My quick take on the little 10Q earnings fit this evening.
But before we get to that, I saw MI 1005 – or whatever it is called – starring that aging Scientologist – whatever his name is – with my MoviePass card today.
It was sort of fun, but by about 2/3rds of the way through it I found myself hoping it would end soon. How many chases, explosions, karate fights, rubber mask double cross scenes can you really take in one movie? I had to go to the bathroom once during the show and was happy to take the break and let the movie keep running. When I got back to my seat I whispered to my wife, “what did I miss?” She said chasing and fighting with that annoyed look. That was fine by me, there were still 35 minutes more stunts, jumps, fights etc to go…
Even the special effects were at times annoying. I happen to own a BMW 1200GS, like many of the bikes featured in the movie – the same bike the cops chase Cruise on. Ethan Hunt’s bike is an R nine T – same engine I have on my bike. The movie makes these BMW bikes sound like they are winding up like a Suzuki GSXR 750 with racing pipes on it. It is like taking a Mercedes SL Class and making it sound like a 86 Honda Civic hepped up by some high school kid. It’s ridiculous!
Also a little crazy was the after-hours spazz out over the Q10 released today.
Seriously what were people expecting?
This is a company that has been EXTREMELY transparent about their cash burn, and has been hanging on by a literal thread taking on loan shark like bridge loans to stay alive over weekends while their main product was melting down. Did people really think the numbers were going to be good?
And were they really that much worse than expected? In some areas NO, in some areas maybe a little concern:
Gross Profit was -$105 Million. Yep they burned a shit ton of cash. We knew that!!! It was not new!! Does nobody remember this?
Directly from the 8K on June 21st the company said.
“From May 1, 2018 through June 15, 2018, we acquired approximately 545,000 new paying subscribers. Due to our greater than anticipated subscriber growth in May 2018, our cash deficit for the month of May 2018 was approximately $40.0 million and we anticipate our cash deficit for the month of June 2018 will be at least $45.0 million due to significant subscriber growth and strong box office results of recently released films. As the MoviePass subscriber base increases rapidly, and as we increase our investments in movies through MoviePass Ventures and MoviePass Films, and make other acquisitions, our monthly cash deficit will continue to increase in the coming months.”
So May and June alone were already announced as -$40 & -$45 Million. That is -$85M we already knew about for those May and June.
That logically means that April was -$20M — For those who don’t get the math. (April -20 + May -40 + June -45 = QTR -105M) . Were people hoping that April was somehow a way better month? That seems totally illogical to me. The GP is pretty much exactly where we thought it was going to be. And all of this crazy Cash Burn was before the big changes really started coming in. Surge Pricing didn’t start until July 5th – or thereabouts.
SG&A actually came in lower than I have modeled at $20.5 Million. That is pretty lean for a company of this size. I had $36 Million guesstimate in there.
The $72.4 Million in Subscriber Revenue seemed like a pretty good number to me, particularly when the company is sitting on $65.3 Million of Defferred Revenue. (This stuff gets a little complicated. But Deffered Revenue sits as a liability until it is recognized over the life of the subscriber as Revenue. This is what makes yearly subscriptions nice, it allows for smooth revenue delivery over the period of the contract.) . Last QTR the company did $47.1M in, so it had a big jump in sub revenue in the QTR.
The biggest disappointment in revenue – and I don’t know how this number could come in a bad as it did was the Marketing and Promotional Services number. It was actually LOWER than last QTR! It came in at a lousy $935K vs $1.44M last QTR. That one needs some explaining from management. This is the area where the profits were supposed to come from. This was the reason behind buying Moviefone. This is supposed to be the area where they are monetizing their data, and studios were going to pay money for it! To me, this smells like really bad execution. And if I had once big worry about this ER, this would be it. Studios don’t seem to be willing to spend money with MoviePass yet, and the theater deals are coming too slowly as well. The industry seems to be giving them the finger. That will have to change, if it doesn’t, that makes the story much more difficult.
That brings us to the next worry wall from earnings. New panic has set in over the dilution – wait – really – Ted is going to dilute the stock? Wowser – that fear was new… OK – sure. Not really no.
But I think folks have had a very legitimate worry that Ted is having a little too much fun playing Hollywood Movie Mogul, and he is funding his good times with stockholder’s money. Ted and Mitch have said that they would be buying films multiple times in both interviews and in SEC filings. They belive exclusive content can differentiate the MoviePass experience and bring added revenue to the company- from Box Office receipts to downlevel revenue streams from content DVD, streaming etc. That is what MP Films & Ventures was all about.
The problem is, stockholders don’t want to hear about spending more money on risky investments in films while the company is hemorrhaging cash. That is understandable. Here I actually thought the news was pretty good. In the QTR the company spent ONLY $2.052Million “Net Investments in Films”. That is a LOT less than I think people thought they had spent on Gotti and whatever that other forgettable heist movie they funded. I will write later on how I think they are getting parts of these movies on the cheap by guaranteeing audience delivery. But at least up through this QTR, the fear of Ted going totally crazy on Movie Spending to impress his new Hollywood pals seems to be largely under control.
Is there other stuff to worry about with this ER, probably. But nothing that stands out as totally unfixable or way out of line from what we already knew.
The biggest head scratcher for me is why are the Studios not spending more money with them? This thing does not work well without that piece. They need to find a way to work with Hollywood much better. Mitch has mentioned this in his last set of interviews and said it on Cheddar that they have found a better approach to working with Studios. Let’s hope so!
As for cash burn, dilution, and Ted going nuts buying movies. All of that looks like it is about to turn much more positive starting tomorrow with the big 8/15 change over day.
People are freaked out about the new share count of 636M. That is a lot of shares, and it is an insane amount of shares pre-split. Some 159B. If you gambled before the split, and I was one of those suckers – you likely never going to see that money back. But there is some interesting math you can play with where you could get a portion back. But in all likelihood, we will never get a dime a share back. And even that would be good at this point.
At .03 a share – we are back to the company being valued at basically nothing. $19M Market cap against 636M Shares Outstanding.
Again – this was not new news. 5B shares had already been approved. And we all knew that ATM was the only source of funding. Didn’t we?
Consider a scenario where the stock goes down to .02 cents and Ted goes all the way and floats the full 5B shares he has available. Maybe he can raise $75 more dollars doing that. That would give the company a $100M Market Cap.
So basically what all this means is that the company has to live off what it catches within the next few months. It literally has to break even fast. If it doesn’t, well- I suppose crazy Ted could try another RS. And see if he can play the game one more time. If he does that. It is another easy short. And at that point might as well hang it up.
I remain optimistic. And I don’t frankly give two shits what the bears are saying about the stock. I think the new change over can work to get to breakeven, and I think the stock is priced to go out of business.
That said – it is gambling, and if you can’t afford to lose it, don’t put it here!!!