The unsophisticated retail investors find they and friends like the MoviePass service, so they buy the stock on whims.
  Well, I see no barrier to entry, calling into question how valuable the MoviePass business is, because new entrants only have to be willing to stomach huge losses. MoviePass competitors price at higher rates, which are more sustainable though doesn’t run up as many total subscribers.
   MoviePass has taken some baby-steps toward higher prices by allegedly cracking down on subscribers sharing with non-subs and dynamic pricing calling for a $2 surcharges on popular movies (apparently, subscribers will learn if the $2 surcharge is applied only upon arriving at the theater).
   In a June 21 announcement, MoviePass parent HMNY claims it will raise $164 million ($139.4 million left for HMNY after subtracting hefty sales fees for its investment handlers Canaccord Genuity LLC and Palladium Capital Advisors LLC) selling dilutive convertible securities (which is one reason is stock price continues to tumble because this will create massive dilution).
   I doubt this debt capital will materialize. Note that a cashless stock-swap merger with a Hollywood B-movie producer no longer gets mentioned by the company, after a deal was announced with great fanfare May 30. A separate diversification into film co-distribution with  Gotti and American Animals appears unsuccessful, requiring capital and looks likely to trigger short-term losses.
   Some final observations: The accelerating monthly losses to a staggering $45 million may be seasonal, due to the peak summer movie period, but still shows growing the MoviePass subscriber base simply creates more buckets of red ink.
   MoviePass/HMNY has suggested that it would create new revenue streams through diversification. But expanding into moviegoer research, advertising (Verizon/Oath handles digital ads on its MovieFone website), loyalty programs and film distribution all require creating additional overhead. Yet few visible signs of activity are evident so far on those fronts. Meadwhile, HMNY keeps selling newly-issued stock at ever-decreasing prices to cover red ink.
For full text, click links below; this website’s text is searchable via searchbox at the top of web pages: