And Now for the Spinoff Maneuver

Fartsworth has decided to spinoff!   Is this good for HMNY shareholders?  Is it good for MoviePass?  Is it good for Teddy?  Only time will tell.  Here’s my take.

First, for Shareholders, the spinoff could be good news.  HMNY is now one of the most loathed companies on all of Wall St., with a despised CEO, a business model the media loves to hate, and a ticker that means nothing to anyone, what is left worth saving in HMNY?

For investors, the best chance that HMNY and or the new MoviePass ticker returns some capital to beleaguered shareholders is if 2 things happen.

1) MoviePass finds a solvent way to move forward

2) HMNY actually delivers a decent dividend to shareholders of the new MoviePass INC.

In the PR release Fartsworth tried to include some BS about Zones, and that they had this plan of spinning out companies all along, that is all just total nonsense.   None of that stuff matters, there is nothing left when HMNY spins off Moviepass, everyone knows that.

What really happened here is Fartsworth could not deliver on the money he promised to Lowe and to Moviepass and as a result, they are looking for an amicable divorce.   The story went sort of like this.  Mitch thought he had found a white night in Fartsworth who could fund MoviePass through its planned expansion to get to 5 Million users.   Both Lowe and Fartsworth badly underestimated the cash burn it would take to get there, and both also badly underestimated how fast the service would catch on with such an unbelievable deal.  So as subscriber numbers went into hypergrowth, and cash burn went to mach 10, everyone, inluding Lowe and Fartsworth started to freak out.   Wall Street spooked, knowing that the only way to get enough cash for the experiment was to sell ever more shares.  Fartsworth was either too stupid, or too crooked, or just plain too unlucky to prove to Lowe that he could deliver the goods and make the marriage work.

Lowe was using Fartsworth for money – Not trying to be sexist, but Fartsworth was the sugar daddy, and Lowe was the golddigger.   When the money (or even the promise of money) dried up, Lowe lost interest in his new found friend.   And now the divorce proceedings are on.   Fartsworth could never get that last 8% of Moviepass to own it all, and knowing that all the old guard at HMNY now despises him, and that the folks at MoviePass now basically were done with him, he had to make a move to try and save whatever he could for himself.   Fartsworth also knowing that HMNY was now in the crosshairs of the New York AG, and that the SEC and NASDAQ had had just about enough of his Reverse Split, ATM share dumping shenanigans Fartsworth had to find his next move.

The spinoff could be the answer to Fartsworth’s prayers.   First, it clears MoviePass from all the shareholder lawsuits, AG inquiries, and other nasty baggage from Wall Street.  HMNY can simply spinoff Moviepass, and let HMNY live or die, or whatever – it really doesn’t matter all that much.  Maybe they can find some other bullshit company like Zones to get people excited with, who knows.

MoviePass will almost certainly remove Teddy from ANY operating role at the company, the guy is a total liability, and even he may realize this by now.  Almost certainly Lowe will be the CEO, and Ted will get a sacrificial BOD seat promotion.   Promoting idiotic CEO’s to BOD seats is a well-honored tradition in the corporate world.  Everybody wins, the CEO saves face, the company gets new leadership, and nobody has to admit they were idiotic.  He will be demoted/ promoted to one voting member of several.  He already has his seat, and you can bet that all or most of the other BOD members will treat Ted with all the respect he deserves :-).   For Fartsworth, he can save some face, he can chalk up the spinoff as a great strategic move.  He can stay on as CEO of HMNY until it totally withers to oblivion or they concoct their next Fartsworth scam company.   It is even possible that Ted could step down from HMNY shortly after the spinoff, take a BOD seat on both companies, collect money and call it all good.  Who knows what will happen to handsome Ted.  Jail would be good, but that looks increasingly unlikely now.

Spinoffs are a funny thing.  They can go really great, or really terrible in lots of different ways.   When I was at Microsoft we spun off Expedia, it was great for the people who went with the spinoff, it was not particularly great for shareholders of Microsoft or the employees who were left behind.   Expedia is now a $17 Billion dollar company – long shareholders of EXPD were richly rewarded.

However, There was no dividend for MSFT shareholders, and I can tell you if there were, it would have been a VERY nice thing to have.   Microsoft first spun off Expedia for a measly $75 million in an IPO in 1999.  It then sold the remaining portion of Expedia to IAC in 2001 for $1.8 Billion.   Not a bad return, but shareholders of Microsft hardly noticed any difference, and employees that were left behind were certainly not happy to have missed the opportunity to be part of a successful IPO and big market winner.  That said, IPO shareholders of the original IPO in Expedia did TERRIFIC!  Who wouldn’t love to see the HMNY spinoff of Moviepass see similar results to Expedia?!!

Expedia was in a similar spot to MoviePass when it was originally spun out of Microsoft.   It was losing money, it needed more capital to survive.  It was an innovative idea, in a very new and disruptive marketplace.  Many can barely remember the days of Travel Agents in strip malls, millennials can’t even comprehend travel prior to Expedia, Hotels.com and the like.   However, back in 1999 there were as many people inside Microsoft that thought Expedia would never make it, as there were believers.  That is in fact why they spun it out.  The leaders of the Expedia business inside Microsoft were furious they could not get enough funding and traction from inside Microsoft itself to go after their business plan.   The felt they had a much better chance of finding funding, and investing and focusing on the business outside of the clutches of Microsft and they wanted to be free!

Well – over the long term, the Expedia Management was 100% correct.  The company has been massively successful and has come a very long way from losing millions on tiny revenue numbers inside of Microsoft.   If you had purchased Expedia at the initial IPO, you would be the very happy owner of both Expedia and IAC stock, both of which have skyrocketed over the past several years.   If you had simply held MSFT – you also would have done just fine.  So there were no real big losers in this deal.

So to answer the question, will this ultimately be good for HMNY shareholders.  I think the answer is more likely yes than no.  Getting Fartsworth away from an operating role, and as far away from a CEO seat is a big win for the MoviePass business (and for humanity!)  The likelihood that Mitch Lowe can now take over what’s left of MoviePass and turn it into a good solid company looks much more favorable now.   Will HMNY shareholders get their “fair share” of the new MP INC?   MAYBE!  I mean, it’s Fartsworth we are talking about here so things could get screwed up before the spinoff in any number of ways.   But there are a lot of other VERY interested parties here.  Minority interests do have a say in these things, and with an AG watching, and the SEC and NASDAQ not really wanting to see more bullshit from Fartsworth, I don’t think he can screw HMNY shareholders out of at least some semblance of their fair share of the spinout company MP INC.

So my take, this is likely positive for everyone involved.  Even Fartsworth.  He doesn’t deserve it because he is a liar and he is stupid.  But the rest of the gang does deserve it.   MP customers, investors and employees all deserve a break, and I think the spinoff is the break that helps them all.  IF – and it is still a big IF, Moviepass can find a way to hold on to a couple million subs, and shore up the value prop from here, they could survive and someday thrive.  But there is nothing sure about any of this.  It is risky as hell, and certainly not a risk worth more than 1% of your total portfolio.

 

 

 

 

HMNY Total Garbage Stock- But May Be Cheap

HMNY is a total garbage stock – badly mismanaged with a botched strategy, horrible execution, and totally lame marketing and PR. They have a criminal like CEO who is both stupid and dishonest. They are regularly out foxed and out executed by competitors, and they make it seem impossible to find new productive partnerships.

Add to that that they execute so slowly for a startup you would think they were a 100 year old company.

And finally they have been shedding customers on purpose at a rapid rate. That part is only partly bad. The company was so f’d up they had to fire 1/3 of their customers to stay alive!

Add it all up and this stock is just total garbage and that is why the market pounded the stock to oblivion. I have never seen a bigger shit show for any stock- ever. Pets.com was better than these idiots. Sears was likely better- even into bankruptcy.

All that said – the salvage value of this heaping pile of shit is likely more than the measly $32-34 Million Market Cap range the stock is trading for today.

Rumors of acquisition have been floating. That makes sense. There is value here. Last reported the company had $65M left from its scammathon ATM offering, that now by the grace of god is over. It also slipped out that there are still 2.1 Million suckers still left paying for the almost impossible to use service.

Oh to be fair- I am still a member- and if I use it once a month it has value.

If you value the subs at $30 each (and that’s pretty cheap) that is $60 Million. Let’s say the cash is down to $30 Million left. They probably have at least $10 Million in accounts receivable. That’s $100 Million with zero goodwill and zero value for the tech, patents and TM’s.

A $100 Million buyout is peanuts for any real company. Hell you could just take the cash, milk the subs and give them even shittier service and skim more cash until they all finally quit. It would be worth more than $100 Million.

So yes- this total pile of horse pucky is undervalued as an acquisition target no doubt.

The issue is that this stinker is still run by an idiotic CEO who is a loser, a guy who wants to play in Hollywood with your money. His best asset was that he was able to befriend Mitch Lowe with promises of money to deliver his vision, which of course he could never deliver on. Subsequently, he ruined Mitch’s reputation and drove the entire ship straight into a toxic iceberg.

Will the stock go up from here? Depends on how addicted Ted is to his own crack. He is a big enough sociopath to screw up an acquisition with a poison pill. He does not want to leave his pretend Hollywood job to go back to peddling another loser penny stock. So expect him to continue being a total drag on the stock and a huge impediment to any possible deal. Nobody will want Ted to stick around post an acquisition, even Stupid Ted is smart enough to know that.

So it is no sure thing that any acquisition will happen, but with the price so cheap, and the RS possibly at risk, it could force Terrible Ted’s hand.

Is it worth loading up here? Probably not. Am I selling. No- I am waiting out the 5 years I promised in the past.

Is the Worst Over for HMNY?

There was a very strong market reaction to Ted Farnsworth announcing he had secured $65 Million in “Financing” for Moviepass today. Farnsworth also boasted that Bankruptcy was “off the table”. He continued to state that he is looking for acquisitions and to find new ancillary revenue opportunities.

All this happening at an event called The Grille.

Can we believe Ted this time. Unfortunately, probably not. Ted has proven too many times that he gets confused about what “securing finances” really means. Because the company won’t comment on who, how or why anyone would give them additional financing, it seems very unlikely that there is any new real support. It is possible the company stuck another toxic deal for shareholders with Hudson Bay, and combined with some further dilution from their long running ATM offer they may have $65 Million in the bank. But if the history even rhymes with what we are going to find out about this new round of financing, get ready to find out the worst deal you can imagine for common stockholders. It’s simply the way Ted does business.

If somehow Tee did pull a hat trick and secured a reasonable debt deal, that would be a great thing for the company. I doubt that happened however, as Ted said the company still has no debt. Or maybe they do now? Who knows – this is Ted we are talking about here.

At any rate. The big jump from today is probably NOT going to last, and almost certainly won’t survive another big reverse split. If there is no other news than Ted haplessly announcing more toxic deals with sharks like Hudson, you can forget any long term rally.

If there is new real sound financing. Why would Ted and company not issue an official statement? Why would there be no SEC filing? It makes no sense. Yet nothing at HMNY ever makes sense.

I guess one silver lining. If he does have $65 in the bank now, that is nearly 3X the market capitalization of the company.

Unfortunately, even with all that, Ted will likely find a way to piss that money away faster than you can say reverse split!

I hope I am wrong, history says I am right. I hold my slightly less worthless shares, praying the company will find a way, and get rid of Fraudsworth.

The HMNY Bull is Dead

Ted that little bastard did it again. A 1:500 share Reverse Split.

It’s impossible to say anything other than Farnsworth is a total scam artist.

I am officially done with HMNY and with Ted Farnsworth.

The ONLY hope – and there is pretty much zero hope left now – is that Ted gets sacked- or that Moviepass posts some kind of big surprise.

The chances of either happening are probably less than being struck by lightning.

I now recommend staying away from the stock.

It’s time for me to accept that this stock is a scam. And I don’t want to risk having others get hurt by this scam.

My only advice here is to stay away – even from the lotto ticket idea. You are likely just throwing away your money.

It is with deep sadness and regret that I have come to this conclusion. I was such a deep believer in this company, the idea, and the potential to change an industry for the good.

It’s not just losing money that hurts here. It is the fact that I decided to pick this stock of all stocks to get behind and to write about.

It’s crazy for me to even think about it. I am mostly – 95% plus – an index ETF investor. I don’t like penny stocks and never intended to be involved with one at all. That I picked this stock with a lying thieving CEO, an idiotic management team, and a cavalier toxic view against shareholders absolutely sickens me. It is toxic – so I am done.

I believe a better and more honest management team possibly could have pulled this off. But for HMNY it was not to be.

In full disclosure – I am going to hold the shares I have for the 5 years I committed to earlier. I have about 4 more years to go. With this next RS it will be a minuscule number anyway. And I suppose if they go BK before that I can take the tax loss when it happens.

I may poke my head up and write something if there is a really big new development on the positive side. Otherwise this is my last post on HMNY.

So with that – my final apology for those who caught HMNY fever from me or with me. It was fun dreaming, and an interesting case study. Ultimately it was a case study of how management can and will lie to stockholders for their own personal gain.

3 Counterpoints to Silly Motley Fool Story on Moviepass

I take it as a bullish sign that Motley fool has the one big nasty hit piece out this weekend on HMNY.  The article “3 Reasons AMC Is Beating MoviePass at Its Own Game”     is so bad that I felt like a counterpoint to each of their reasons would make sense.

Motley Fool has helped more people lose money than just about any site out there, they are pumpers, dumpers and make horrible calls on a regular basis.  I called it quits with Motley Fool after they made multiple very bullish calls on 3D Printing Stocks.  I was a sucker and believed the hype on that one.  Not that 3D printing isn’t amazing and holds a bright future.  They were just bad picks and bad timing for Fool readers.

The fools and the Fool pumped these dogs like crazy, the hyped never delivered.   I have seen the Fool website be wrong so often, I can hardly recall a time where they have been consistently right.

Now, of course, I have to acknowledge I have been wrong on HMNY to date.  I get it!  My call on Moviepass sucked even worse than Fool’s call on 3D printing!  But I must say, it is a bit different here.  These were established companies with years of revenue and profit behind them.   While by no means were they “safe” investments – you don’t expect to see the bottom fall out of companies of this size, with such huge projected growth.

OK – on to the matter at hand.   Motley Fool contends 3 Reasons AMC is “winning” of Moviepass.   Let’s take a look at each claim.

Claim #1- AMC can do Marketing in their own theaters.   That is true, AMC owns the theater, and they can promote whatever they like on their screens.  Now, does anybody think for a second that Moviepass has a hard time getting publicity?   No- me neither.  Unfortunately, as of late, most of that PR has been negative.   I fully expect that when Moviepass turns the corner, the PR will change for the positive, and will do so with a massive comeback kid story.  The amount of free marketing that Moviepass has received as a startup has been nothing less than mind-blowing.  There are still plenty of people who loath AMC for being hyper negative and aggressive against Moviepass.   If Moviepass does make a comeback I expect the free PR to continue.   If they continue to grow larger than AMC – expect the press to start covering Moviepass as the leader and innovator in the space.

Claim #2 – MoviePass has devalued itself this summer.   Hard to argue that Moviepass didn’t have to change their plans to kill the hogs and abusers.   And the summer was obviously a rough ride. But does that really mean AMC is winning?  I agree that heavy users who have a viable AMC option can see more movies for less on the AMC plan.  As many have argued, AMC actually did a great service to Moviepass by sucking away a big chunk of the most costly Moviepass users.  It was like a gift to Moviepass.  They could not get rid of these people fast enough.   Remember – AMC has something like 23% market share – the vast majority of the moviegoing public does not have a good or viable AMC theater option available to them.  Customers like choice, and having the option to choose whatever theater they want to go to remains a valuable feature for most moviegoers.

The most important point here is that most people don’t see more than 3 movies a month.  They simply don’t have the time or the desire to go to the movies that often.   So why pay twice as much to lock yourself into AMC if you really don’t see yourself going all that often as a casual moviegoer.  And that is the key, Moviepass wants to get the casual moviegoer, they guy or gal who normally sees around 4 movies a year, and try to get them to go more like 8 times a year.  This is where the business model works the best.   And it works best here for a few reasons.   First, because it keeps utilization rates lower for the Moviepass subscriber base – which helps keep COGS down.   Second, this group of casual moviegoers is attractive to Hollywood for marketing purposes.  Heavy moviegoers are great for Hollywood, and Hollywood loves them.  But for marketing purposes, when you are trying to move the needle on a film, getting the next group down from heavy users is really important.  It is sort of like going after swing voters in an election.  You spend your money on those who are undecided, who might not bother getting off the couch and going to the theater.  The guys that go all the time, they will likely show up anyway, the casual user, they need a little more prodding to get them to turn up to the theater.   This makes that casual group a sweet spot for Hollywood to deals with Moviepass to push that group to go see a particular film.   If Moviepass can keep their numbers in the millions, and use their Moviefone audience to push audiences to certain shows, it will be an advantage over AMC.

Claim #3 – Sustainability “The fatal flaw with MoviePass’s original model is that it doesn’t have full control of its input costs. It has to pay retail for the movie tickets it’s buying for its members, and that easily adds up to more than $9.95 a month.”  This reasoning has been claimed over and over again by the bears and bashers.   When the service was unlimited and had a lot of really heavy users, the argument held a lot of merit.   Now the argument is much weaker.   It is true that Moviepass has been slow to get to deals with theaters – they have admitted as much.  But it is a lot less clear that having physical assets is a big strategic advantage in today’s marketplace.   The argument that “controlling all the operations” is a big winning strategic position seems like an idea from yesteryear.   You don’t see Uber very concerned about not owning the Yellow Taxi companies.  You don’t see AirBnB very concerned about not owning hotels, resorts, or vacation homes.  Even lowly Amazon seems fine not holding all the inventory for items they sell online.  The argument that Moviepass can’t be successful without owning the theaters seems suspect, if not downright ridiculous.

Final thought.  With the recent changes, Moviepass is not playing a very classic disruptor role.   Moviepass is now IS NOT for the high-end heavy user, and that is a GREAT thing.  It follows the disruptive innovation model much closer with the new plan.  

The offer from Moviepass is now a classic move of coming in at the very low end.  They are offering a lesser service for a low price, that only appeals to the lower end of the market.  Naturally, this market and these customers are less appealing to established players like AMC.  AMC is looking to maximize profit and to do that they look to create more margins by offering fancier options to their most loyal customers.  In fact, it actually makes perfect logical sense for AMC to ignore Moviepass as they move into the low end of the market where there is little profit to be had.  From AMC’s perspective, the logical move is to move higher upmarket and leave the low-end low-profit space to new entrants.   This is classic disruptive innovation.    None of this is to imply that AMC is purposely doing something wrong or stupid.  AMC is trying to save and optimize their profits – that is what management is SUPPOSED TO DO!   It will feel to AMC and some others that AMC is actually winning.  But what they are missing is that the incumbent just allowed a new entrant to get a toehold in their marketplace.

What naturally happens after a new entrant moves into the low end of a market is they continually innovate and find new ways to move upmarket and take increasingly large pieces of the market.  At the same time, the incumbent keeps trying to optimize more and more upmarket in an ever increasing race to find fatter margins in the highest end of the market.   Eventually, time runs out for the incumbent and they are overtaking by the new entrant.   This pattern repeats time and time again across multiple markets.    Steel, Automobiles, TV’s, Computer Chips, – even Netflix vs. Blockbuster and then HBO, –and many more industries have experienced this exact phenomenon.  There is really no reason to believe that moviegoing is immune from this well know theory.