Moviepass is definitely becoming a candidate for a friendly or hostile takeover. There are many rumors now flying around that different VC companies are taking a fresh look at the company.
Looking at the latest rounds of press and the stock price now at .07 – it would be logical to assume that death of the company and the brand is a forgone conclusion.
An alternative idea is now being considered by VCs that the brand and at least part of the business model for Moviepass has considerately more value than what is represented by the stock at today’s market capitalization. Currently the Market Capitalizing sits somewhere around $2M dollars. That number is difficult to know each day as the company floods the market with more and more shares everyday. Using the 5B share ATM it has available to it.
Obviously there’s some realistic chance that MP will go BK, but I continue to believe that is unlikely, and my updated models show that changes made have seriously reduced cash burn- agreeing with the company’s guidance that they are trending toward financial stabilization.
I am not the ONLY person who sees some value here. We live in an age where publicity, even bad publicity is valuable. Think Paris Hilton or Kim Kardashian sex tape here. When these tapes came out many years ago people thought it was unfortunate and embarrassing for the young ladies involved. Nobody dreamed that the Kardashian’s mishap would have resulted in a billion dollar worldwide brand with clothing lines, makeup lines and so much more. That’s right there was a point where people actually felt “sorry” for the Kardashian’s invasion of privacy! The same holds true with Paris Hilton, who leveraged her naughty deeds into nightclubs, restaurants and all kinds of other lucrative ventures based on her universal name recognition.
As I have mentioned in prior posts, I was part of the original marketing team before Microsoft launched the “Bing” brand to try and compete with Google. At that time we were asked by the CEO to come with various estimates as to what it would cost to create a consumer brand from scratch that could achieve 60-70% unaided brand awareness. This is simply a measure of if consumers have heard of you at all, not of they like you or intend to use your service. That was almost 10 years ago now, and at that time the LOWEST estimate we had for that endeavor was it would take $600 million dollars of Marketing Spend to hit that level of awareness.
Moviepass love it or hate it, is now very well known. It is a brand and it is a thing consumers understand and have real interest in. Many people loved MP before financial trouble hit. The nasty trouble and changes MP is going through now, can be amended, fixed and restored. Like the sex tapes of Hilton and Kardashian – the name is known and the sins of the past could easily be forgiven.
I estimate the publicity of Moviepass to easily be worth $100’s of millions. And to think a crafty VC firm could potentially take a significant position of HMNY for less than $1M today seems like a good value bet.
The obvious risk here is that Farnsworth has Billions of shares at his disposal, and he could dilute any would be acquirer by simply dumping billions more shares on them.
But, a hostile takeover may also be possible. In that case if a firm took a large enough position quickly enough, they could storm the company and get at least a temporary injunction to halt additional dilution, and potentially nab the entire company for a very attractive price.
I expect some action on the acquisition front very soon here. It will be a fascinating next chapter!
I know that many have now totally given up on MoviePass and HMNY stock. I completely understand why, with the stock being almost totally wiped out now, and relentless shorting and uncertainty facing the company, it is hard to blame folks for feeling that way. Even for me, the committed 5 year long, this has been a remarkably unpleasant ride to take.
For me personally, I feel much worse about recommending the stock to people than I do about my personal losses. Again, I limit all individual stocks to less than 2% of my portfolio, but losing 2% is NOT fun, and it is made much worse knowing others lost money on my recommendation, and I do truly apologize for that loss and my poor timing here. Truly if you lost money based on my recommendation, I apologize.
Now with that out of the way, I thought I would share why I still hold out hope for the MoviePass and HMNY.
I am going to start with the worse case scenario, not that I think it is imminent, but given we are closer than I would like to be, we have to start thinking more about what is the asset value here if any, and how would you think about that.
I am not going to get into potential suitors for the assets in this post. There are quite a few companies that might find MoviePass an interesting target, and there are likely several private equity firms who might want to take a chance with it. The silver lining of HMNY not being able to secure significant debt is that stockholders should actually get some value out of whatever liquidation plan might come to pass.
There are a few different assets one can think about here and contemplate their value. In order of value, I think they have the following key assets.
Revenue Run Rate
Total Online Audience including Moviefone
Technology & Patents
Mastercard – Billing relationships
I am not suggesting that you can separate out these assets and sell them piecemeal. Rather, I think it is useful to think through what the company has built over the past few years, and how these different pieces can be thought of in terms of value. I will take a crack at each piece here, and of course, the mileage will vary on these types of valuations based on lots of variables.
Subscriber Base – This is the core asset of the company at this point. Everyone knows that this is a unique and slightly stressed asset in this case because MoviePass is losing a lot of money on these subscribers every month. Of course, MoviePass has taken significant measures to reduce the cash burn, but it is yet unclear how successful this has been and we won’t know for sure for a few more months. The important thing to note here is that MoviePass has up until now been making the conscious choice to spend money to build up their user base by spending big money to offer an incredible too good to be true offering. MoviePass I believe has all the levers it needs to drop the hammer, and turn the subscriber base to break even anytime they want. That would result in some significant churn of the subscriber base, but I believe MoviePass could raise their price, and combine it with surge pricing and get to breakeven very quickly. I think they could easily raise the price to $14.95, continue with Surge pricing, and that would get them very close to breakeven. I think the worse case scenario on churn- if they did drop the hammer -would be 33% of the base would leave, and many of those, probably greater than 50% or more would be heavy users who cost MP money anyway. A move like this would still leave MP as a great deal for most consumers, and they would likely also continue adding new customers who were not all caught up in the emotional baggage of change.
So with all that, I think MoviePass could easily have 2 Million Subscribers at breakeven @ $14.95 a month – or $180 a year. That would give them $360 Million a year in monthly subscriber revenue and easily another $40 Million in Surge Revenue. So $400 Million in breakeven revenue, with likely still very high growth rates. That is a valuable asset – no doubt about it.
Take Spotify for example – they claim it takes 12 months of premium subscriber months before they break even on their acquisition costs. Interestingly they use their free “ad-supported” service, as their acquisition vehicle to get their premium subscribers. This is NOT that different than what MoviePass is doing. The big difference, of course, is MoviePass is essentially doing a promotional price as their core offering to juice up their subscriber count. Knowing that they eventually would raise prices and do variable pricing via surge pricing. If you calculate the customer acquisition costs of Spotify premium users it ends up being at least $25 bucks a subscriber, however many people argue it is much higher. They don’t disclose it. But let’s just say that $25 is the number. And for the sake of argument lets say that a Spotify premium customer acquisition is equal to a MoviePass customer acquisition. That would mean there is a $50 million asset right there. This is not the LTV of the customer, but simply the asset customer acquisition activity. That is already above the current market cap of MoviePass. So that makes no sense at all.
You can start to do all kinds of new calculations with scenarios where MoviePass stops the bleeding and even makes some money on subscribers. You can come up with LTV (Lifetime Values) by taking the ARPA (Average Revenue Per Account x estimated Margins / over churn to come up with reasonable values.
I can easily model out scenarios that give $40 to $60 LTV’s assigned to a smaller more profitable MoviePass subscriber base, which again would get you to well over the today’s total market cap for HMNY. Here’s a good example of how people think about it for Spotify.
The point of the all of this is that the market is irrationally assigning an extremely low value to the MovirPass subscriber base. It is assuming that MoviePass will not see improvement in COG’s via more theater deals, and it is also assuming that MoviePass can’t raise prices without causing too much churn to their base. I think both of those things are NOT true – and that MoviePass will end up both reducing COG’s and increasing revenue while churning out many of their worst customers.
Revenue Run Rate – I have mentioned this before, but it is worth repeating it here. It is damn hard for companies to find 1/2 Billion in Revenue. And there are a LOT of companies that want to show revenue growth and would love to have an asset of reliable revenue growth at these levels, even if it were only breakeven for now. If you talk to any CFO who knows how to dress things up for Wall Street, the street wants 2 things. 1- Growth 2-Profit. There are companies out there sitting on decent profits but zero or negative growth. They might even have some fat left to cut to get more profits from their existing business, but still, they can’t find the revenue growth. MoviePass could add instant revenue growth, with the promise of more profits later down the road. That is a very attractive component of the potential valuation of MoviePass. Big Revenue Matters!!! Trust me on this one. Every CFO knows that profit improvement without growth is NOT good for their stock. Just look what happened over at Netflix today. Growth slowed! They got slaughtered!
Online Audience MoviePass has a unique situation with it’s online audience, it is now both large and very active. The Moviefone acquisition helped grow the audience to around 10 Million people. MoviePass so far has not done a lot with this asset but it can and I think will do much more over time. Some have tried to compare this only audience to Facebook ARPU numbers to downplay the value of the audience. It is a longer discussion, but in short, that is a very bad comparison. Sites that have active users who are considering a valuable transaction are much more valuable than sites that have users who are doing all kinds of things on social media. We called it the value funnel when I was working at MSN in Microsoft. The closer you are to getting a person to do something that is transactional, the more money an advertiser will spend on your site to get that user. So in the case of MoviePass & Moviefone, most users are very close to buying a movie ticket and going out of their homes to spend money in the very near term. That has real value. I think the audience value alone here, without the subscription side of the business is easy $7 -$10 Millon dollars, and I think that is very conservative fire sale type of price for that asset.
Technology & Patents There is definitely some value in the tech and Patents here with MoviePass. There is an active lawsuit underway with Sinemia to that effect. I have written on the value of the patents already. Please check that out. If we get to the scaping the bones of the patents – we will be in very bad shape. So I won’t go all crazy trying to say that this alone will save the stock, because it won’t. But there is very real value here.
MasterCard Billing Relationships. I am calling this out because of the unique way in which MoviePass is implemented, it requires that every subscriber has a MasterCard to enable the movie ticket transaction. As subscribers, we all get this and know how it works. It costs debit and credit card issuers approximately $200 to $300 in acquisition costs to sign up a new cardholder. Think about that for a couple minutes. Every single MoviePass one of MoviePass subscribers has a debit card issued to them, it works like any other debit card, but it is backed by a customer credit card that MoviePass has on file. MoviePass has done something extraordinary here. They have created 3 Million new MasterCard holders, who they can now bill for things at will (they customers will that is). Is it worth $200 per sub? No – but it is certainly worth $20 in a fire sale. That is $60 Million in value all day long. Again more than MP Market Cap valuation today.
Love or hate surge pricing, it was certainly easy for MoviePass to implement it against the payment vehicles they have on file with their customers. Customers only had to download the new app and accept the new TOS and that was it! They now had the ability to start charging customers for incremental transactions made with that MasterCard. Now, think how easy it is going to be for MoviePass to add things like movie merchandise to the experience. Think of the offers! Just watched Incredibles – how about a cool T-shirt, action figure, lunch box. coloring book etc etc. The amount of transaction revenue that could be generated from this MasterCard is very significant, and I see the market giving it essentially zero value. That is irrational.
So in conclusion, I am really bummed out about the irrational negativity surrounding MoviePass and HMNY stock. I am sorry for my bad timing and even more sorry to those who followed my lead into this stock and lost money.
But I have not given up on the company or the stock. There is a significant set of assets here, and there is real value in this company, even in the worst of fire sale situations. The stock is now priced so low, it makes absolutely no sense, and it is foolish to beleive that the management does not have options to unlock the value that has already been created.
I am not recommending that you buy more stock in HMNY, but I am also suggesting there is more value here than the market is giving to the company. We went from irrational exuberance to irrational pessimism.
The market tends to be rational over the long term and very irrational in the short term. I am hoping for some level of rationality returns here.
<<<agian – I do not recommend any single stock to represent more than 2% of your portfolio, and I recommend you keep the vast majority of your money in low-cost index funds over individual stocks. Please don’t send me messages saying I ruined your financial life based on my advice – because quite frankly if you had followed my advice this year you would be up overall in the market>>>
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!
While we are all sitting around on pins and needles wondering what HMNY CEO Ted Farnsworth meant with his teaser quote in Variety when speaking of a”major acquisition, Farnsworth said, “It’s going to be substantial,” said Farnsworth. “People are going to go, ‘Hmm how did they pull it off?’”
I am becoming increasingly optimistic that the acquisition is going to be Atom Films. Which I think is a perfect fit for MoviePass, and for Atom films. It is a synergistic combination, that will take both companies to a totally new level.
Why I would love this merger:
MoviePass has built an incredible brand with massive momentum. Consumers love it and it is spreading with WOM in a fast viral way. MoviePass is getting people back into theaters.
Atom Tickets has built terrific infrastructure and a very innovative social movie ticketing app and website and is now accepted at more than 19,000 screens across the US. Including AMC, Regal and Showcase Cinemas. Atom has created a “cool” frictionless way to go to the movies and has integrated concessions purchasing into the app, where consumers can pre-order concessions and have them ready and waiting at the theater.
MoviePass needs more ways to make money and needs a way to secure discounts on tickets purchased at the major theaters. Atom Tickets can provide both of those things.
Atom Tickets needs more consumers, they have the Theaters signed up, but they have an audience problem. Building that audience is expensive and hard. MoviePass has audience, and they have incredible momentum building more audience. Atom really can’t afford to go it on their own in this incredibly expensive space, they need a horse to ride to get their solution into more consumers hands.
MoviePass knows that they have a big Halo effect on getting people to the movies, but they have no way to monetize that – Atom Tickets could make that happen.
Atom Tickets has already started doing merchandising deals with Studios. For example, they ran a “Legends Never Die” promotion, where Atom Tickets U.S. app users purchased advance tickets to see the Tupac Shakur biopic and could upgrade their order with a $25 limited edition merchandise bundle that included an official All Eyez On Me T-shirt, bandana. MoviePass could bring a much bigger and more enthusiastic audience to these types of promotions.
Here is why I think it may just be possible.
Atom tickets CEO and Co-Founder Amesh Paleja left the company to take the CTO Job at Starz – and Atom has not named his replacement. Believe me when I tell you, if things were taking off like a rocket ship at Atom, Amesh would not be leaving to take another job. When a founding CEO leaves a company after a series C round, it means that the waters are rough for the company, and they are trying to find a way out of the storm.
Some have speculated that it would be too hard to pull off this acquisition given the serious amount of financing Atom Tickets has pulled in and from big names including Fidelity Investments, Lionsgate, Disney and 21st Century Fox . They have raked in a total of $125 Million, with the last round being $60 Million. In their last round they said the money was to be used for Marketing campaigns and to continue to build out features of the service. This is where it gets interesting, yes there is a lot of money dumped into Atom so far- and the $60 million was just back in early March. Now I don’t know about you, but I have not seen much at all in the way of Marketing from Atom, in fact I have seen way more marketing from Fandango than Atom. Here’s the issue. Atom has a neat idea, and some cool technology. The theaters are cool with them, because they see no real threat, and maybe a little upside to the way they do things now. The problem for Atom is, they are just not that interesting to consumers. Not compared to MoviePass, and they have to compete for consumers with the theaters themselves and with all the other ticket options. As a standalone play, Atom is just not that compelling. They can’t generate the WOM that MoviePass does, and while they have a fair chunk of change, it’s not enough to get them anyplace big. Certainly not to an IPO.
So I think Atom is willing to deal, and I think the backers of Atom would be thrilled to find a way to get into bed with MoviePass, even if they have to take an initial small valuation haircut to do it. Being acquired by MoviePass takes away a headache for the VC’s here, and it also works to the advantage of the studios – as ultimately they want what MoviePass and Atom want, to get more people to the movies.
Finally, I have one last reason why I think this may be happening, and it has a lot more to do with what I don’t know, than what I do know, so to speak. Read – this is NOT inside information! I happened to have a contact at one of these companies where we could chat about these kinds of ideas and these things. That contact has gone totally dark on me. It may be that this person now knows that I write this blog and doesn’t want to talk anymore for any reason anyway. Or any other number of reasons that this person doesn’t want to talk. But I have a hunch this person is protecting me and (she/he) to make 100% sure that no insider trading accusations could possibly be made.
It is just a hunch – and I could be wrong. But I sure hope this is the news and acquisition Ted is teasing. Time will tell!