Mark Gomes the now infamous HNNY short -who BTW is a great guy – called the Moviepass wipeout every step of the way. Some would even argue that Mark helped accelerate the massive short sell that HMNY suffered. But I think the reality is HMNY and Moviepass suffered more from self-inflicted wounds.
Gomes has largely left the stock behind now and leaves a possibility that the stock could recover if it made certain moves to limit usage and become more of a niche play. In a recent videocast, Gomes stated that he believes HMNY could jump around wildly because of its very small market cap. He also stated that during this period after the big blockbuster season there was much more wiggle room for the company to manage its cash flow. Mark seems to have very low conviction that HMNY would end up bankrupt.
On message boards like Stock Twits, The number of confident shorts also seems to be going down. Both Message Volume and Sentiment ratings are rising as the stock stabilizes.
HMNY was sent to the “Dead Pile” of Wall Street primarily because the model they concocted did a lousy job of predicting how much usage and abuse a small number of customers could inflict on their overall business model. The company did not predict some customers would use their passes simply to use a clean bathroom in New York City, or to find a place to take a quick nap while escaping from work. Put simply Moviepass was being abused by customers – but it was part of the deal and there was little the company could do unless they backed off their original unlimited promise. The company was forced to change its ways to eliminate both abuse and fraud to stay alive.
Now that the abuse has been all taken care of things are starting to look brighter for the company and the stock is starting to stabilize.
Certainly, damage has been done to the brand, and that has been well covered over the past several weeks. But what remains is likely still a valuable asset. If the company does manage to avoid bankruptcy, the minuscule market cap that exists on the stock today will likely create opportunities for the stock to go higher.
It appears that the company is slowly restoring service availability to acceptable levels. More movies and times are being added, and many on social media are coming to the defense of the company and the new policies.
Tomorrow I will write more on how HMNY management could drive a serious recovery to the stock. Including:
Possible Stock Buyback and why it would make sense
Why an earnings surprise could be a massive boost to the company
Why I think most outstanding share count estimates are off, and how that makes the Market cap for this stock lower than many think
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If you buy things you do not need, soon you will have to sell things you need.
Once it became clear that Microsoft was going to win the web browser wars against Netscape, it became less and less clear what to do with all the resources and the people that had been built up to fight the war. By 1998 the DOJ was fully engaged in trying to dismantle Microsoft’s power over the PC industry and put an end to the aggressive tactics used by Microsoft to beat down competitors like Netscape. The browser wars were being used by the DOJ as a prime example of how Microsoft played unfairly with their market dominance of PC operating systems. Ballmer’s famous “Ham Sandwich” quote, where he said that Janet Reno (the Attorney General in charge of the lawsuit against Microsoft) had it all wrong and that if Microsoft wanted to integrate a ham sandwich into Windows it was within their rights. That quote highlighted the arrogance of Microsoft back in that day. Microsoft employees were riding high, the stock was booming, lots of people were getting very rich at the company, Porsches, Ferraris, Hummers and lots of other expensive cars lined the parking lots.
I remember one day three of the top managers of the IE Marketing team went out and bought brand new Porsche 911’s during their lunch break. They were young guys, making a ton of money, on top of the world. The machismo and bravado of that group in those days was unstoppable. Looking back now, it all seems completely out of hand and foolish. There was one guy, who for a short period was my boss, who had bought a brand new BMW in the early 90’s with his Microsoft stock options, he regretted it for many years to come, he had a spreadsheet where he would track how much the stock would have been worth had he held on to it. At one point he was the not so proud owner of a BMW 3 series sedan that had cost him well over $1 Million in lost opportunity had he only held onto his Microsoft stock.
In 1998, the stock was continually reaching all time new highs. Money and stock options were flowing like water to middle managers and above. The top brass already knew that it was the beginning of the end of the “best of times”. Mike Maples the head of HR and Steve Ballmer had already started cutting back on the big elaborate parties– in an effort many folks internally coined the “Shrimp to Weenies” set of cutbacks. Made famous by the infamous Mike Maples memo sent to employees back in 1993.
Unfortunately, most of the rank and file were blinded by their fast made money, and many thought the party would never end. In reality, the company was getting too big to have all the lavish benefits and elaborate parties that could include all the new employees. Microsoft was famous for their massively extreme Holiday parties. These parties were blow your mind type events, where they had real A list rock bands, mountains of fresh shrimp, open bars, magicians & entertainers, chocolate fountains and anything you can think of that would make for the most insane party you had ever witnessed. It was a sign of the times, and all that exuberance led many people to think the party would never end. It did.
It was hard to predict back in the mid-1990’s, that at the end of the decade Microsoft would hit an all-time high — closing at 58.71 on December 23rd, 1999. (Split adjusted- I think there may have actually been a daytime high of near 120, but can’t recall exactly. The next decade would prove to be much more difficult for Microsoft and the stock.
The beginning of the new century was not great time for Microsoft. The stock plummeted off the high it had hit in 1999, by the end of 2000 Microsoft had lost more than half of its value. The .com bubble had burst, and a big tech slowdown was on underway. Microsoft had benefited both from a PC purchasing cycle that was completed for the big Y2K computer glitch scare and booming sales of PC’s from the big dot-com boom. The potential Y2K glitch had many companies scared to death that their systems and software would not be able to handle the year 2000 with their various business software programs. For some reason, when many of these systems were built in the late 1900’s the engineers did not look out far enough and plan for the flip of the date to the new century. Going from 1999 to the year 2000 would break many different programs, some of this was because many of the systems relied only on the last 2 digits of the year. Going from 99 to 00 as the year could cause a lot of potential problems. Because of this, many companies decided that not only would they need to make sure they fixed these software problems, they would also take the opportunity to upgrade a lot of their aging infrastructure. This pushed a lot of tech spending forward, and helped to contribute to the overall bubble in the tech space.
Additionally, In the few years leading up to year 2000 there was a general euphoria around almost every new .com company. Dubbed the Dot-com bubble, Silicon Valley was funding startups based only on an idea and a name. You didn’t even need customers and revenue was an afterthought. It was a moronic time, and everyone thought their idea was going to work, no matter how stupid it was.
As the bubble burst, employees across the tech sector lost millions in “paper” wealth, watching their stock options evaporate into being worthless paper and never returning.
Stock options – are a right to buy a specific number of shares of your company’s stock during a time and at a price that your employer specifies. If that stock is going up fast, you can make a TON of money very quickly with Stock Options. Options were the crack that fed Microsoft employees for many years. When the bubble burst, it was devastating to many at the company, and it started to change the culture of the company dramatically.
From Microsoft’s IPO in March of 1986 all the way up to the year 2000 all of the employees were being lifted by the rising tide of the stock price. It was not at all uncommon for secretaries or administrative assistants to become overnight millionaires. People did not have to knock themselves out, or others at the company to make great money. Making the stock go up was a unifying mission that everyone was benefiting from, the lowest level mailroom employee to those in the C level suite were in on the game. Unfortunately, when the stock run ran out of steam, intense infighting for the fewer available rewards started to set in. It was a long dark decade in the halls of Microsoft.
For me personally, I went from being a paper millionaire to much less than that in a very short time span. It was personally painful to see options on paper that were once going to be worth a lot of money turn into worthless numbers on a spreadsheet.
I still felt very fortunate, however. First of all, I was lucky to keep my job in the tech industry at that time. When the bubble crashed and many Dot-com companies went bankrupt, a lot of people lost their jobs entirely. I still had a good job and was still moving up the ladder, so I was thankful for that.
I also had a lot of friends at Microsoft who had implemented a “buy and hold” exercise on their stock options. This was a way to leverage options where you could essentially take a margin loan when you exercised your options and “hold” the stock you had that was previously just an option to buy it. This was an extremely risky thing to do, think about taking out a huge loan to buy shares in a single tech company – hoping that the stock will continue to rise. What many employees did not understand was using loan debt for leverage works aggressively both on the up and downside for stock gains and LOSSES!
If the stock goes up, doing this type of strategy is very rewarding. However, if the stock goes down, you can lose a lot of money very quickly. Without getting too technical, a very bad thing can happen when you buy and hold stock utilizing loaned money from your stockbroker. If the stock goes down dramatically, you can receive what is called a “margin call” from your stockbroker. Basically when you receive a “margin call” it means that the broker who loaned you money to buy shares of the stock is now forcing you to either sell your remaining shares to cover your losses in the stock or put in more cash to hold the borrowed shares you have in your account. The broker does this because they have certain requirements for the dollar amount of stock you must have as collateral for the loan they have given you to “buy and hold” your stock. This can result in forcing you to sell your shares at a very low price, just to pay off the loan you had for the stock. The result for many people who did this at Microsoft was that they went from being paper millionaires to being totally broke.
For many people, they were even worse than broke, they were in debt because of this strategy. Not only did they lose all the value of their stock holdings, they also ended up with big income tax bills on the income realized from their exercised options that were used to “buy and hold” their stock using those margin loans. Unfortunately, to the IRS, it didn’t matter if you suffered big losses on your stock after it was purchased on a margin loan. As far as they were concerned, when you exercised your stock options, that was a taxable event. They still wanted to be paid on the gain of the stock option. So a lot of people suffered a double whammy when they had margin loans called from their broker, causing them to lose most or all of their stock money, and they still would have a big tax bill, with no money left to pay it.
I knew quite a few people who went from being paper millionaires to bankruptcy in a matter of only months. Merrill Lynch ended up getting sued for the practice of recommending the strategy. It was heartbreaking to see friends and colleagues lose all their wealth in such a short timeframe, all while betting on the company that had brought them so much wealth and security over the years. It shook many people to the core.
So while I saw much of my paper wealth disappear in that terrible bubble bursting year of 2000, I never spent any of the money, I dreamed of what it would be like, but I never actually had the chance! Very lucky for me, my career was moving forward pretty well at that time, and there was always at least the hope of a stock rebound. Which finally after many dark years seems to be taking place!
Not long after this time, Microsoft abandoned stock options altogether and replaced them with stock awards. Stock awards are essentially a form restricted stock in the company, they work exactly like regular stock, but you are restricted on when you can sell them – they vest over a period of 4 years where you can sell them as they vest, they were much better suited for a slower growing company than stock options. Microsoft was becoming more like IBM, a solid company with no debt, an increasingly diversified revenue stream, much of it coming from enterprise customers on multiyear agreements.
The executives knew that the days of rapidly increasing stock price were over. They still wanted employees invested in the company, but they saw the damaging whipsaw effects stock options could cause, and the tax consequences of stock options were also starting to become an issue for the company. So a move to giving employees smaller, yet significant grants of restricted stock took over. Restricted shares work out better for the employees as the stock does not need to move up at all and they still retain their value. And even if the stock drifts lower, they are still at least worth something, whereas stock options are worthless if the price goes below your buying strike price. I ended up with 10’s of thousands of shares of worthless underwater stock options. That was always a big bummer to look at on the employee stock page!
Thankfully, I was rewarded later on in my career with restricted stock that did very well. I have no complaints about how my situation turned out with the company. It took longer than I was hoping to cash in on my tech career and retire early, the learning was valuable, and I enjoyed a lot of interesting things on the journey!
Lesson #7 If you are lucky enough to score some big money from your job Save That Money Like CRAZY!! It likely will not happen again!
If you get rich in your job at a high tech growth company, or any company for that matter, the likelihood is you got lucky to be at the right place at the right time. No REALLY!, you probably were not that great or instrumental to the company’s success. Because you were lucky enough to score some money at the right company, you might get a big ego, and think “I was instrumental in making this all happen, I could repeat this again with the formula I have now!” The reality is that is not at all likely – lightning will probably not strike twice… Save that money like crazy!
Don’t buy stupid shit like cars, boats, vacation houses, etc.. and don’t make a bunch of risky investments. I made that mistake , and I estimate I wasted at least a half a million dollars on stupid trophy purchases and bad business investments. It was idiotic. I bought luxury cars, boats, invested in businesses I knew nothing about. Almost all of it ended up doing little other than burning through a chunk of my savings.
All that stuff will bring you very little happiness, and potentially a LOT of aggravation. Be smart and conservative with your nest egg. The smartest thing you can do is diversify your money, put it into a few different asset classes of low cost Vanguard Index funds, and forget about it, keep working and make more money as long as you enjoy it.
This is not an investing book, of which there are many good ones and bad ones out there. If you have already made your small fortune, go read up on Warren Buffet’s advice on how an individual investor should invest. If you are lucky enough to win the life lotto more than once – say jumping from one hot tech company to another, good for you! For most us, getting that kind of lucky, it is a one-time event! And most never get that lucky! Remind yourself, you are NOT Bill Gates, Elon Musk, or Mark Zuckerberg – get over your bad self. Save your money and don’t be foolish with it! Finally here is some data to prove my point.
The Top 1% is often considered an exclusive, monolithic group, but folks actually rise up into it and fall out of it quite often. That’s because their incomes can vary widely year to year.
Some 11% of Americans will join the Top 1% for at least one year during their prime working lives (age 25 to 60), according to research done by Thomas Hirschl, a sociology professor at Cornell University. But only 5.8% will be in it for two years or more.
As for holding onto this status for at least 10 years? Only a miniscule 1.1% of Americans are this fortunate.
My next move at Microsoft happened fairly soon after I joined the Windows Team, by this time I had delivered some cost-saving measures for Product Support issues, and I had also got some experience working on Windows as a Product Manager handling the details of delivering the retail box of Windows for resellers. It was 1996 and the Internet “Browser Wars” were starting to really heat up. With new urgency around winning on the Internet, Microsoft Executives decided to carve off a team of people to focus solely on battling with Netscape and their market dominant browser Netscape Navigator. I was offered a choice to stay with the Windows Marketing team or move to the new team that would be focused on marketing Internet Explorer.
There was no specific job that was set out, they were going to figure that stuff out later. So I had a choice to join this new “Internet” thing, or stay with Windows and keep working on the “old thing”. This was an easy choice for me. It was obvious the Internet was going to change everything, and while I had been young and dumb in the past, not seeing the future and the opportunities ahead. This time it was so blatantly obvious how big this was going to be, I jumped at the chance to join the Internet Explorer (IE) Marketing team. The guy heading up the IE team was a young up and coming executive named Yusuf Mehdi. Yusuf was extremely charismatic, smart and charming, with incredibly strong marketing instincts, killer intellect and deft PR and public speaking skills. He had made a name for himself with the Windows 95 launch, and he was set up to lead the Internet Explorer marketing effort under the tutelage of Windows Marketing Vice President Brad Chase. Yusuf had a hot job, and was recruiting some of the best marketing people from across the company, he was set up for great success.
A lot has been written about the browser wars, and I won’t bother trying to cover that in any detail here. The browser wars are well documented because of the antitrust case they eventually brought against Microsoft in May of 1998. Amongst the many charges against the company the DOJ claimed.
In May 1995, Microsoft executives attempted to persuade an internet browser software competitor–Netscape Communications Corporation–not to compete with Microsoft and to divide the browser market, with Microsoft becoming the sole supplier of browsers for use with Windows 95 operating systems and with Netscape becoming the sole supplier of browsers for non-Windows 95 operating systems. Netscape refused to participate.
Microsoft unlawfully required PC manufacturers to agree to license and install its browser, Internet Explorer, as a condition of obtaining licenses for the Windows 95 operating system.
Microsoft now intends to tie unlawfully its IE Internet browser software to its new Windows 98 operating system, the successor to Windows 95.
Microsoft continues to misuse its Windows operating system monopoly by requiring personal computer manufacturers to agree, as a condition of acquiring a license to the Windows operating system, to adopt a uniform “boot-up” or “first screen” sequence specified by Microsoft. This sequence determines the screens that every user sees upon turning on a Windows PC. Microsoft’s exclusionary restrictions forbid, among other things, any changes by an OEM that would remove from the PC Microsoft’s Internet Explorer software or that would add to the PC a competing browser in any more prominent or visible way than the way Microsoft requires Internet Explorer to be presented.
Some of the claims were accurate, some were not. And for the purposes of this book, they don’t really matter now.
What was important was that Microsoft had a strong preference for winning. They were aggressive, they hired what they believed were “A Players”, they had a culture of winning. It was sort of just assumed, that if Microsoft was going to go after something with all of its power and will, they likely would win. This was all prior to the DOJ case and settlement. Things were very different in those early days.
My personal experience was one of great learning, fast pace working, and a feeling of teamwork and comradery I would never again experience at Microsoft. Because we had a small team, I was fortunate to wear many different hats and do many different types of Marketing and Product Management jobs in a short period of time. Nothing beats the feeling of winning a big battle and doing it with a team of people who work well together, who you genuinely enjoy working with. Yusuf and Brad were both great leaders of that team and effort, and they had a great set of people they pulled together from across the company and industry to decisively win.
It was tons of fun- the most I ever had while working anywhere. If you are competitive, being on a winning team is super important. There’s a reason that great athletes late in their career only want to play on teams that have a shot at winning a championship. After they get all the money, fame and respect of being a great player, they realize, nothing compares to winning.
Learning Lesson #6 It is better to Play Backup on Winning Team than be a Starter on a Loser. I think this holds in business and beyond the business world. I would rather be a group manager at Facebook than an Executive VP at MySpace. I would rather have the 3rd spot at Wide Receiver on the Super Bowl team than the 1st spot a team that didn’t make the playoffs. Winning is fun! Losing sucks. In business losing is fatal. And when working in technology it is a horrible and thankless spot to be in.
I spent time on several winning and dominant teams and a few real losers at Microsoft. Windows, Windows Server, IE, those were great times. MSN, and a lot of my time on Bing, well, those were often very tough times and not nearly as fun.
If you know you are on a loser, try and find a way to get traded, or move to a winner as fast as you can. Sitting on a sinking ship is thankless, and no matter how much your boss, your co-workers, or your employees seem to need and want you to stay on. DON’T DO IT! Play for a winner, even if it means stepping to a lower level position to get on with a winner. I can’t tell you how many people I knew who left their loser group at Microsoft to go to an obvious new leader – be it inside or outside of the company – and made great things happen.
Staying too long on a losing battle is normally a case of you getting caught up in your own ego – thinking you can turn it around, or you feeling like you are more important or capable than you really are. Just like the stocks you may own where it is almost always better to kill your losers and keep your winners. You should do the same with jobs if you know you are on a losing team get out. It is a simple strategy, but hard to follow. I followed the strategy reasonably well, but I wish I had done it even better.
The Clickbait machine called Business Insider has struck again. This time with a headline that is almost incomprehensible.
“MoviePass is trading at just 2 cents a share, but investors are still piling into bets it’s headed to zero”
I won’t even link to the story here because I don’t want to help them get clicks.
But I will say that Business Insider has hit a new low in financial journalism and a new high in creating fake news.
On a day where HMNY is green, and the market is mostly down, BI somehow finds the time to write yet another hit piece on Moviepass.
At this point you absolutely have to be asking what is the motivation here?
For those who don’t know Business Insider is run by Henry Blodget. Blodget is notorious for being banned from any involvement in the securities business because of his fraudulent pump and dump analyst coverage in the dotcom era. He was fined $2 Million for disgorgement.
This guy is about as crooked as they come. He was writing public buy reports on companies while recommending selling them to his employer in later revealed emails.
That’s right folks, whatever this guy writes, he probably is thinking the opposite.
So if the most recent article from his little fake news Clickbait machine seems a little odd to you today. Maybe that background might help.
Business Insider has been consistently gunning so hard against Moviepass and HMNY. Why? Ask yourself – what is their motivation? No other publication has written anything on HMNY for 4 days. The company has largely stabilized. There has been no new news. So why would BI publish an obvious hit piece on the company today?
Maybe their motivation is not in the interest of “saving retail shareholders”. Certainly the CEO of Business Insider has no history of protecting retail shareholders. In fact it has been shown that he has only done the opposite. And that he’s been fined $2 million by the SEC for duping shareholders purposely in the past.