Incredible Positive Interview Fox New & Maria Bartiromo

MoviePass Investors should be very excited today.    An absolute home run interview with Mitch Lowe & Maria Bartiromo.  She calls it a “Movie Lover’s Dream”.  Says it the momentum is “incredible”

  • Mitch talks about exclusive events with John Travolta at 5 different locations to promote the Gotti film
  • Mitch says multiple 10’s of thousands of new subs yesterday alone.
  • Maria says she is excited to see the Gotti film
  • Maria says that people “LOVE” their MoviePass
  • Mitch reiterates the experience and getting out of cocooning – a new PR message they are pushing

“Oh my god,” he told FOX Business’ Maria Bartiromo during an interview on Thursday. “I think tens and tens of thousands of people have just subscribed since yesterday.”

Folks – you can’t buy an ad this good.  I mean literally, you can’t buy this type of endorsement from a major media show host like Maria Bartiromo.  I was in the business and I can say without a doubt these people will not sell an endorsement like you see in this interview.   Incredible value here!

Mitch is doing a great job in these interviews.  He comes off as personable, excited about the product and the business.   I have done a few video interviews in the past and worked with many different executives in prepping for TV interviews including Bill Gates, it is not easy.  Mitch is a natural.   It is rare to have a CEO leader this comfortable in front of a camera.   A tremendous asset to a young company like MoviePass.

 

Mitch Lowe CNBC Interview – GREAT NEWS!

Mitch Lowe finally broke the silence on the MoviePass news cycle today on CNBC.  Masterfully creating huge attention by bringing back the $9.95 unlimited program.   A beautifully played PR move.  Bringing back what customers love, with limitations now in place that makes the model much more effective.

Watching a film on your phone is a lot less than going to the theater: MoviePass CEO from CNBC.

Key News Bits

  1. $9.95 Unlimited is back – shows fine tuning is working
  2. The share of smaller markets is going up- average ticket price going down.
  3. “Around 30% cost reduction”  This is absolutely key.  30% utilization reduction has a HUGE impact on Gross Margins – Updated model coming soon to reflect
  4. All but one independent theater said “send me a contract” to get a deal done with MP at CinemaCon
  5. Move shows confidence in model- no chance they would reintroduce unlimited if they feared near-term bankruptcy

Just when people were thinking there may not be a strategy here.  It turns out they are working an incredible PR strategy of manipulating the media to stay out front and center and top of consumers minds.   Yes, it seems haphazard, but I believe MP is playing this very smart, they know what they are doing and these somewhat bold plan moves are part of an overall strategy to keep media buzz high.    And it seems to be working!

Want some proof of how MP thinks about PR strategy?   MP and HMNY use PPMG Corp as their PR Firm.   These guys are good at what they do.  They have been organizing the PR blitz for MP since the beginning and looking for ways to leverage and sustain the initial PR Buzz from the first unlimited announcement.     

Data and analytics company Helios and Matheson Analytics purchased a majority share in Netflix co-founder Mitch Rowe’s company MoviePass, allowing the subscription service to drop its fee to $9.95 monthly for unlimited movie theater viewings. The explosive news disrupted the industry as the agency worked with HMNY CEO Ted Farnsworth and MoviePass CEO Mitch Lowe on a week-long New York City media tour and blitz, ranging from top tier national broadcast outlets such as CNN to national movie trade outlets such as Variety. The MoviePass news escalated further when AMC Theaters publicly denounced the service, enabling the agency to prolong coverage and take both companies into another editorial cycle in national and local news nationwide.

So what may feel like random changes, and potential uncertainty around the business model, in fact turns out to be a very organized campaign to sustain the media attention needed to keep interest in MoviePass extremely high.

I have worked on campaigns similar to this, it is not easy to keep the momentum going, CNBC and other big TV News outlets don’t just take anybody on the show.  You have to have news to share, and it has to be something the producers think will be interesting.   MP and Mitch have done a fantastic job here keeping the buzz going, and keeping people talking about MP.   As I have written in the past, these media impressions are worth Millions for MP, it is advertising they don’t have to buy.

Here’s the link to my updated model with the new information today.

Chapter and Lesson #1

Chapter One

 

“The first duty of a human being is to assume the right functional relationship to society – more briefly, to find your real job, and do it.”

Charlotte Perkins Gilman

 

My first Microsoft Job:

My very first job at Microsoft was as a temporary worker or what they had called a “contractor position” it was the year I graduated from College, 1991; I landed a job on the DOS 5.0 sales hotline.  The only reason I got the job was my brother’s x-girlfriend had taken a job at a temporary staffing agency that was placing lots of bodies inside of Microsoft.   Microsoft was growing very fast in those days and frankly could hardly hire people fast enough.  If you had a college degree, a pulse, and could work on the telephone for 8 hours a day, you were pretty much qualified “enough” and you were in.  There may have been a basic typing test involved as well, I have a hard time remembering it all now.  I knew quite a few people who got their start at Microsoft this way over the years.   Many of whom went on to have very successful careers inside the company and out.

It was not a glamorous start.  The specific job I was assigned was taking telephone orders for a new version of DOS, which is short for Disk Operating System.   This particular release of DOS had some new stuff- or “features” as they say in the software business.   The release was notable as it was the first time that Microsoft made an effort to sell an Operating System to retail customers as an upgrade.    So, DOS 5.0 kicked off a big business for Microsoft, selling upgrades of computer operating systems to their installed base of somewhere around 60 Million users at that time.   The installed base of Windows PC’s is in the billions now.

The office park where they set up this temporary sales order desk I was working in was not on the main campus of Microsoft. It was about 3 miles away near downtown Bellevue in a nondescript office park called “Ridgeway Campus”. Microsoft had taken a lease there and occupied 3 of the buildings.   Pretty much all of the employees in these outpost buildings were temporary or contract employees.   They did not officially work for Microsoft.   It was mostly a bunch of young kids in their early 20’s getting a start in the job market.   The only “benefits” offered with the job were free soda and a pretty nicely stocked kitchen with decent snacks.   I remember that pretty well because I was coming off of being a starving student, and while I was only making about $5.50 an hour with no “benefits”, I thought it was great that I could drink a lot of free soda and eat a LOT of free snacks.   For the temps, it was always clear that you were a 2nd class citizen of Microsoft, there were no health benefits, stock options, gym memberships or any of the respect shown to full-time employees, but you did get the free soda and snacks, and the people were generally nice enough.

It was a good place to get some experience in the business world when you were fresh out of college with no real prospects.  The job market in 1990 was not very strong, and it was particularly slow in the Seattle market.  I was just happy to have a job.

My days consisted of sitting in a very small cubicle all day for my 8-hour daily shift. The workspace was really too small to even call it a cube; it was more like one of those long row desks that you see at a library with little privacy walls in-between each sitting area spaced out at about every 3 feet or so.   It was adequate space to get the job done.   And for the most part, it was all young kids who were just out of school and it was not all the different than studying in a crowded library.  Everyone there was just looking to make some money, get some experience and move on.

I, and the group I worked with actually had a lot of fun doing that job.   I remember that we had a script which we had to follow when we answered prospective callers.  We were told to answer the phone saying.  “MS-DOS 5, No PC should be without it!  My name is “Bob” how I can help you!”    To entertain ourselves during the day we would make up fake names and accents when we answered the phone.  The guy sitting next to me was hilarious, he would do an entire call with a very deep southern accent.  He would answer the phone using this long drawn out southern hillbilly sounding accent, “M…S…..D-O-S ..FIVE…, No dang PC should go without it, this is Alligator, how the heck can I help ya!   He would keep it up for several calls in a row.  His hijinks encouraged us all to come up with our own characters.  You would never know who was going to use what character next, it was like a zoo at times.    It was fun having a job where you could have some laughs and goof off a bit.

About half the time the customers calling in had absolutely no clue why they needed or wanted this newfangled DOS 5.0 operating system.  Luckily, we had a script that had some basic features and selling points we could read to persuade these eager callers.   In those days memory constraints were a big deal with PCs.   PCs were not the awesome multifunction devices we think of today, where you can play games, socialize with friends, buy anything on earth etc. etc.  PCs were for serious stuff like watching a green blinking cursor and trying to figure out what bizarre command you could input to make the PC do something interesting.  There were, of course, some programs out there like Word Perfect, Lotus 123, and lots of different business apps for the PC, a big problem people had back in the early PC days was literally running out of RAM memory and the program you were using would just stop working.  So, DOS 5 had a memory saving feature, it also had an undelete feature for the first time, and was the first time that DOS was sold as an upgrade.   This dorky video was made for training salespeople and the retail sales channel.   Watch it for a good laugh…  https://www.youtube.com/watch?v=dmEvPZUdAVI

Funny enough, none of us in this sales group actually had a PC at our desk and almost nobody really had a PC at home in those days.  So, we had pretty limited knowledge of what it was we were actually selling.   Microsoft did provide PC rooms where you could go and learn more about PC’s and the various programs.   That would prove to be very valuable to me as I would spend my break time and time after work playing around with the PC and with various programs, as I was naturally curious about how things worked and figured it would be useful for me to actually know what it was I was trying to sell.   I learned some pretty decent PC skills in those labs, and it turned out to be very valuable later on as my career started to blossom.

Oddly, none of us had PC’s at our workstations, PC’s were still very expensive, and networking them together in a meaningful way was just starting to take off.  So, while we were on the phones we used paper forms to fill out orders as they came in, and we read our sales scripts straight off of good old-fashioned paper.   At the end of the day, we would pile up all the orders we had taken and put them into a big bin, where somebody would plug them into a PC and I never knew what happened after that… To me, the day was done, there was no homework, no stress thinking about the next day, no worries, I just clocked out, and went home to have fun, play a game of tennis, or do something fun with friends.  There was no evening email to check, and there was no sense of things “piling” up at the office while you were away.  It was a nice way to live.  Even if I was still living like a poor college student.

The DOS 5 job was a short-term assignment, it lasted just a few months my first summer out of college.  I was offered a fulltime job at the end of that contract to work at Microsoft’s inside sales call center.  Incredibly and stupidly, I declined the offer, for two reasons.  First, I thought the work was pretty damn boring, so signing up to do inside sales of whatever the next version of DOS was going to have seemed like a great way to kill myself with boredom, even if it was relatively fun and easy, I could not imagine signing up for 2-3 years of that kind of work.  Second, I had another offer on the table for a couple thousand dollars more, and I wanted to buy a car!  Microsoft offered stock options, but I thought those things sounded like total bullshit!  J  In my idiotic view, I needed some cash now for a new ride!  So, I took a competing job at a small airplane parts manufacturer in South Seattle and proceeded to waste about 2 years of my life selling specialized plane tools to airplane manufactures and airline repair shops.    It was a bad move, of which there were others to follow…

Learning Lesson #1 – For those who are early in career – Always think long-term when making a job choice!   The best thing you can do is find an early stage growing dynamic company, start anywhere they will have you, & create your own luck by working hard & being at the right place at the right time.    For my part, I could have listened to the many people who gave me this same advice, but I first chose a less than mediocre company that was going nowhere so I could make a few extra bucks in the short term.  THAT WAS A DUMBASS MOVE!  And it probably cost me several hundred thousand dollars in lost opportunity and stock options!!  Uhgg!

Helios & Matheson Has Become VERY Expensive to Short

5/3/2018 Update:  Schwab is now paying retail 35% for Hard to Borrow on HMNY.   That makes shorting even worse than article below.  

 

The owner of MoviePass, (HMNY) has become extremely expensive to short.  (HMNY) has been put on the hard to borrow list at Charles Schwab. Meaning, there is a low supply of shares available to short for HMNY stock, so Schwab is making a market for more shares by paying retail investors a very high-interest rate to borrow their long shares.

I have personally confirmed with Charles Schwab that they are paying an incredible 29% interest to long shareholders of HMNY.  More incredible, this is ONLY ½ the interest Schwab charges to institutions for the shares. Schwab splits the interest charged to institutions with the retail investor 50/50.  This means that some large hedge funds are paying an incredible 58% interest to short HMNY. (Note: this rate can change daily, the rep at Schwab was very careful to point out the rate can go up and down quickly based on Schwab’s demand for the shares)

Schwab offers this program to retail investors via their Securities Lending Fully Paid Program. This is a little-known program that only some big brokerages offer to retail investors. Ameritrade, for example, does not offer this program at all.  The program offers the opportunity for retail investors to loan out their long shares for shorts to sell. Essentially the long shareholder is paid interest for the period of time the brokerage borrows the long shares for big hedge funds who want to sell the stock short.   

It is a little tricky to wrap your brain around how risky this is for hedge funds.  I am going to try and explain the math here, to give you an idea why a hedge fund would make such an expensive and risky bet.  I will also show you how this can backfire badly for shorts, potentially causing a short squeeze.  

First, let’s look at how expensive it is for Short Sellers of HMNY to pay the brokerage fees when the Hard to Borrow rate is at 58%.   For this calculation, I used Ally Financial’s calculation

Current Stock Price 2.28
Number of shares short 100,000
Hard to Borrow Rate 58%
Current Industry convention 1.02
Market Price * Current Stock Price 2.3256
(Per share collateral amount) x (share quantity) $300,000.00
(trade value) x (annual hard-to-borrow rate) $174,000.00
(annual hard-to-borrow fee) / (360 days) = Daily hard-to-borrow fee $483.33

What this calculation means is that a hedge fund that wants to short HMNY 100,000 shares has to pay $174,000 a year to fund that short at the current broker fee for this “Hard to Borrow” stock.  Or put another way, they must pay a daily fee of $483.

Put this in perspective.  If HMNY were to essentially stay flat to today’s trading price of $2.28 for one year, and the short position was not covered, the hedge fund would lose $174,000.   By comparison, a long holder of HMNY would have zero loss, they would still own $228,000 shares of HMNY, and if they were with Schwab, they could have collected 29% interest on those shares amounting to a $66,120 profit.

Of course, if the stock of HMNY starts to rise, the potential loss for a short seller could theoretically rise to infinity,  There is no cap on the potential loss amount for shorts.

A scary proposition for shorts, even a small rise in HMNY could have devastating losses.  Consider if HMNY rose just .50 in share price to $2.78. That small jump in stock price would make that 100,000 short buy immediately $50,000 under water.  The math on that is simple enough. 100,000 shares * $2.28 = $228,000 for shares sold short. 100,000 shares * $2.78 = $278,000 to Cover. The difference to cover the shares is owed =$50,000.   This is already a significant loss. But the loss gets much harder to take when you add in the brokerage fees for the “Hard to Borrow” shares. If the short tried to hold on for the entire year – it would mean the total year’s loss would be $174,000 (for brokerage fees) + $50,000 (Cost to Cover) = $224,000.   In this case, by comparison, the long investor would have 100,000 shares at $2.78 per share. Or a total investment now worth $278,000 on their $228,000 original investment – a $50,000 gain.

 

Now, why might any firm or person take on such a risky short play.  The answer is that they believe the stock will be further pushed down in the short term and they can play the stock for a short-term gain on that downward trend.   Here’s an example of how that can work in favor of short-term short sellers. Take our example again of 100,000 shares. The daily cost of holding those shares short (Daily Hard to Borrow fee in the above table) is $483.33.   Now let’s say that a short makes a short-term bet for 5 days and the stock price goes down -12% or .2736 cents. If a short covered that decline and took their profits – that cover would gain them $27,360. (use same formula from above).   While expensive, the 5 days of “hard to borrow fee” would be 5 (days) * $483.33 (daily hard to borrow rate) = $2416.65 for 5 days. Netting that short 5-day trade a nice profit of $25,213.35. Not bad for 5 days!

 

So you can see, the folks shorting this stock, desperately want the stock price to continue going down.  Now here’s the rub. HMNY has a very small amount of total float of their 53M shares outstanding and has a very small market capitalization of only $120M.  This makes the stock volatile. It is a flea-sized stock, and it trades more shares in a day than many companies 100 times its size. Any piece of news can send the stock swooning or jump depending on the news – good or bad.  If a significant piece of good news comes to light the stock could quickly jump up, it could force short sellers to try and cover their outstanding short positions to minimize their losses. With such few shares available to cover, the shorts could be forced to pay very high prices to get out their positions.   

Here is a list I have of things that could surprise short sellers and cause the stock to jump up.

  • Completion of control of MoviePass, Ending the Proxy Ownership Problem, Changing the Brand Name of the Company, Changing the ticker of the stock symbol to MVP or like name,
  • Announcing a partnership with a major theater chain like Regal or Cinemark
  • Announcing a distribution deal with a major partner like Verizon
  • Announcing a surprise subscriber number increase
  • Announcing updated financial results with better than expected earnings – or smaller loss than expected
  • Having either of the MP Venture films score big at the box office
  • Any rumor of a potential acquisition

On the downside – shorts could be helped by these developments:

  • Worse than expected losses
  • Sub numbers not as strong as management has forecasted

 

I am bullish on MoviePass’ business model over the long-term.  Please see my model and my other posts on www.bobvisse.com to see why I think the recent narrative of MoviePass not being able to sustain itself is a bad bet.   

 

In summary – shorts stand to lose a lot of money even if the stock price for HMNY remains flat.  At this price, it makes way more sense for HMNY investors to remain long. Any positive news event could send this stock into significant short squeeze.