Moviepass HMNY a Value Play?

HMNY Moviepass parent company is starting to look like a value play.   I have been wrong on HMNY so far – and I admit that.  But things I think this time are looking better and different for shareholders.   The company seems to be showing real stability.  They have wisely been mum on the PR front.   When everything you say is trashed in the media, it is better to simply shut up, go about your business, and prove naysayers wrong.  Ted and Mitch both have publicly stated that they have a team of people that are very motivated to prove to the world that they are right and to see to it that Moviepass survives.

I see the following key reasons why I believe Moviepass may well start a dramatic recovery very soon.

  1. The stock is trading at a very small Market Cap that simply does not make sense
  2. There is a strong possibility of a earnings surprise based on CEO’s Ted Farnsworth latest financial updates
  3. Further Dilution and or Reverse Split could be made unnecessary – maybe it becomes the opposite

Let me take on each point here.

Market Cap or Market Capitalization – What is it why it is important for HMNY 

For this blog I have decided it is better to not simply assume that all readers know all the important investing terms.  So if you are an experienced investor – sorry for the remedial lesson.   So what is Market Cap – Investopedia explains it like this.

What is ‘Market Capitalization’

Market capitalization refers to the total dollar market value of a company’s outstanding shares. Commonly referred to as “market cap,” it is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to using sales or total asset figures.

Using market capitalization to show the size of a company is important because company size is a basic determinant of various characteristics in which investors are interested, including risk. It is also easy to calculate. A company with 20 million shares selling at $100 a share would have a market cap of $2 billion.

HMNY has a very low Market Cap because the price of the stock is low – around .0225 cents.   The number of outstanding shares for HMNY is a hard thing to nail down.   The reason for that is that HMNY has approved up to 5 Billion shares via what is called an ATM offering.   Investors new to Moviepass and HMNY need to be aware of this and read up on it before investing in the stock.  Anyway, the last known reported number of outstanding shares for HMNY was 636 Million.  I have found that Yahoo! tends to have the best-updated numbers on these vital statistics.  You can see HMNY stats here.   Stock Price of .0225 times outstanding shares of 636 Million results in a $14.3 Million Market Cap.   Meaning the “size” of HMNY is quite small.  This means that the company is vulnerable to a lot of different potential outcomes.  Including a major investor taking a part of the company, an outright acquisition, and market manipulation by big money management firms among other things.   Essentially, the company is being valued at a level equal to or potentially even less than the cash they have on hand.

Unfortunately – the story is not quite so simple in the case of HMNY.  This is because HMNY  has been selling more shares on the open market to fund their losses on Moviepass and as a result, the number of shares has continued to rise.  Estimates for the number of outstanding shares now have a really big range from followers of the stock.  Some believe that the company has increased the share count to as much as 2 Billion shares.   Nobody really knows, and the company is only required to update the outstanding share count periodically.   Because nobody knows how effective the company has been cutting costs, or how eager the company is to fund new things – like investments in new films, or other acquisitions.  It is anyone’s guess on how many shares have needed to be sold or will continue to be sold to fund the company’s operations.

Whatever the number of outstanding shares now in the market, the Market Cap for the company is low.   Let’s take the very worst case scenario – that everyone agrees is unlikely at this point – say the full 5 Billion Shares are now outstanding in the market.   That would result in a Market Cap of $112 Million Dollars.  (The math here again is 5B * .0225 = 112 Million) .   Even in that very unlikely scenario, that is still a low Market Cap for a company that delivered $72 Million dollars in subscription sales the last quarter.  And is still very likely on a $200 Million dollar yearly sales/revenue pace.   (this assumes the revenue number is going to go down a little bit because of high churn from all the changes)

What this means is that the sales to price ratio for HMNY is also really low.   Looking at this metric helps to view the company in a different way.  It eliminates the variances possible with the number of outstanding shares.  Basically, this metric looks at the “revenue multiple” for a stock.   It is very unusual for a fast-growing tech company to trade at a level lower than their yearly revenue or sales number.  The S&P 500 average Price to Sales ratio is currently at 2.29.   Which is actually historically high.  The mean for the S&P 500 is 1.5.    So again, if you took a very conservative 1.5 factor to HMNY Sales/Revenu you would come up with a $300 Million valuation.  More than double the worse case scenario of 5Billion shares at .0225 or the $112 Million Market Cap.   Showing again that a conservative valuation, even with 5 Billion Shares outstanding, would be closer to .05 cents.  More than double where the stock trades today!    And this valuation would be massively conservative. 

Earnings Surprise Quite Possible

HMNY has a massive credibility issue.  Nobody believes what the management says.  Which is funny, because for the most part the company has done what it said it would do, but investors decided they hated the plan so much they would no longer support it.   Mitch and Ted always said they would lose lots of money until they got to 5 Million subscribers.  They actually estimated it pretty well, and as Mark Gomes pointed out many times, they stated it all very clearly in their SEC filings.   For whatever reason, the shorts had a heyday when the company delivered exactly the losses predicted and punished the stock massively.   Ted also made some verbal errors along the way mistakingly calling they ATM a line of credit, which totally freaked out investors, and drove the stock down to near zero.    For people who have followed the stock all along, that was a painful and really bizarre period.  It is what led to the plan changes and all the confusion around the prior business model.  We will never really know if 5 Million seasoned subscribers could have made a breakeven scenario, as the company simply could not get enough funding to get there.   Most now believe that was never going to be possible, both because usage was higher than expected, and theaters would not cut a deal with Moviepass to provide discounted tickets or share any revenue.

Now that the subscriber plans have changed Farnsworth has publicly stated that subscriber revenue is now at break even.  He said utilization is low at .9 movies per month.   We don’t know how much money management has spent on new endeavors, and we also don’t know if the company is having any better success working with studios or other partners to monetize their customer base.   From my updated model, it looks at least possible that the company could achieve breakeven or even make a positive gross margin on the subscription business with the numbers provided by Farnsworth.   The problem really is one of perception and sentiment regarding Farnsworth and whether investors can trust management to protect shareholders from bad decisions.   As it stands now the stock is trading at a discount because so many people have such little faith in Farnsworth, and in the management generally, they simply do not believe the numbers Farnsworth is giving.

This is where a positive ER update, that shows break even on subscriber revenue and shows only a small overall loss for the company, could end up boosting this stock price very quickly.   This, of course, does cut both ways, if there are substantially more losses than expected, the company could move even closer to 0.000.   I think an ER surprise with upside looks more likely.  I think the updated plans that really eliminated the heavy user problem will be enough to change the company’s burn rate massively.    Also, Ted is already in so much hot water with pending lawsuits, and SEC investigations, I just don’t believe he is stupid enough to lie about these things,  Specifically, he would not say that they have already hit break even on subs.  As that is NOT a forward-looking statement, and as such, he is not protected at all with that statement and if it incorrect, he faces even more legal problems.    That said, Ted has proven to be a bit of a goon, so he could just be making another stupid mistake or lying again.

Further Dilution May Not Be Needed – Maybe the Opposite

If it turns out that the burn rate has come down to very low levels, and HMNY hits breakeven on the subscription business the stock could be triggered to move up very quickly.   Here is how this could work out.  If Moviepass shows that it’s subscriber base has value in of itself, that will prove to Wall Street money managers that they have a sustainable asset in the business.   I worked on many M&A deals in my past life, and I know this is a fact.  If a business has a “sustainable book of business” than it has real value.  Even if it is only at breakeven.

There is value in breakeven revenue.  The thought process on that goes like this.  If we buy this company, it will consistently deliver at least $200 million to our topline revenue number, plus we will be getting a strategic growth asset, some technology, and a well-known brand.   This is a standard way of breaking down piece parts of any acquisition type deal.

Wall Street Banks and Money Managers understand all of this very well.  This is important because what happens when you have a sustainable subscription revenue business is you now have something that looks like collateral to a bank.  It is an asset, like when you take a loan on a car or a house.  It has a value the bank can see, and it makes it much more likely that Moviepass can get a loan, or as they say, take on debt financing.    They might even be able to get a substantial amount of debt financing.   This could have a big multiplier effect on HMNY stock.  Here’s why.

First, if the company can take on debt, instead of diluting shareholders, the dumping of more shares to raise operating funds could end, and end quickly.   Second, the company could also use debt funds to buy back cheap shares of their stock.   This would totally upend the fear of bears who think that the company is setting out to keep diluting shareholders into eternity.    A scenario could easily develop where the company is loaned enough money to fund operations and buy back a massive amount of the outstanding shares.  This would be a double whammy on the stock price, you could see the share price jump massively in this scenario.

Be warned!  The opposite of all of this could also happen.   And if you believe history repeats, and you think it will repeat here, you should stay far away from the stock.

This all comes down to a question of what do you believe?   Do you think Ted is lying about being breakeven?   Or do you think that Ted and Mitch are going to drop an earnings bomb so big it explodes the stock upward?   Or do you believe the new product is a loser and subs will never grow again?  Or do you think Moviepass is still a good value and will continue to find new customers?

I think Moviepass may finally be ready to turn itself around.  I think the current conservative valuation on the company makes it a value play, but not without risk.   If I am right, this could finally be an entry point worth making.

 

 

 

 

 

Some of HMNY’s Biggest Shorts Seem To Be Losing Faith That the Company is Going BK

Mark Gomes the now infamous HNNY short -who BTW is a great guy – called the Moviepass wipeout every step of the way. Some would even argue that Mark helped accelerate the massive short sell that HMNY suffered. But I think the reality is HMNY and Moviepass suffered more from self-inflicted wounds.

Gomes has largely left the stock behind now and leaves a possibility that the stock could recover if it made certain moves to limit usage and become more of a niche play. In a recent videocast, Gomes stated that he believes HMNY could jump around wildly because of its very small market cap. He also stated that during this period after the big blockbuster season there was much more wiggle room for the company to manage its cash flow. Mark seems to have very low conviction that HMNY would end up bankrupt.

On message boards like Stock Twits, The number of confident shorts also seems to be going down. Both Message Volume and Sentiment ratings are rising as the stock stabilizes.

HMNY was sent to the “Dead Pile” of Wall Street primarily because the model they concocted did a lousy job of predicting how much usage and abuse a small number of customers could inflict on their overall business model. The company did not predict some customers would use their passes simply to use a clean bathroom in New York City, or to find a place to take a quick nap while escaping from work. Put simply Moviepass was being abused by customers – but it was part of the deal and there was little the company could do unless they backed off their original unlimited promise. The company was forced to change its ways to eliminate both abuse and fraud to stay alive.

Now that the abuse has been all taken care of things are starting to look brighter for the company and the stock is starting to stabilize.

Certainly, damage has been done to the brand, and that has been well covered over the past several weeks. But what remains is likely still a valuable asset. If the company does manage to avoid bankruptcy, the minuscule market cap that exists on the stock today will likely create opportunities for the stock to go higher.

It appears that the company is slowly restoring service availability to acceptable levels. More movies and times are being added, and many on social media are coming to the defense of the company and the new policies.

Tomorrow I will write more on how HMNY management could drive a serious recovery to the stock.  Including:

  • Possible Stock Buyback and why it would make sense
  • Why an earnings surprise could be a massive boost to the company
  • Why I think most outstanding share count estimates are off, and how that makes the Market cap for this stock lower than many think

Thanks for following my blog.  And as always if you like it PLEASE SHARE IT!! 

HMNY – The Stock That Makes No Cents or Sense – Some Fun With Numbers

636 Million shares -Market Cap $18.5M

It was another painful week for HMNY shareholders.  The completion of the total stockholder wipeout seems almost complete.  This truly is the stock that never makes sense or cents.

The numbers are all insane but can be fun to think about and play with.  Let’s look at a few of them together!

  • The company is currently valued at approximately $18.5 Million Dollars. You could own all of  MoviePass for about the same price as this 2 Bed 3 Bath Central Park Condo .  Interestingly – there are 194 properties listed in NYC that are now more expensive than Moviepass – or HMNY the entire company.
  • There’s the possibility that approximately 4.5 Billion more shares could be sold into the market.  That would be enough shares to give every single person in China 3.26 shares.
  • If the management did unleash 5 Billion Total Shares – And the stock maintained its current price of .03 cents per share – The Market Cap would be $150 Millon Dollars.  That amount could afford you this nice yacht!
  • If all of the remaining 4.5B Shares were dumped at .03 cents – it would raise only $135 Million dollars.  Not chump change, but that’s a lot of shares to get that kind of money, It is at least enough to buy 13 Million more Movie Tickets! 
  •  The last Bruce Willis film “Death Wish” Grossed $48.6 Million at the box office.  And apparently, it is doing great downstream – helping MGM boost domestic in-home film revenues higher.  The film was a flop with critics but will end up making a nice profit over its total lifetime.  With a  budget of $30 Million, the film will likely profit above the $20 Million – or more than the total price of buying all of MoviePass.  

Could Bruce save MoviePass with 10 Minutes Gone – or will MoviePass be gone in 10 Minutes?  We don’t yet know.

MoviePass is an enigma.  A riddle unsolved.  It’s cheap and it’s very expensive.  The numbers are huge, and they are also so tiny.  It is dead, and it is very much still alive.

 

Christopher Robin – Crazy Rich Asians and Cash Burn Control

At the risk of being a Moviepass hog, I went and saw another movie tonight.   It was primarily for research purposes, so I felt OK with the decision.

First the good part.

The choice for Moviepass customers across the country today at most non-partner theaters was between Christopher Robin and Crazy Rich Asians.   I was frankly not very interested in either, but since I loved Winnie the Pooh when I was a kid I thought why not take a chance on that.   And with that decision, I was delighted with Moviepass one more time.

Christopher Robin was dare I say it, an awesome surprise.  I loved it!  I had forgotten what a great story it was, and how totally fantastic all the different characters were.  I relived a part of my childhood and sadly relived some of my horrible times in corporate America.   The acting, the special effects, the sound, the perfect fuzzy rendition of Pooh, Tigger, Eeyore and the gang.  It was just super fun.   

Now, was it $15 dollars of fun.  No – it wasn’t.   Was it $3 dollars and 33 cents of fun?  Yes, it totally was!   Would I have ever gone to see the Movie without my Moviepass?  No way in hell.  Never, would not even think of going to see a Disney G rated movie on a Wednesday night for 15 bucks. 

My research takeaway – Moviepass can offer a surprisingly delightful experience pushing users to see movies that might not otherwise consider.  Moviepass can get people (like me) to the theaters to see movies they would never watch ever,  like Christopher Robbin.  That’s pretty big!  I am a believer in the Moviepass – Movie Insurance concept.  Even with the new deal, at $3.33 value a use – it’s not a big deal to see a movie just for the hell of it. 

Now the Bad Part

I am retired and do what I want whenever I want – unless my wife is telling me what do to…  Then I do whatever she says…  but I digress.  My point is I have plenty of free time to screw around dealing with all the hassles of using the Moviepass experience.   I can go to the theater and check in way before the movie time, I get my ticket, run a couple errands, go to dinner, and then go see the show.   My flexible schedule is not a reality for most people.    When I was working full time, I would not have had the time or patience to deal with a  movie purchasing experience like that.

I think a lot of people will be really annoyed with how flakey the service is right now.  The idea that you might or might not be able to see a movie, that you only kind of care about.  Combined with the issue of – if you don’t get your ticket early from the box office, the same day of the show, you might not be able to go at all, or be stuck paying full price.   It’s just not a very compelling value proposition.   I think for this new plan to work – people they will need to have at least 4 or 5 good choices available every day.   Limiting to two movie choices as was done today, along with the issue of not knowing what will be available from day to day, and not being able to plan for what you might go see on your special date night, I think is going to be a non-starter for a lot of people.   I am hoping we haven’t seen the new and improved selection from the new offering, otherwise, I think the sub numbers will suffer – badly.

I am afraid if the service stays flakey like this, it will continue to suffer from adverse selection.  I don’t think casual moviegoers will like what is being offered right now.   It doesn’t pass the critical elevator test.  Meaning you have to be able to clearly explain the value prop on an elevator ride.  Maybe the problem is that Moviepass is located in the Empire State Building, that ride might be long enough to explain Moviepass with all the caveats.

Here’s my hypothetical attempt to explain Moviepass to a friend.  “Yeh buddy- It’s a good price to see three movies at $3.33 per movie if you get around to seeing 3 each month.   It works at most Movie Theaters, but not all and -no iPic.  No Imax and no 3D, but they say they are working on an extra fee so you can see those.  They only have some of the movies sometimes, and lately, it has only been one or two movies available on any day.  <<my real friends have now already stopped listening>>  If you see a movie you really want to see in the morning you might want to run down to the theater, check in, get your ticket, to make sure the movie doesn’t disappear out of the app.  Oh, and if it is you and your significant other, you will both have to do that.  Or you will have to take his/her phone and MP card with you when you go check in.  <<now my friend is questioning our friendship and my sanity for recommending this thing at all>>  Oh, and one other drawback, you will have no idea what movie you will be able to see on any given day, and you can’t exactly plan to go to any specific movie on a specific day, because, well you never really know what will be available at what theater.”  <<The friend is now ready to push me out of the moving elevator>>

So anyway, I think there will need some pretty big tweaking of the service from what we are seeing here for the word of mouth marketing engine to kick back in.   Simple fix for MP would be to get organized and be really clear what movies will be available on what days at what theaters.   Of course, E-ticket partner theaters are not a problem – and maybe that is what Moviepass is trying to do here.  Force more theaters to play ball with them.  I can tell you without a doubt, traffic to my theater is obviously way down.  The Moviepass crowd is GONE.  Small theater chains must want to see those customers come back.  At my local theater, we have gone from a full parking lot, long lines at the concession stand, back to, front row parking, and a ghost town theater.  It’s like the place has gone back to pre-moviepass days.  Sad and empty.

I think Moviepass is going to work out a lot more deals with theaters, and studios, the selection, and predictability will slowly improve.  In the meantime, I think cash burn looks like it is well under control, I just hope that chokehold on cash doesn’t kill the subscription goose!    ohh Moviepass – never a dull moment – always on the edge!

 

 

 

 

 

Moviepass Stories Have Become the Internet’s Clickbait Machine – It’s Britney BITCH!

I worked for one of the largest websites in the world for many years. MSN.com – we had over 100 Million customers visit monthly. One thing we got very good at, and I hate admitting it, was using clickbait titles and pics to lure customers into our article pages.

The process is extremely easy. Pick topics that are hot in search, create tantalizing sensational headlines, and watch the traffic spike up. Hell, I am doing it with this blog right now!!… it’s hard to quit old habits!

The best headlines are sensational and negative. Nobody wants to read about good news. The best photos are sexy, or scary.  That is why TV News always leads with car wrecks, fires, shootings, and scandals. Nobody wants to hear about great teachers, or doctors saving cancer patients, or a social worker helping somebody get back on their feet. That’s not NEWS that’s boring!

People are weird social animals that can’t look away from god-awful things. They run to see a fire, they crave a good 48 Hours or 20/20 informative murder porn episode. It’s human nature. We are run by fear and flight. And we desperately want to know of the latest tragic thing that happened immediately, and we wonder in fear if it will hurt us next.

On MSN, a great headline is something like “Britney Spears life in shambles after tough divorce, and running out of money”. That would be a clickbait banger! Clicks galore with that one.

One thing you need to know about the online-only business press. These sites are desperate for traffic – they all operate on a razors edge financially, and the competition is brutal. They play the clickbait game as hard as they can.

They also love free and cheap content. This is why you see stories like the “users complain they can’t cancel Moviepass” pop up all over the pace in succession in one day. In that example, Mashable was the first to do the story. Mashable and Buzzfeed are the two original clickbait machine businesses.

Literally, it is their business model. They look for and write headlines that they see in trending topics in search logs from Google, they then try and find some scandal and look for ways sensationalize it.

They won’t do any real research on the topic, rarely will they bother to verify the validity of the story at all. In fact, reporting the rumor is considered good enough – it’s actually great if you are trying to drive traffic because it will get people to argue about it on social media!  That is also great for clicks!.   The primary metric management uses for success is “did people click the headline” from Facebook, Twitter, Instagram or whatever big traffic source they are trying to suck from.

If you work at one of these places your job is to write as many “clickbait” headlines and stories you can in a day. And you are measured by the audience you pull in.  It’s a nasty business- and it requires playing on human emotions, and knowing how to work the click.

These sites act like sheep- if Mashable looks like they got a story that is “clicking” the other sites like Vox, Buzzfeed, Business Insider, The Street, Market Watch etc. will do a “story on the story” so they can get some of those clicks. It’s competitive every day. And they don’t want to lose out. And the cheapest story to go with is the story somebody else has already written. They don’t bother to fact check anything, they simply say. “Reported by Mashable” users can’t cancel Moviepass. Speed is everything, the stories are dead in just a few hours.  Here’s what the media pile on looks like 24 hours later!  135,000 results!  BOOM just like that.  And poor old Mashable who “broke the story” – they are lost in the crowd.  It’s a brutal game.

It’s also a true Journalism nightmare. But these people are not journalists. As I have written about here before, we had deals with a lot of these sites at MSN to syndicate their “content”. So I have actually visited most of their offices. It is fascinating to see it. The scene is a bunch Journalism or English majors interning or just out of college, they make next to nothing and work in near-sweatshop conditions, pumping out stories as fast as they can. Quantity and click-ability rules over quality. It’s scary to think about how inexperienced these people are and really how little most of them know about the topics they write. But it’s a business. And it is what it is.

So it caught my attention today when Moviepass mentioned this little bullet in their Momentum Press Release. (Which. BTW- was great to see! And has some great nuggets in it)

MoviePass is one of the most widely read business stories of 2018.

It reminded me again, the online financial media is almost totally useless.

Read every headline and story with a huge grain of salt. The chances of accuracy are very low.

Good news, unless it is a HUGE upside earnings type story, generally is not covered. Nobody will click on a headline that says. “Company executing well, new customer service team is improving”. That is BORING!!  And definitely NOT clickable.  If one of my interns came to me with that headline, I would slap them across the face with my mousepad!! Give me something people will click on you stupid rookie! We are trying to run a business here!

As Teddy said today in the Fox Business interview, Moviepass is one of the hottest brands of the year. Everyone is talking about it. With that heat, comes the fire of clickbait. Expect Moviepass to be the Britney Spears of the financial press for at least a few more months. Longer if it takes off. Shorter If Britney dies. But if death comes, that will certainly be the click of the day!