I Have Not Given Up on MoviePass

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.

  1. Subscriber Base
  2. Revenue Run Rate
  3. Total Online Audience including Moviefone
  4. Technology & Patents
  5. 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>>>

 

 

 

 

MoviePass Valuation Comparisons to Other Unicorns

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!

MoviePass is Crossing the Chasm Into the Tornado – We’re Dancing Man

As long-term investors in HMNYwe feel like we are dancing alone this week.  We have been rejected by the market, we are embarrassed, alone, we feel like maybe it would be less humiliating to just sit down, or leave the concert altogether.  This is the hard life for startups and their investors.   Being an innovator can be very lonely, sticking to an idea when everyone else is running away or rejecting you is one of the hardest things an investor can do.  People, humans, are animals, they run in herds.

Please take a couple minutes to watch and listen to Geoffrey Moore the originator of Crossing the Chasm walk you through this incredible example of “Dancing Man” from  2009 Sasquatch.  It is a fun video and it explains the phenomena of Crossing the Chasm better than a thousand more words here ever could.

I believe that MoviePass is now at the very scary and most critical juncture for a startup company, it is attempting to cross the chasm from Early Adopters to Early Majority.

Crossing the Chasm

 

All the signs of MoviePass attempting to cross the chasm are emerging at the same time.

  • Early Adopters are already in!  They love the service.  An incredible 83% of MP early adopters say they would recommend it to a friend.  The classic WOM* has been achieved.
    • The percentages neatly mirror the adoption lifecycle.  MoviePass is buying approximately 9-10% of Movie Tickets – matching the early adopter segment perfectly.
    • Mitch has stated consistently that the magic numbers needed to achieve profitability are 5 Million Subscribers and around 20% of tickets purchased.  I am sure Mitch knows these numbers land him just on the other side of the chasm, where the early majority adopts the service, and a new category is fully established.
  • Investors are losing their shit!   Investors, venture capital, always get very nervous at this point in the lifecycle, and this is why HMNY is getting killed in the market.  VC’s and Wall Street guys are big on vision early, and the freak out when it takes just a little more money or time to get to that vision.  They get impatient, they literally freak out, they demand their money back, they look to change management (which BTW has already happened at MoviePass), the give up.  I have seen it many times in other investments, crossing that chasm takes vision and balls that most investors seem to lack.
  • The media is freaking out!  This stage is where a lot of good ideas – (but weak companies) with strong early momentum with the early adopters often die.  As such it is understandable that the vultures of the media who love a good car crash and scary death spiral story are seizing the moment to create some clickbait headlines.  All of this should be expected right now.

I believe that MoviePass will cross the big scary chasm and live on as a big successful game-changing company.   I have not lost faith.  Here’s why.

  • Bankruptcy Looks Unlikely – No Debt Lots of levers
  • Product Changes to adapt to Early Majority customers are now baked into the product.   The incredible PR and WOM derived from the too good to be true offer has done the heavy lifting in for Early Adopter phase.  Limiting to a single view of any title and reducing fraud with ticket stubs are now in and reducing costs.
  • Lack of competition.  MoviePass has an incredible lead over any competition, and it’s is now extremely unlikely any more new entrants will come into this space.  Yes, there is that Turkish company, but they look like a Bing vs. a Google.  No brand there, the offer is weak, and can’t catch up.
  • The entrenched establishment now looks shaky and scared.  AMC lashing out at MoviePass and subsequently seeing their stock tank after an earnings beat – infused from MoviePass is all you need to see to know that MoviePass has the establishment wondering what the hell they can do now to stop this thing.   Again this is a classic crossing the chasm point, where the entrenched competitors realize they have to make some kind of move.  I think it is too late for AMC, they will have to acquiesce.
  •  I have a gut feeling Early Majority has already started.   As I have written about many times in the past, at my local theater the employees I talk with estimate that MoviePass is making up around 30% of tickets sold.   These are kids, who don’t have all the data, but they see people coming in every day, and they know the trend.  These kids say they are seeing the demographics change to more “normal” people, not just movie fans.  That my friends is the beginning of crossing to the Early Majority!   This is a hard one to put a finger on, pure data can lie to you when trying to figure out if the cross to Early Majority is underway.  Truly it is a gut feeling tied to data that tells you when that transition is underway.  The kids working at the theater are feeling it!

So what should investors in MoviePass do now?

Well,  first of all, I have learned one big lesson, don’t take my advice for timing, so far my advice on timing has been terrible, and for that, I truly apologize.  Mark Gomes got the timing so much better than me, if you are a trader looking for a quick turn, I would yield to him on timing calls, he has nailed it – so far!     I hate losing money, and I hate it when friends, readers, and others lose money.  So far, I have not lost money because I have not sold a single share, but man do I wish I would have listened to Mark about my entry point for this stock.  Calling tops and bottoms is really hard, and I missed here.

With that govelling out of the way.  My advice to those who are already in the stock, I think you should on and see if MoviePass can indeed Cross the Chasm, if they do, you will be richly rewarded.

If you have not read Geoffry Moore’s Crossing the Chasm, I highly recommend reading it – it is a classic and one I think all serious investors and entrepreneurs should read and understand.

I also highly recommend “Inside the Tornado”, which adapts Moore’s original works to be more relevant to B2C disruptors like MoviePass.

*Word of Mouth 

Why Did HMNY (MoviePass) File That Alarming 8K?

We all now know that HMNY filed an 8K that set off alarm bells, causing a media panic claiming MP was close to running out of cash, sinking the stock 60% in two days.

The specific statement read.

As of April 30, 2018, we had approximately $15.5 million in available cash and approximately $27.9 million on deposit with our merchant processors for a total of approximately $43.4 million. The funds held by our merchant processors represent a portion of the payments received for annual and other extended term MoviePass subscription plans, which we classify as accounts receivable on our balance sheet and which we expect to be disbursed to us during the course of 2018. We believe that our average cash deficit has been approximately $21.7 million per month from September 30, 2017 to April 30, 2018. By the end of April 2018, we implemented certain measures to promote the fair use of our MoviePass subscription product, which we believe should reduce our monthly cash deficit significantly. These measures include a technological enhancement which prevents MoviePass subscribers from sharing their accounts with non-subscribers and allowing subscribers to see a movie title only once per subscriber using the MoviePass subscription. We believe these measures enabled us to reduce our cash deficit during the first week of May 2018 by more than 35%. In addition, by returning to our $9.95 per month unlimited MoviePass subscription, enabling subscribers to see up to one new movie title per day, we believe our subscriber acquisitions and subscription revenues will continue to increase for the foreseeable future. However, we will need proceeds from sales of our common stock pursuant to our Equity Distribution Agreement with Canaccord Genuity, or other sources of capital, starting in May 2018. Further, if we use all or a portion of the anticipated net proceeds from sales of our common stock pursuant to our Equity Distribution Agreement with Canaccord Genuity for acquisitions of other companies or financial interests in additional movies (through our subsidiary, MoviePass Ventures), we will need additional capital to offset our monthly cash deficit. In 2018, we expect our cash deficit from month to month will vary significantly based on the amount of movie tickets MoviePass is required to purchase for its subscribers during the month, the amount we spend on acquiring financial interests in additional movies through MoviePass Ventures, the amount we may spend on any other types of acquisitions, and our ability to develop the MoviePass business model in the near term generally, including developing and growing sources of revenue other than subscription revenue. Because the length of time and costs associated with the development of the MoviePass and MoviePass Ventures business model is highly uncertain, we are unable to estimate the actual funds we will require. If we are unable to obtain sufficient amounts of additional capital, whether through our Equity Distribution Agreement or otherwise, we may be required to reduce the scope of our planned growth or otherwise alter our business model, objectives and operations, which could harm our business, financial condition and operating results.

But many of us could not figure out WHY the company came out with this statement, and why NOW?!  There was very little new news in the statement.   If you break it down, the company said they will need to raise more cash, which they have already said they had planned to do by selling shares, and they said they would do this as they needed the funds.  So that was nothing new.   The cash burn level reported was also not new news.  Mitch and Ted have both said that they were burning in the $20M a month range in several previous interviews.   The statement also said that management had taken steps to reduce COGS, and that by adding the limitation of only seeing a title one time, and enforcing photos of ticket stubs, had reduced usage and fraud, helping to bring usage down more than 35%.   This was great news, but it had also been mentioned in prior interviews earlier in the week.  Nothing really new again!

So why then did HMNY – MoviePass -feel the need to release this 8K at all?   I have researched this, and the answer is that this is a requirement that they must fulfill by SEC regulation based on that fact that they are operating under a “going concern” audit finding.    The going concern part of this is nothing new.  In fact, it has been known for some time now.   What most investors do not realize is that once you have this finding attached to your company, the disclosure rules for the company change.

This is a complicated bit of accounting rules and regulations and if you want all the details you can read them here.  But the cliff notes version is that any updates both positive and negative that could significantly impact the “going concern” status of the company must be announced as they occur.    So the changes to MoviePass to reduce cash burn had to be disclosed.  And with those changes, the change to the cash position, and the intention to stick to the plan of raising more money with additional stock, also had to be disclosed.  Regardless of the fact that both of these things were already known by investors who were closely following the company.

To put a fine point on it – new developments that are POSITIVE – that will help reduce the “going-concern” issue with the company, must be disclosed.

Specifically —-

“The going-concern standard explains that these disclosures may change over time as new information becomes available and that disclosure of how the substantial doubt was resolved is required in the period in which substantial doubt no longer exists (before or after consideration of management’s plans). In addition, the going-concern standard states that the mitigating effects of management’s plans to alleviate substantial doubt should be evaluated only if (1) the plans are approved before the financial statement issuance date and (2) dboth of the following conditions are met: a. It is probable that management’s plans will be effectively implemented within one year after the date that the financial statements are issued. b. It is probable that management’s plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.”

It is reasonable to believe that Mitch and Ted actually believed that the filing was routine and that there was some substantially positive news in the filing that had only been mentioned one or two times in TV interviews, and this filing would make it official that MoviePass is making great progress in moving toward a more profitable future.

Unfortunately, the 8K hit within less than 24 hours of AMC CEO Adam Aron throwing MoviePass under the bus.   Adam made a bunch of nasty and false comments on how MoviePass was certain to be in a death spiral.  And made a bunch of false assertions on usage amongst other bizarre comments.

The timing could not have been worse for HMNY to release the 8K, it set off a literal $hit storm of bad headlines, causing retail investors to panic sell the stock.

Was this bad execution on the part of HMNY?  Probably – however as SEC forms go, it takes a few days to file them and companies may not know exactly what day the form will hit the SEC website.   So maybe it was just unfortunate bad timing.

Should HMNY and MoviePass do more to stop the stock price from falling?  Maybe, but there could be other restrictions they are under for releasing information.  We are close to ER, where there is normally a quiet period prior.  Also, we don’t know what is happening with the final acquisition of MoviePass and the rebranding of HMNY to MoviePass.  Also, we don’t know what is happening with the spinoff of Zone and if there is a quiet period there.

It is actually possible that this entire episode is very much ado about nothing.  And that Mitch and Ted both have their hands tied in how much more they can really say to calm investors fear of near-term Bankruptcy.   Afterall, Farnsworth and Lowe have both stated in separate interviews that they are confident they have plenty of options for additional funding and that they at least are not worried at all about insolvency.

My conclusion, the drop was scary and shook out a lot of early shareholders and retail investors who just don’t have the stomach to take these kinds of losses, even if they are just on paper until you sell.  The series of events was a great gift to the short sellers who are paying big money to short this stock because they don’t believe in the model, or they have ulterior motives for wanting to have HMNY not be successful.

It seems unlikely that HMNY is headed for Bankruptcy anytime soon given they have virtually zero debt, and a lot of options to keep on trucking as a “going concern”.

My view – if you liked this stock at $7 or $4 or even $2 – you should love the stock NOW at .85 cents!

Nothing significant has really changed!   Go review all the video interviews I have cataloged here.   You will see that the story has been consistent, that there was really no big new news at all, and that Farnsworth and Lowe consistently have said they would need to raise more money as they built out a 5 Million user subscriber base.

Don’t let greedy Wall Street hedge funds and sneaky short attacks from competitors like AMC scare you out of what will be a great long term investment!   Hang in there, average down if you can stomach it.

As Mark Twain once said.

“The rumors of my death have been greatly exaggerated”

Why I see MoviePass utilization rate staying in the 1.2 to 1.5 range

I have now received a LOT of feedback on my MoviePass revenue model published on Seeking Alpha today.  By far the biggest area of feedback has been from people who disagree (sometimes violently and rudely) with the  utilization factor I used in the model.  This is the number of times per month on average MoviePass users will see a movie.  I used 1.4 in my model.  Many people emailed me and said I was crazy, the usage will be way higher the say! Lots of people gave me anecdotal evidence about how they use MoviePass all the time and so all of their friends!    It will be at least 4 a month!  Your model is junk!  2 is the lowest it will ever go!  booo !  Hiss!!    models like Mark Gomes ramp it to over 4.   and shorts have loved that logic!

Why do people care so much?  Investors know, the Utilzation rate has a massive impact on the model and on MoviePass’ fortunes, so I wanted to revisit my assumption here and more fully explore the topic.  As if I am way off, my model will be wrong, and it would not be good for the company or my long position in HMNY.

First, it is worth noting the company has claimed it sees utilization rate settling at 1.2 average over time.  

Many have pointed out that the company had mentioned a number over 2 in SEC reports, I have not been able to find those numbers as of yet. But if somebody has a link to send me, please do!  

In the most extensive interview done yet on the MoviePass business model Mitch Lowe and recode’s Peter Kafka –  Mitch explained the usage numbers this way.

Here’s the trick: 89 percent of American moviegoers only go to four or five movies a year. When they join MoviePass, they double their consumption and go to about 10 a year. That’s a little bit less than one a month. They balance out the 11 percent of the population that go 18 times before joining MoviePass and then after go three times a month. It works out. Over time, it actually works out to be about one movie per month per subscriber. Now, some people do go to 10, 15. We even have one guy who on this 40th birthday challenged himself to go to 40 movies in 40 days. We do have people with a fair amount of time on their hands.”

So if we use these numbers form the CEO! – It would put the Utilization factor at 1!

As you all know, I am believer and a bull on MoviePass.  But even I have a hard time accepting a usage factor of 1.  It just seems too low to me. That is a gut feeling.

Another interesting source for utilization rate was posted here on reddit.

This model does an extrapolation of total movie tickets sold and the % of tickets sold by MoviePass over a 4 month period and does a calculation from there to come up with an average number of tickets per subscriber.  This model lands at around 1.3 to 1.5 Movies per month. The author comes up with a final analysis stating.

“With a TLDR: Moviepass bought at most 14,499,069 tickets from movies released between Novemember 1st – March 24th which is an average of 1.53 movies per subscriber.

A better estimate using 6% of the box office for the missing data is 12,384,621 tickets sold for an average of 1.3 tickets/month per subscriber. Most likely the average subscriber goes to 1.3-1.53 movies per month”

In my model I factored in that MoviePass has capped users with the most recent promo with iHeartRadio at 4 movies a month.  That keeps the heavy users from skewing (& screwing) up the average. MoviePass has also made some significant moves to reduce fraud and started to get more aggressive enforcing its terms of service.  In some cases discontinuing Heavy Users subscriptions.

So the hard facts we have from the Company CEO, and from other detailed models do show that my estimated 1.4 Utilization Rate is actually pretty reasonable after all.  It is higher than what the Company publicly states, and within the high range of the most detailed model I could find.

Then there is a more subjective view I think is important to consider.  

Most people simply do not have the time to see more than 16 to 17 movies a year. Which is what a 1.4 utilization rate would bring.  In reality most don’t have the time to see more than 1 movie a month.

Let’s look at some data to backup that claim.   

The Average feature film is around 90 Minutes long.  That does not include previews, ads etc. that accompany most viewings, that easily ads 15 minutes to the experience.  If you add in the commute time to the theater, I estimate 15 minutes each way for 30 minutes total commuting time you get to a total time commitment of at least 2 hours, likely more, but I will use that number to be conservative.

A 1.4 Utilization Factor or about 16 movies a year x 2 Hours equals 32 hours a year committed to movie going.  Almost an entire work week spent at the movies? I just don’t think most people have that kind of time to spare.   

We have all read the research and seen the many articles on how busy Americans are.  The work week continues to get longer, people don’t take their allotted vacation days, we live in what is now called the “busy culture”.  Not to mention there is incredible competition for our free time and lots of attractive media options when you want that media escape.   

Going to the movies typically means finding somebody else to go with you – although more people are starting to go it alone with MP.  It also means finding a show and a time that works for you, it could mean getting a babysitter, and it may mean you have to leave your warm dry house and go through inclement weather just to see a show.  There are a LOT of good reasons that people think they will go do something, and finally reality sets in and they make other plans, admit it, it happens to you all the time!

Finally, If you are reading this article – know that you are NOT normal!  You likely care about movies more than most people. That is likely why you found out about MoviePass in the first place.  You are also a subset of the population who actually cares about individual stocks. You live in a small cohort world, you are not the “average” consumer.  So if your gut – subjectively is telling you people will see a lot more than 16 movies a year. You are probably wrong, and you just don’t know it. The data doesn’t back it, nor does a longer examination of the subjective thinking on the topic.  

So with that – thank you again to all who sent feedback – some of it angry 🙂 on how stupid my model is because my Utilization rate is a fantasy!   Maybe that fantasy is actually your own….