We Are Almost There! The End is Near!

Almost every two bit “I told you so” article from second rate sites like Seeking Alpha to Motley Fool have been published. Moviepass has been officially condemned and written off by the financial press. The not dead yet company is still getting thrashed across social media as the hog users who lost their BFF too good to be true service- cry it out across Facebook and Twitter.

I for one will be glad when this is totally over. Come what will, BK, BO, Short Squeeze – Bring it on!!

Is this what capitulation looks like? Maybe.

Is big money moving in slowly here? Some think so. Others think it’s another head fake.

The numbers will tell the story soon enough.

Earnings day will come, new filings on Burn and cash position along with updated sub numbers will tell the story.

If your were in before the RS -the wait will be long and arduous. Or it won’t- and that will be worse.

The end is near! Or is it?

Mitch Lowe Sustainability Media Blitz

Our fearless Moviepass leader Mitch Lowe did a big media blitz focused on explaining how the service is now sustainable.

I have been part of PR tours like this. Mitch did an excellent job. Stayed on Message. Didn’t get rattled by hard questions. He was optimistic, sympathetic to customers, while confident in the business and his team.

The Best Interview of the bunch yesterday was on Cheddar– they hit all the things investors should care about.

Key Points:

  • Profitability predicted 6-9 Months
  • Burn already down 60%
  • New measures will bring burn quickly to zero
  • This is the last of the big changes
  • Utilization Rate was closing in on 1 already
  • Big Media companies have already made a pass at buyout
  • Dilution will ease as Burn goes down – first time this has been directly addressed
  • Vague response to spend for content development- alluded to using the base as currency, and that content was important to bringing exclusivity to MP customers
  • Predicted a year from now “the story will be a lot different from survival”
  • Says team is dedicated to proving the world wrong about failed business
  • Still growing like a weed

The stock is behaving like a wounded duck still. This stock gets no respect, it will have to be earned with real numbers now. Fear of management missing targets- Shorts and daily dilution remains the issue.

If numbers get delivered – stock could jump huge. It’s a big IF. Lotto anyone?

Utilization Rate – the $600 Million Dollar Question

Getting usage down for Moviepass is the key reason management made the moves it did this week. Fewer than 15% of MP customers were seeing more than 3 movies a month according to Mitch Lowe, but that 15% had some HUGE users! And those hogs had to be fired.

Smartly, Lowe has now said that the company is going to focus on occasional users vs. pleasing the real big movie buffs who were breaking the system and risking bankrupting the company.

Lowe has stated many times that the average moviegoer sees approximately 4 movies a year, and with Moviepass that number typically doubles to about 8 movies a year.

For most normal people who have busy schedules and are not big movie goers I think that sounds like a reasonable number. People generally don’t change their behavior massively over the long haul. And most people have really busy lives and simply don’t have time to see a movie more than a couple times a month. And inevitably months roll by where you don’t get to the movies because you are busy doing other stuff ….you are traveling, or your sick ….you are visiting your grandma …you are lazing around watching football….or doing Netflix ….playing video games etc etc etc!!

At Moviepass the 80/20 Rule Was In Effect

In any consumer data set you will have a group that skews from the norm. When I was running Product Management for MSN we saw this type of behavior all the time, there would be a group of really heavy users – around 20% – who would consume 80% of the bandwidth of our NB and BB offerings.

Most of you are too young to remember when dial up Internet started the plans were first billed by the hour of usage. Back in those days Internet was slow and relatively expensive. BB prices were insanely expensive. Computing power and internet infrastructure was much less powerful and cost companies way more money. AOL changed the game when they switched their dial up plans to unlimited, it was a huge deal back then. Bigger than MP! People thought it might drive them under. Sounds familiar! Anyway when AOL made that move on a similar premise of MP, the more affordable they made consumptive behavior the more they thoughtful they could monetize via data, ads and commerce –all others had to follow suit. And what all ISPs of the day saw was the old 80/20 Rule in effect. Super users were expensive, but they were deemed to be worth it in order to drive usage and data.

The 80/20 Rule is so consistent in so many different businesses you would be amazed. From banking, to restaurants, to many many others businesses, you can almost always find an 80/20 Rule in full effect. When I owned restaurants – 20% of customers drove 80% of the profits. The “regulars” you call them. If you look for it – you can almost always find it. Sometimes it works for good, sometimes it works for evil.

So back to Utilization Rate. Moviepass essentially killed its 80/20 Rule with the 3 movie limit. Now the other side of the equation on utilization are the no and very low usage accounts. This was always a surprisingly large number at MSN, and colleagues of mine who have worked subscription businesses will all know this. People often forget about their subscriptions, or don’t use them for some extended period of time for any number of reasons. Just to give you an idea how big this is, at MSN we had around 500,000 paying customers on MSN who would never log in for multiple months in a row. This was off of a customer base of approximately 5 Million. And these people were paying $19.95 a month. We would even send the emails encouraging them to use the service, reminding them they had it, and they would not, and they didn’t cancel.

I think we have all done this, signed up for a music service, magazine, etc. I signed up for Gogo Internet when I was flying a lot, but many months I would not use it at all. For me it wasn’t worth quitting and starting it back up again. I just didn’t care that much.

What percentage of folks on MP won’t go in any given month is not clear to me yet. But at only 9.95 a month, and the 9 month wait to rejoin. There is not a lot of incentive to quit if you are going to skip a month or two of movies out.

My guess is the base will see 10% who go dark don’t use their pass at all for 3-5 months. Could be higher but that’s a decent guess. These folks will see higher churn, but the overall number of them will likely stay in

I think 65% will average out to the 8 times a month – that’s double the average moviegoer consumption. This will be the bulk of the customers some will go a little more than 8 a year some a little less, so it’s a average here.

I think 25% will consistently use the full 3 movies every month.

If you work the math on all this you end up with a 1.14 Utilization Rate.

I have added a tab to my model if you are interested in seeing the math.

Could I be off here? You bet your sweet bippie I could.

Should you buy stock in HMNY based on this? Your call.

Should you bet your retirement or college fund on it? Hell to the NOOOO!

Be smart- buy low fee index funds from Vanguard for 90+% of your portfolio.

If you like gambling- and like investing and researching stocks in the dubious pursuit of beating the market. Limit your investment to no more than 2% on any single stock.

Please don’t send me email telling me you lost your life savings on HMNY based on my recommendations. Because if you followed my recommendations you would have lost no more than 2% of your net worth on HMNY, and you would be up overall in from he Index funds that are doing wonderfully.

Thanks for reading!

BTW – I wrote this post -including doing the model-on my deck- on my phone while staring out at this view! So if you find some bad grammar spelling mistakes etc. chill out! As I am certainly very chill here today!

MoviePass Fans Seem to be Accepting of the New Plan

I have been closely monitoring Facebook MoviePass groups and Twitter comments.  Overall the sentiment and acceptance of the new plans have been positive.  I think the new changes will stop the bleeding of subscribers, and consumers are seeing the value and the necessity of the changes for the company to survive.

 This post is representative of most of the posts I have seen.  This coming from the MoviePass Chatter page on Facebook.   The comments are mostly positive on the plan itself.  The negative comments are mostly centered around all the previous changes, and many customers are taking a “wait and see” approach.   Meaning they are not going to cancel their accounts, but they also don’t trust the company and want to see what the experience is like after the changes are implemented.  I can’t blame them for thinking that way.

Another consistent thing I am seeing on the MoviePass Fanatics Facebook page is customers saying they are going to subscribe to both the AMC Stubs Program and MoviePass.   Many of the people on the Fanatics page are very heavy users – I mean these people are crazy about movies and go multiple times a week, so for them having both subscriptions can make economic sense.    This may be the way things play out for the super heavy moviegoers.  $30 a month is a pretty reasonable price for what would be 15 Movies a month, and it will allow the fanatics to see a single film more than once, which for some reason I don’t get, is quite a popular thing to do.

Moviepass is unlikely to hit 5M subscribers this year now, Lowe has already come off that in interviews this week.   That said, I think my model for subscribers may be too conservative if MoviePass can now stick with this new plan.   For now, I am going to leave the sub numbers where they are, but I won’t be surprised at all if those sub numbers need to go up significantly.

New Model with 3 Movie a Month Limit

New Model Here

This was a quick and dirty – easy update.

  • Raised Subscriber Estimate as I think less churn will happen with this new plan
  • Lowered ARPU for Sub based on keeping $9.95 Price Point
  • Help Non-Subscription Revenue to Previous Guidance $4-6 a month
  • Hog Killing drops Utilization dropped to 1.1 – or 13 Movies per year on average.

New Model shows:

  • Breakeven Gross Margin EOY
  • Revenue at $75 Million Quarterly or $350M Run Rate by EOY

Any other company with these numbers would be a buy at HMNY’s Market cap.    But we all know this thing is “special”  in a BAD WAY.

NO MORE THAN 2 %.  — Say it with me!!  NO MORE THAN 2%!!