More Terrible Clickbait From Business Insider

This story is just sort of unbelievable, along with being idiotic. Business Insider has jumped the shark on Moviepass Clickbait with this headline and story.

A passionate army of shareholders has shouldered MoviePass’ massive losses, as its leadership feeds them empty assurances

These kids at BI have no shame. They are basically turning into paid bashers. This story is so idiotic that it is almost funny.

The story conflates and confuses Farnsworth’s comments at the July 23rd shareholders meeting. BI says “While seeking support for measures he needed passed at a special shareholders meeting in July, Helios CEO Ted Farnsworth characterized them as an “army” and stressed that he had their best interests in mind.”

BI references this comment as it were made about shareholders. When it was totally obvious that Farnsworth was talking about the loyal Moviepass subscribers. Remember even in the Hollywood Reporter hit piece there are still 52% of subscribers who are VERY LIKELY to recommend the service. So even if you hate Ted- the guy has a point that there is a big base that still loves the service.

The author goes on to describe the obvious dilution that has happened and the R/S – all of which are now old news. Then makes zero effort to explain the many factors why more shares were needed to be issued, and making no mention of how this dilution could stop on a dime. And how shares could easily be bought back in the hundreds of millions very quickly.

Also no mention of the B/E statements Farnsworth made in the Fox Business News segment earlier today.

These negative one sided articles are all about driving clicks. Covering all sides, ensuring multiple perspectives, none of that matters to Clickbait farms like Businesses Insider.

Business Insider is a fake news organization founded by a Wall Street convicted SEC banned personality.

Done trust BI – they have more misses, half truths and flat out biased coverage than almost any other online pub.

Model Update Post CEO – Ted Farnsworth Fox Business Interview

In Today’s Fox Business Interview CEO Ted Farnsworth claimed that the Moviepass subscription businesses is now break even.

Specific numbers Farnsworth claimed in the interview.

  • Utilization Rate is now at .9
  • Approximately 10% of yearly subs quitting.
  • Did not give monthly sub retention rate.

If you believe Ted’s #’s – and the prior numbers given for non subscription revenue – it does appear that the company is very close to breakeven. And on the sub basis alone, they should be showing a positive gross margin. I used $11 for a average ticket price. Which is higher than MPAA estimates.

I dropped the subs to 2.6M and built back up from there.

Here’s the model. Things are looking pretty good!

Fox Business Interview and New Model

Link to Interview on Fox Business

  • Utilization Rate .08
  • 3M Subs Holding
  • Down to $12M cash burn now
  • Changes “will make us profitable”
  • Ted Denounces dilution
  • Say they have 6 month worth of cash
  • 1 Million already switched to new plan
  • Mitch – “New plan gets us to cash flow positive, and when the market starts to realize that the need for capital is declining rapidly I think people..Investors”.  Cavuto interrupts “what’s in it for the customers?”   Damn it Cavuto – let the man answer the question!

New Model – at .8 Utilization and $11ticket price  (highest I have ever modeled) show GM positive.

I am not sure why they can’t just show a profitable month for August now.  Maybe they will?

What I Learned About and From Mark Gomes

One of the great things I have found since starting this blog is that it is a great way to meet new people.   Most of the people I have met are quite interesting, have successful backgrounds, and have a high level of expertise in their respective areas.   Aside from the occasional troll, the vast majority of people that I have communicated with have been great, well-meaning people who simply want to exchange ideas and thoughts about MoviePass, retirement, investing or other topics that I touch on here and there.   Mark Gomes is one of the people I met through this blog.  Mark and I started exchanging thoughts and ideas around MoviePass several months ago.   And as some of the people who follow us know Mark and I did a debate online where we shared our respective opinions on MoviePass and HMNY.

Before doing the debate with Mark, we spoke at length about Mark’s background, about life, about our investing ideas and strategies.   We found that we shared more things in common than we differed.   I always find it interesting that more often than not, if you really try to understand a person and understand their personal journey, you will find that you can find many common threads that bind you.   I found that to be quite true with Mark, as we shared a story of early retirement, the desire to give back something to the world, we both feel very fortunate and blessed with where we are in life, and like any lifetime spent working, we had our share bumps bruises and battles along the way.

One bump that Mark has on his record is a dust-up with the SEC.   Specifically, Mark was served a cease and desist order based on what the SEC saw as a series of pump and dump trades.  Mark settled with the SEC, as part of the settlement he was barred from working in the financial industry for 5 years. (at least essentially barred – you can read the specifics in the filing).  I talked to Mark about this entire episode at length.   I wanted to make sure I was doing my DD before agreeing to do anything publicly together, so I wanted to get the full story from him about what had happened between him and the SEC.

Like any story, there are two sides to the Mark Gomes and SEC story.  Personally, I am not picking sides here, but I do believe that Mark’s side of the story stands up pretty well.   Let me explain a bit of Mark’s history and I will get into why I believe Mark deserves the benefit of the doubt, and further why I believe Mark is a very good analyst.

Mark’s history started out as a grunt at International Data Corporation (IDC) – Funny enough, Mark and I had similar grunt jobs, being essentially fax boys back in the old days when fax machines were considered expensive and essential equipment to running a business.  Mark was savvy and smart enough to start helping out doing research, learning what needed to be done, and eventually climbed his way up to being a very respected senior researcher for IDC and later AMR research.  His career working for those two respected companies lasted for 10 years, from 1994 to 2004. 

Mark then decided to break out on his own.  He has an entrepreneurial spirit, and he could see an opportunity to take his craft and make money providing research to various hedge funds utilizing his knowledge and contacts in the industry.   Mark started a company called Pipeline Data LLC and ran that from 2004 to 2009.  Mark then semi-retired, did some volunteer work.    He also kept busy doing some blogging on Seeking Alpha.

Then according to Mark’s story, he had a close friend who was diagnosed with breast cancer in 2013.    Apparently, this friend did not have a lot of money, and Mark wanted to help her out.   Mark told me he would have gladly just written a check to his friend, but the couple he was trying to help had a lot of pride and did not wish to take any handout.   So Mark offered to do a partnership with his sick friend’s husband to create a new research firm.  Mark was going to do the research work and lead the analysts, and the friend was going to do the website and do promotion of selling the premium research.   Essentially the premium research was early access to Mark and other analysts calls on certain stocks.  The company was named PPT research.

Again, according to Mark, he discovered in 2014 that his partner (the sick friend’s husband) had done some nefarious selloff of the company’s assets without his knowledge or permission, he also found out that his partner had made some errors in clarity on disclosure that Mark felt was going to be bad for the company.   Mark, of course, felt burned by all of this and took steps to back away from the company and start shutting it down.

In 2015 the SEC started an investigation of PPT Research.   They alleged that PTT Research’s disclosures did not properly inform investors of their trading practices/intentions. They also alleged that PPT’s newsletter service was in actuality acting as an unregistered investment advisor (all investment advisors must be registered by law).  That investigation was ultimately narrowed down to determine whether Mark himself was releasing stock reports with the sole intent of scalping – pumping a stock’s price up to profit by immediately selling the shares at a higher price.

As part of the investigation, the SEC requested every article Mark had written and compared them to the nearly 5,000 trades he had made.  He was also hauled in for an 8-hour deposition at the SEC Miami office.  In total the SEC looked at approximately 400 different stocks were involved.   Mark’s attorney warned him that the SEC could seek millions in disgorgements and penalties, along with possible imprisonment in the event that Mark gave any false testimony or information during the investigation.  So Mark was motivated to prove his case! 

Through a long process with the SEC, they narrowed down from the original list of near 400 stocks, down to 4 stocks that were still considered to be in question.   Mark’s lawyer argued that 99% of the trades in question were found to have no wrongdoing.   And that the remaining 4 stock trades in question could likely be explained by coincidence alone.   Mark shared with me that he could have mounted a very good defense for the remaining 4 stocks, and he felt he had documentation and a good case.  Mark explained the few trades in question to me, and I must say, he has the details, timestamps, and good reasoning for why he made the trades when he did, and how those actions did coincide with his research in a way that most traders would accept as ethical.  (Note – I am NOT a trader, I am a long-term buy and hold guy, I don’t trade daily news events, and I only buy a stock if I feel like I can stick with it for many years – so I can’t really speak for how heavy traders would feel about Mark’s work with 100% confidence and conviction)

Mark consulted with his lawyer and ultimately decided that it was a better decision for him to put the matter behind him, settle and pay the approximately $275,00 fine to the SEC.

The logic was that it could have cost him several times that amount to fight the battle in court.   And when fighting a branch of the US Government, you are battling an entity that has essentially unlimited resources to throw at you.

The SEC is like any government agency, they have a certain number of cases they have to get through, and they basically throw the book at you, and hope to settle.  They want their money, and they want to make it appear as if they are getting results.  So you are best to stay out of their crosshairs.   Mark learned a lesson on all of this.   And you will see how very careful Mark is on his disclosure statements if you look at his site or any of his material or research.

So like many stories – it helps to hear both sides.  With context, it seems obvious that it would not be at all wise to write off Mark as simply a pump and dump artist with a bad SEC record.   Mark does detailed research, he believes in his methodologies, and he has been schooled and trained by some of the best in the business.  I am confident that Mark is right on his trades more often than he is wrong.  Beyond that, Mark is a decent guy, and impressive in other areas of his life.  He is a world-class accomplished track and field athlete.  He made a dream comeback to win the 400 MeterTrack & Field Championship Masters event while shedding 50lbs in preparation for it.   And he holds the World Record in the event.

I have had the privilege to work with a lot of really smart and amazing people throughout my career.   And IMO Mark stacks right up well with these A Type personalities.   He is very intense, highly driven, and one of those people who you don’t just “turn off”.  They are always doing something, they don’t like to be bored, and their minds are always going.  That may have got Mark into some trouble – that intensity can do that to a person, when you are a fully charged one-man wrecking machine, you have to make sure those powers are used for good and not evil.  I think Mark took one on the chin with the SEC, and I have seen that kind of thing before.   It is not making an excuse for him, and I am sure Mark learned his lessons

I learned a few things from Mark and was reminded of a few things I already knew.  In my passion for Moviepass and the opportunity for HMNY, it would have been better for me to have slowed down and head some warning on the fears of dilution that Mark was banging his fist about.  I knew that the company was going to raise money through secondary offerings, but what I did not know was how wildly negative that market was going to react to those events.  I don’t blame Mark in any way for pointing out the risk of the ATM and the dilution.  And, I don’t believe either Mark or I have the power to materially move HMNY stock over the long term, or the short term.   What I do know, is Mark’s experience and his research told him that the dilution would spook Wall St.   He was right about that.    Mark has called the stock moves & trades of HMNY almost to a tee.   So much so, he is probably on the SEC’s short list of who to go harass over the unfortunate and huge declines that stock has suffered.   I don’t believe Mark has any insider knowledge at all, he was just calling things as he saw them, based on his experience, and his knowledge of Wall St.

I could have found a better entry point to this stock had I been more open to Mark’s viewpoints.

I remain a committed bull on MoviePass and HMNY.   But I sure as hell would rather have started my investment at $0.18!  At this point, I think Mark is wrong on his call to further short the stock.   I think the stock is basically priced to go out of business, and I don’t think that is going to happen.   This stock has been on death watch for a couple months now, but really shows no sign true sign of rolling over completely.

I am glad for having met Mark, and I hope we can continue to talk about stocks, stress test each other’s ideas, and keep doing what we both like to do.

I hope by reading this, you learn a bit more about Mark, and when you see people (trolls) bashing him, you think twice before dismissing his POV.

My hope is that Mark switches over to the bull side of HMNY soon, and we can ride this together to great gains!

MoviePass – Why The Earnings Don’t Really Matter -Yet

 

I spent a good deal of time combing through the earnings numbers last night and then again this morning.   Overall, the loss on GP was bigger than I expected or modeled.   I won’t bother repeating all the numbers here.  Gomes does a fine enough job covering the short view of how the financials sucked.  So if your glass is half empty read his post.    And BTW I am not saying he is wrong on the analysis of the quarter.   What I am saying is that it actually doesn’t matter all that much yet.    HMNY is making the transition to Unicorn status, and that is what matters now.

HMNY stock action is starting to act like a unicorn.  Investors, both retail and institutional are starting to accept that it is going to take a lot of money to build this business to scale.   For unicorns, the name of the game is rapid growth, at almost any cost + the belief that at scale a wonderful business will be born.  MoviePass made solid progress on both of those fronts.  Not as good as I had hoped, but solid progress has been made in the QTR.

On subscriber growth, honestly, I was a little disappointed with the 2.7 Million number.   I really wanted to see 3 Million here as the surprise number.   But, 2.7 Million is not a BAD number, and it does put the company on a solid pace to hit or beat 5 Million subs by the end of the year.   We still have the two most busy moviegoing seasons ahead of us!  We all get impatient I know, but 5 million subs in the period of about 14 months is a crazy good number.   That is unicorn growth.

On the front of creating a wonderful longterm business at scale, I like what I see.   The advertising business is just scaling up now, and it was frankly too early to have a lot of traction early in this QTR on ad revenue.   That said we did see some real revenue here at just of a million bucks, and we have 3 real paying customers, who must have spent a decent chunk of change to get that number over a million.  The completion of MovieFone acquistion happened in the QTR, and don’t forget that this gave MoviePass access to Oath’s huge salesforce.  Also of note, MovieFone announced the decommissioning of their standalone app to be integrated into MoviePass just this week.   So there is a lot of good progress in building up an advertising business to take advantage of MoviePass as it continues to grow and scale up nicely.

The news was less good on Utilization rate, and hence this made the financials look worse.   The explanation for this is the immaturity of the customer base, and the new safeguards and limitations were not yet in place.

The maturity of the user base is key to utilization, if you have had MoviePass for more than 5 months you know exactly what I mean.  At first, you ride that new bike like the shiny awesome new toy it is.  You make love to it like it was your hot new GF or BF.   But like all new things, after a while, it becomes an old thing, and you calm down and ride it less.   We are creatures of habit, we go back to our old habits, it happens, I have reams of data to prove it.   Buy if you want a great read on how strong our habits are read this book.  It will blow your mind!

So, unfortunately, with strong new subscriber growth, we will experience higher utilization rates for some amount of time until the userbase is significantly larger than new net additions each quarter.   If you take the 350,000 net new ads monthly the company is now claiming, once we get past 5 Million subs, that math for more mature vs. immature subs starts getting a lot better.   There are a lot of businesses that work this way.  This is not something to get overly alarmed about.   Have you ever heard of giving away the razor to sell the blades?   That is what is happening here.

Longs should be relieved that all the jacking around of the offering did not cause any type of serious momentum bust.   The iHeart Radio promotion was in my mind a clear dud.  It didn’t do much, and Farnsworth has now publicly thrown the thing under the bus – stating “somebody talked me into it, I will never do it again”.   Chalk that one up to having a bit of a moron leading this thing, and startups doing nutty stuff from time to time.

The great news is that the “one movie once” limit, and the ticket stub submission procedure, did not cause a total subscriber rebellion.   Anytime you can make changes that have a 35% reduction of COGs from your customers, and they still love you, it means your value proposition is very strong.   Add to that, customers say they will willingly pay more, things are looking good on being able to get a revenue model on subs to break even sometime down the road.

Honestly, there has been some pretty stupid shit that has happened with this company and stock over the last QTR, and even with that, the momentum case is better than the short case, particularly at this Market Cap level.   This company needs PR help BADLY!   From the horribly timed 8K, to the late a feeble defense of its stock price from Farnsworth, to the completely insane way they released the QTRLY ER last night and followed up with the PR this morning.   It is just a total shit show on PR.   I mean it is amateur hour at its worst.   In some ways, the company has been successful in spite of itself, and that is because the overall idea is so compelling, and this space was so totally ripe for total disruption.    I continue to believe that Farnsworth is a bozo, but MoviePass needed somebody with brass balls and a bit crazy to make the moves it has.  He is a useful idiot in the MoviePass crusade.   Farnsworth is our very own  Erlich Bachman!   If you don’t know Bachman, you should not even think about investing in HMNY!  It’s not for you!

And so it is, the financials look ugly, the company continues to grow multi 1000’s percentages, the shorts will howl that the company is doomed!  The longs will see the beautiful unicorn.   The stock will start to rise, the shorts will get squeezed, the Wall St. number crunchers and bean counters will pout that everything they learned in MBA school was wrong.   And a unicron will become real!