What I Personally Learned Investing – or umm Gambling – on HMNY/Moviepass

Wow did Moviepass and HMNY really humble me as an investor, or should I say gambler, on stocks.   I learned a lot and man oh man did the experience humble me and make me a bigger skeptic than ever before on Wall St. and buying individual stocks.   I have always accepted that buying individual stocks is risky, and have always tried to advise people who read this blog to not invest more than 1% or possibly 2% of your portfolio in ANY single stock.  I sure stand by that advice as we head toward the end of the year.  With Moviepass in a literal death spiral that looks very unlikely to correct, I am very grateful this Thanksgiving that I stuck to that rule.

In this post, I want to share some of the biggest lessons I learned and really relearned after investing in HMNY.  I think it is important to write these things down so I am less likely to repeat the same mistakes, and I figured I might as well share them with others in hopes that maybe they can learn from my mistakes and save them from making the same.

First big lesson – I did not do enough due diligence on the management of this company.   I was aware that Ted Farnsworth had a less than stellar record, but I did not truly understand what a total crook and fraud that guy was and still is today.  It is just about impossible to do well with a stock if the leadership is dishonest, self-serving, and has a bad past.   I overlooked Farnsworth because I really believed in Mitch Lowe, that also turned out to be a mistake.   While I still believe that Mitch Lowe has some good qualities, I believe I heavily misjudged him as well.  While Mitch did play a role in Netflix and he also did a decent job at Red Box, it appears that he is not investible on his own right.  He really spent a relatively small amount of time at both of those companies, and it now seems more likely than not he had little to do with their success.  Mitch and Ted together was a toxic management combination, bringing together greed, entitlement, carelessness, hubris and all kinds of bad things for shareholders.   I should have listened more closely to what others were saying about Ted, the signals were there, it was my mistake not to listen to them.  I truly hope Ted lands in jail someday.   His deceit caused many individual investors to lose a lot of money, some have said that people potentially committed suicide over their losses related to this company.   I sincerely hope that is not the case.   I think Buffett and Charlie say something like that greatly prefer a talented management team, but they would take honesty over talent any day.  Because if you are both talented and dishonest, you are very dangerous.  It may be giving too much credit to Ted to say he has any talent at all, but he most certainly is dishonest.  It was a big mistake to trust him with a single penny of my money.

My second big learning lesson.  I was arrogant and put on blinders.   This one really gets me as I have had enough training and experience to know better and to be more thoughtful and fully consider other people’s ideas and opinions.  In this case, it was even worse because there were good people who knew more than me about the potential pitfalls of this stock, that I should have listened to more carefully and with much more respect.   Mark Gomes was one such person, but there were others who also warned me that this was a risky bet and that dilution and potential lack of funding were serious potential roadblocks with the company.  Obviously, they were right, and had I listened and really sought to understand their arguments and weighted their experience and opinions equal or better than my own, I would not have bought a single share of HMNY.   I have always loved Warren Buffet’s simple baseball analogy for picking stocks.   There was enough wrong with HMNY that I was a fool to swing at that pitch.  The bad and dishonest management history and the fact that others with solid stock picking experience were waving red flags over the company’s dilution and ATM plans.   Those were more than enough to toss this one on the heap of “I am not sure, maybe later maybe never pile”.  Unfortunately, my own arrogance and bullheaded nature enticed me into believing what I want to believe about Moviepass, I was stupid enough to also believe what dishonest management was saying about their business.   I used management’s lies to reinforce my own arrogant tunnel vision on the positive prospects for the company.  This made for a fool and his money – being easily parted.  Shame on me for not fully listening and considering more viewpoints.  That was a rookie mistake, and I know better.  Damn it!

Third learning lesson.  Wow is this an obvious one, if it is too good to be true – it is!  That was definitely the case with Moviepass, both the consumer deal and the business story really was too good to be true.  I can almost give myself a pass on this one because Mitch Lowe, in particular, was so convincing with his pitch, he had his song and dance on how they had years of data that proved that people would “settle down” and on average utilize Moviepass less than one time a month on average.  That was total bullshit of course, and only now after making the product totally impossible to use have they been able to get utilization rates anywhere near where they had promised they would be with the unlimited once daily plan.   But I can’t give myself a pass on this one, because

Fourth learning lesson.  This is really an aside, but may be useful for some.  Generally people on stock boards like stock twits, yahoo etc. are really horrible people.  Not all, but most.  I have bumped into a few good people on these boards, but for the most part, these boards are full of angry, strange, rude, petulant trolls who seem to be miserable most of the time.   I regret almost all the time I have spent on these boards, and regret engaging in similar conduct from time to time on them.   These places bring out the worst in people.  They are like the Vegas strip full of losers, gamblers, and hustlers – only they are worse because it is all virtual and almost entirely anonymous which means that it is rare to run into anyone with even a modicum of civility.   I am pretty sure that an eternity in Stocktwits is what hell would be like, just add the fire.  I highly advise people to totally stay away from these boards, and if you do go to them, visit them sparingly.   The advice is generally bad, not trustworthy, and the environment only leads to bringing out the worst of human behavior and it is hard for it not to rub off on you.

My fifth and most important lesson – or reaffirmation in this case.  It is almost impossible to beat the market, and it makes no sense to try.  I know this and have known it for many years.  There is so much overwhelming evidence of this fact that it smacks of total stupidity to try and pick stocks that will help you do better than the market.   I will write another post that goes into this in more depth soon.   I will also talk about why I think many people just keep on trying, even when they know that can’t beat the market.  It’s something like a gambling addiction, but worse because it is so delusional.   But it is important to reflect here that this was another insane attempt to beat the market that backfired for a lot of people.  As a group, we know it is stupid to try, and if you don’t know, I will spend a good amount of time trying to convince you that you are not the 1% or less of people who can beat the market.  If you are reading this, I can guarantee you that you are not the type of person who will likely ever beat the market, so you should just put down the mouse and turn off your trading screen before you hurt yourself, or your financial future.

In the end – I promised myself and readers I would hold on to this stock for 5 years.  I have about 4 years left to hold this heavy bag, and there is a cold day in hell scenario where this stock does return some value, it will never ever get back to its all-time high.  But there are some possible scenarios where this POS gets a bit back.  They are highly unlikely of course, and I absolutely do not recommend this stock to even my worst enemy on Stocktwits.  – Well maybe to them, but nobody else 🙂

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.

 

 

 

 

The Value of Moviepass – Something to Ponder

Moviepass even with all of its hassles continues to be a great deal. That much is obvious when considering that for $9.95 a subscriber can save money by going to the theater just one time, and if they use the subscription to the max, they can get somewhere around $30 to $50 in value depending on when and where the pass is used.

I thought it might be fun to compare Moviepass to other ways consumers might blow their cash to entertain themselves. So here’s a short list of of entertainment options compared to the value of Moviepass…

We could go bowling… as Gaffigan says. But bowling these days is generally around $20 or more per bowler. For that you could buy 2 months of Moviepass and go out to the movies up to 6 times.

If bowling is not your thing – how about golf? Apparently the average green fee is around $34 for a public course. But you have to have clubs and the fancy pants and shoes to really get out there. For that you get 3 months of MP or 9 Movies. And you would have some money leftover to buy a popcorn and a drink!

Golf a little slow? How about a day skiing? According to “Snow Online” the average cost of a lift ticket in the US is now up to $94. And if you think movie concessions are expensive, try ski lodge concessions! And don’t forget the 2 hour drive, the expensive equipment rental or purchase. It’s enough to make you want to just go see a movie! And for that price, you could see at least 27 movies or have 9 months worth of Moviepass! With plenty left over to take a friend or two or three!

Maybe you prefer to do something less active? How about a concert? Well we all know that is going to set you back some real money. For good seats at a good show we are talking about $120. Or a full year of Moviepass, or 36 movies! Now that’s a lot of entertainment hours by comparison:-)

Well, how about a Broadway show! Turns out that is going to hit your wallet hard as well. According to statisa that will be $127 big ones!

Do you like Speed? How about a day at the races? NASCAR perhaps? Average ticket there $96.14. Plus parking, plus a LOT of hassle getting in and out. Let’s just call that about a year of Moviepass again. And that is being kind on the hassle charges.

How about an NFL game? Forget about it! No matter where your favorite team plays – it’s more than a full year of Moviepass!

We can talk about other entertainment options that are cheaper than Moviepass. Going on a walk is free! Sex can and should be free! You can share a Netflix account for less. Or you can buy a digital TV antenna off Amazon for about $30 bucks and get your locals for free!

Let’s face it, the cost of Moviepass is super low, and it is a fantastic value compared to just about any other entertainment option.

So as we sit and ponder if Moviepass subscriber numbers will flame out or continue to grow under the new 3 movies a month value proposition. It’s worth considering, do consumers have a lot of better options for the money?

A Reader’s Story of How Moviepass Saved His Life

The following story was sent to me by Sean Christopher, a reader of my blog.  Sean’s story is a fascinating one, it demonstrates how Moviepass really made a difference for consumers by making moviegoing affordable again.   Unfortunately, it also chronicles the pain of investing in HMNY.   With Sean’s permission, I am posting his story here.  

This story is 100% TRUE. I’ve never written a day in my life but I needed to tell this story.

I was 19 years old when our country suffered one of the worse disasters of modern history. Imagine just starting your adult life and waking up to witness an event you would only see in movies. I never realize how much that day affected my life until today with 9/11 just days away and being sober for the first time in 16 years. In those 17 years, I suffered from depression, anxiety, and alcoholism. In all that time I tried everything from AA to therapy, but on August 15th, 2017 I came up with a different plan. This is the story of how MoviePass changed my life.
The only thing that truly helped me was going to the movies because movies for me provided an escape from the struggles of my daily life. Whether the film was based on a fantasy or based on a true story, it made me feel like parts of it were made just for me. They would capture my attention as I compared my own struggles with scenes from the movie I was watching. On August 15th, 2017 HMNY acquired MoviePass and made it’s $9.95 unlimited one movie a day monthly subscription debut. My last drink was coincidentally on that very date,  August 16th, 2017 I started to change my life. Depression is the first thing to hit you when you stop using anything that you’ve used for a long time. But now I had a secret weapon that wouldn’t put a hole in my family’s budget. MoviePass!
Every time I had a bad day and felt like having a drink I’d open my MoviePass app to see what was playing. Even if I didn’t go it made me feel better to know I had options to see a potentially good movie without worrying about wasting money. In the first few weeks, I must have seen every movie that was playing in all sorts of theaters in NYC or wherever I was at the time (P.A, N.J). I started to feel much more in control of my life, so I started to go to the movies less and worked on myself more.
I got my income tax refund and had the bright idea of throwing half of it into the stock market via my Robinhood app, I didn’t know that much about stocks and was excited to learn. Boy did I learn when I decided to put my money into a stock that was near and dear to a service that I had grown quite fond of, HMNY.  I jumped in at a little over $3 per share and was more than happy to continue to average down as the stock plummeted to spare change levels. Then came the dreaded 250/1 reverse split and my 13,000 shares became 52, I was devastated, to say the least. I lost over $15,000 – more money than I had ever put away for any reason that didn’t involve a crapload of alcohol. Uh oh, I was now in relapse territory and the depression and anger hit me like a brick to the side of the head. But I didn’t drink. Instead, I chalked it up to a “you live you learn” scenario and started thinking about everything I gained and not what I lost.
I remembered when I looked into the eyes of Ted Farnsworth at the Special Shareholders Meeting on July 23rd, 2018 and he spoke to me directly I knew in my heart that if you don’t want to get eaten by sharks, you don’t swim in the ocean. I hold absolutely no grudges because of my new found wisdom, and I am holding an even larger position in HMNY than I was before at the bottom average. Thus I’m still prepared to lose it all, (as crazy as that may sound) because I am a believer in MoviePass. I want to be there no matter what happens in the end.
I loved movies ever since I was a kid and now MoviePass has made it possible for anyone on a tight budget and a movie lover to see new releases without breaking the bank and have money for concessions.
I was still going to the movies 5-7 times a month but was so much more involved with my own life than I ever was. I only went to see my pay “for’s” and a few “never pay for’s”. But I was still getting a chance to see more movies than I normally could afford to so it worked out. After a summer of great Disney films like Infinity War, Guardians of the GalaxyVolume 2, Black Panther and Christopher Robin, Solo “wasn’t bad” and other Hollywood summer hits like Deadpool, I find myself wanting to watch more Indi films. But the new plan only offers 3 movies monthly now, so I must choose carefully, but still feel no disappointment no matter the outcome.
Three movies a month is more than enough to keep this alcoholic from going picking up a drink, so the new plan doesn’t set me back considering all my life change. If I’m having a busy month and there really isn’t anything I want to see, skipping a month wouldn’t bother me because hey, it’s only $9.95 a month.
So I believe that the new business model could be profitable for both the company and the consumer in the long term and me? For the first time in 17 years, I haven’t had a drink (1 year),  I have money in the bank and lost 25 pounds all because movie theater subscription became a reality.
Thanks MoviePass.
Sean Christopher
I love Sean’s story and hope that he continues to have awesome success with his recovery.  I  hope and pray that HMNY will also recover and deliver a great return for Sean and others.
If you have a story about Moviepass you would like to share – feel free to contact me at – @bvisse on twitter. 

Rats Jumping From Moviepass Ship

3 High Profile Departures This Week From HMNY and Moviepass Saga – Do They Matter?

This week we saw some key people head for the exits from the Moviepass story:

  • Earlier this week Board Member Carl Schramm called it quits – he claimed to be unhappy with disclosure to the board, and felt the BOD was not being consulted for big strategic decisions.
  • CPO Mike Berkley threw in the towel just today. It was not clear if he quit, was fired, or if it was a mutual agreement to part ways.
  • And on the finance side the last standing financial analyst killed off coverage of HMNY. Austin Moldlow from Canaccord Genuity, sent an email to subscribers Friday saying he was terminating coverage of MoviePass. This guy is a ghost on the web now. He even took down his LinkedIn profile. Maybe he fears his life…

Where there is a lot of turmoil, it’s not unusual to see a lot of turnover. Some people, probably wisely, just don’t want to deal with this level of headaches. BOD members see more risk than opportunity at these levels. Employees have seen their stock options implode and may lost faith that any new options or other compensation will make up for the hole they find themselves in.

On the analyst side, it has to be pretty humiliating to have a 99% wipeout on your tip sheet. Hell, this Moldlow guy may be finished after the HMNY debacle. Lawsuits are lined up a mile long, and was bullish recommending the stock almost the entire way through.

Berkley only made it 6 months, and honestly the product delivery seemed stalled or non-existent under his watch. So maybe it is a positive to see him go down the road. It’s rare to see a startup move so slowly with so many obvious things that seem easy to add from the product roadmap. Something is not working well there, maybe Berkley took the hit.

So it’s not surprising that some folks are jumping ship here. Maybe we will get lucky soon and Ted will jump ship, or get pushed off!

Expect a wild ride to continue.