After watching this most recent YouTube video of Mitch Lowe being interviewed specifically on details around MoviePass’s ability to survive, I kept thinking to myself how ridiculous it is that the valuation for HMNY is so incredibly low.
As the interviewer points out in the video. MoviePass is essentially priced like a company that is going out of business. Mitch does an excellent job defending the value of MoviePass. If you have not watched the video yet and you invest in MoviePass/ HMNY, I highly recommend viewing it in its entirety. At one point in the interview, the guys both get real and fully acknowledge there is some real value in what MoviePass has accomplished to date. It is damn hard to get 3 Million people to hand over their credit card and say “bill me” every month for a service. There are a LOT of companies that will find this group of consumers very attractive. So if it comes down to is there value here, in the case of potentially an acquisition, the answer is clearly YES!
Also, it was clear, that if MoviePass wanted to turn profitable in a hurry, they certainly have to the means to do it now. Mitch revealed 12% of the MP users represent 40% of the cost. With Peak Pricing now coming, it will be fairly easy for MoviePass to essentially kick heavy users out, or tax them to a point where they are no longer a problem. As I have said for a long while, MP has all the levers it needs to control its own destiny, and it seems clear that they are intent on doing so.
It has been such an odd situation to watch the value of HMNY/ MoviePass drop so low while other private and public Unicorn companies continue to raise money via VC capital and debt financing, And do so at incredibly large valuations. I felt like it would be a worthwhile exercise to look at some well known Unicorn companies and compare some key data points. These companies share a lot of similarities, they are building disruptive new business models at large scale, they are competing with entrenched incumbents, they are spending capital and incurring losses to build these new businesses.
The numbers here are a little rough, I scoured the web to get as accurate as I could, and because all of these companies are growing very fast, and they are either private or just recently public, it is hard to get precisely accurate data. I think what I have here is reasonably close for each company, and it works well for comparison to MoviePass.
If you look at the comparisons what will jump out to you is a few things. First, the market is currently valuing MP at almost nothing, it is assuming MP is going out of business. As I have said before and will say it again, MoviePass is not going out of business, and they are NOT going BK. Second, while it may sound scary when we here about the need for potentially over $1B more of capital to get MoviePass totally off the ground, by comparison, MoviePass has built a great revenue stream on relatively little capital thus far, way less than many other Unicorn companies. And the total expenditure of capital is certainly not out of line with others who have market caps that are very generous. There is also the constant fear of dilution that overhangs the company. Will they really need to issue a billion shares or more, swamping the demand side? It is possible that these fears, even if irrational, and only temporary could continue to depress the stock until the company shows a more clear line of sight to breakeven, or the sentiment for the company and its stock improves. Those two things could be integrally tied together as well. Only time will tell.
When looking how far the comparisons to other Unicorn diverge, it doesn’t make much sense, and I fully expect to see some revision to the mean here. By that, I mean that I fully expect to see MoviePass move up closer to the valuation of other Unicorn companies within some reasonable timeframe. I believe that this will likely happen toward the end of this calendar year, or sometime into the spring of next year. I am not predicting any specific price, and this reversion to the mean could take longer. However, I firmly believe the market is rational in the long term, and these great divergencies won’t continue.
Of course, you could also argue that these Unicron companies themselves are seriously overvalued, (many do believe so) and we could see valuations move more toward MoviePass. I don’t believe that is going to happen, at least not in any major move. This is different than the old Dotcom blowout of the 2000’s, these are real companies, and they are creating real value in what they do. It is the incumbents who need to worry more than any other group. Old firms like Merrill Lynch will be disrupted by new entries like Robinhood. Taxis and other transportation companies will be disrupted by companies like Uber and Lyft. Theater chains like AMC will be disrupted by MoviePass. etc etc.
Here is the link to some interesting data and comparisons looking at ARR’s, VC Funding Totals, Accumulated Loss Estimates, Market Cap Evaluations and a few more things. Take a look yourself, and ask yourself, shouldn’t MoviePass be worth more than a single Costco store?
If you don’t want to click to the sheet – here is a embedded one. Sorry I could not get the formatting to work perfectly. Again, you get what you pay for!