Many have asked for an updated model after the ER this last week. This new model has a lot of tweaks to key variables, and I had to spend some time making the model fit within the specific numbers of the release.
Before we get to the specifics I want to highlight what I posted earlier this week. The specific nitty gritty in the financials really don’t matter all that much for a company that is headed to unicorn status. Subscriber growth and getting to scale are much more important in the phase we are currently in. Mitch understands that crossing the chasm requires rapid and disruptive growth that can challenge and overtake the incumbents of the industry.
Many MoviePass investors have now seen this excellent presentation done by Mitch where he outlines how rapidly changing patterns of consumer behavior and the speed at which businesses with a new disruptive idea that reduces friction and increases consumption of a service can quickly grow into multi-billion dollar companies, seemingly overnight. If you have not watched this yet – and you invest in MoviePass – you owe it to yourself to check it out.
There is a fun part of the video near the last 7 minutes where Mitch takes a shot at AMC, stating they will buy them and change their name. I love it!
The point here is that if you are investing in MoviePass / HMNY and you think you can peg the share price to very specific models like mine, or anyone else’s model, forget it! Mitch and our boy Ted are moving way to fast for that. Whatever you read today in my model, could change with a major move tomorrow from the company. A new family plan, an acquisition, getting a big hit from American Animals or Gotti, or some other film. It all moves to fast to model and tweak in the single-digit percentages. And that is why if you get all hung up on ER’s and all the bean counting with company’s like MoviePass, you will simply get lost, or run over by the train.
Now – while all that is true, there is a business to run, and there has to be enough money around to fund the big ideas and give investors some real hope that this thing won’t just bleed cash in eternity. Ted and Mitch have consistently said they could near profitability at the 5 Million Subscribers mark, saying that would happen sometime near the end of this year or early next year. So with that promise from management, and the need to not party like it was 1999! Here’s a model that can make some claim toward progress on getting to profit. And by profit – I do mean gross profit, not net profit. If you don’t know the difference, you should not be buying individual stocks.
To make this model work I had to take in the following data from the ER into my model.
- Subscribers 2.7 Million (They were not specific on this, but I believe that is the very latest number and is a May number) 1.1 Million new in the QTR – I could not fit this into the model. It actually didn’t make sense with the numbers they have been quoting along the way. So this is something that is just broken in the model – that said, it’s not critical to the outlook and I didn’t have time to figure out why they net addition numbers just did not jive with other sub #’s they have stated.
- Revenue 49.4 Million – Ad revenue 1.2M – I got close here
- COGS 137M – I got close here
- Utilization rate – Dropping to 1.5 on average – THIS IS BIG and it was largely missed by many. (quick rant – HMNY is HORRIBLE at PR – I mean they are terrible, the worst I have seen, even for a startup. So bad that it makes me question who they have working on this and why they don’t just hire me to help them with it. In this specific case of ER – they released all the 10Q numbers in the evening and followed up with a poorly written Press Release the next morning. (NO COMPANY EVER DOES THAT!!!!) Even worse!!! They did a terrible job highlighting the most important new data they had in the release, and that was the super significant reduction in Utilization rates with the new rules and fraud protection now in place. For some reason, they included an excellent graph of monthly cohorts in a multimedia format and had no serious efforts at comments or explanations of the graph! Many investors would not even see the graph as those things typically do not show up in most trading platforms. I mean really, everything about how they execute their basic PR is just amateurish /rant )
If you don’t understand cohorts, and have not studied this kind of thing, it ain’t no big deal. The graph simply looks at what a group of users, based on certain months as the cohort, would look like before and after the changes. You can see here, the drop in Utilization is BIG, and on average it drops down to a 1.5, That’s very good! And I expect to see other – smaller – drops in the future. Both form more anti-fraud measures, and from the user base maturing.
OK!! so I worked all of those factors into this new model. And with all of these new numbers baked in, it actually looks quite promising that MoviePass could still get very close to breakeven
Also for the first time, I added a row for SG&A – I took the $20 Million they reported in the QTR and smoothed it upward monthly. SG&A is a funny thing to play around with, it is largely a variable, and can go up and down based on a lot of management decisions. It is a small part of the puzzle for HMNY, but it was a little bigger than many of us wanted to see, given the company has claimed it does not need to spend money on advertising. No matter, it is real money, and it does need to be watched. And if this were not a product that sold itself, it would need to be watched very carefully. Many subscriptions businesses spend 100’s of dollars per acquired customer. MoviePass spends Much less than that. It is now closer to $55 in SGA per Subscriber. That is not “Nothing” anymore. And if it goes up a lot more, that is new problem to start looking at. It would mean that our WOM marketing is starting to slow. We don’t want that – so get out there and tell your friends about MoviePass every damn day!
OK here’s the model.
And as usual – all my models are on this page.
Final comments and caveats – I don’t get paid to do any of this. If you hate the model – that is fine – you are welcome to build your own!
I do apprectiate comments and suggestions. So keep those coming.
I know MoviePass consumers like to get a lot of bang for their buck. So I hope this gives you some solid friction free advice you can use!
Lastly – I had two nice glasses of wine writing this post, so if it rambled, and got loose at the end, that might help explain it!