On this month’s episode of Stock Disasters, we once again discuss Helios & Matheson Analytics(HMNY). Last month, our protagonist had announced plans to spinoff MoviePass, despite being insolvent, bleeding money, and having no hope of raising meaningful capital. We suggested, probably a bit too charitably, that it was unlikely to succeed with its spinoff plan.
Some met our post with derision, questioning how we failed to take into account the company’s “new business model” which would assuredly bring them to breakeven. After all, management said so. Management with a track record for destroying all value, but probably different this time, right? Actually, no.
At the time we wrote, management was pursuing a one for 500 reverse stock split, having only recently completed a one for 250 reverse stock split. Well, that plan is dead, the company cancelled the vote “because it does not expect to have the requisite stockholder votes to approve“. So much for that plan.
How about that strategy that was going to take the company all the way to break even? Which, to be honest is a pretty bad goal. You’re not home free at that point, by any means. Guess that strategy failed before it started, because Helios & Matheson announced an entirely new strategy next week, glossing over the failure of the old one. I mean it didn’t fail, it illuminated the path forward, or downward, or something.
“By spending the last several months analyzing the many different aspects of our prior business model, in terms of what worked and what didn’t, I believe we’ve been able to illuminate the path forward. We’ve taken a deep dive to understand our unique ecosystem and I believe we’re now ready to move forward at a rapid pace. I see this as an exciting time for MoviePass and its sister companies, because we’re taking our original vision for subscription, altering it for the better, and proceeding with significant clarity,” said Ted Farnsworth, CEO of MoviePass’ parent company, Helios and Matheson Analytics Inc.
There is some truth in Mr. Farnsworth’s statement. I think all can agree that they have taken a deep dive. So what is this new model? We’ve read through a few times, and despite years of higher education, find it difficult to make heads or tails of it. But, then, successful business models usually defy simple explanation, or maybe that’s nonexistent models. Let’s try to take a look here.
MoviePass™ and MoviePass Films plan to implement a new business model that prioritizes self-generated revenues without dependence on studios or exhibitors, to build more reliable revenue streams.
We’re not sure what self-generated revenues are. Sounds like some kind of perpetual motion machine. Hint: if you keep cycling it around, it’s not revenue. Also, avoids dependence those pesky studios and exhibitors. You know, the people whose product MoviePass devalued. It turns out that if a product is priced right and designed to keep the exhibitors and studios happy, the model works just fine. AMC’s(AMC) Stubs A-List product has proven quite profitable, for example. The key difference? Every time a MoviePass user used a ticket, it cost MoviePass money. But for the theater owner, “CEO Adam Aron said A-Listers are spending 2.5 times more on food and beverages per month than before they joined A-List.” Every time AMS Stubs A-List customers watch a movie, they are spending on high margin products. Loss leaders only work if you can upsell to high margin products too. MoviePass never had any way of doing that and its antagonistic relationship with exhibitors precluded that ever happening.
We believe the MoviePass™ subscription service will enhance box office results of MoviePass Films productions, and that revenues from our MoviePass Films productions will help fuel an expansion of our MoviePass™ subscription service, with the Moviefone™ multimedia media information and advertising service supporting the entire group of MoviePass™ companies.
Umm. Introducing the new MoviePass- watch any movie you want as long as it’s the one produced by our no-name studio with no budget because we had no money. Motley Fool is not impressed either. The WSJ was surprisingly unskeptical.
Management must be all on board though, right? The MoviePass exec running day-to-day operations has resigned along with 3 other managers.
MoviePass provided the following statement to Business Insider:
“As previously stated, MoviePass has moved in a new strategic direction, and will be refocusing our business model to create a more closely connected relationship between our subscription service and original content production unit, MoviePass Films. This strategic shift has been accompanied by changes within the company. Khalid Itum will be leaving MoviePass to pursue his entrepreneurial and travel pursuits. Mitch Lowe will assume all of Itum’s roles and responsibilities, effective March 15. Several roles and individuals within MoviePass, including Joey Adarkway and Jake Peterson, are transitioning from full time employees to contracted consulting roles based on this directional shift.”
How about the numbers? How bad are they really? Turns out the company has a little counting problem.
According to the filing, the errors related primarily to the “overstatement of subscription revenues” in the third quarter of 2018. That included the refunds of MoviePass subscriptions by Costco, back when the wholesale company was providing MoviePass subscription offers to its members, which came out to approximately $700,000 of revenue. And it also included the “erroneous recognition” of approximately $5.9 million of revenue from MoviePass subscriptions that were suspended due to subscription changes made by the company.
This resulted in an underestimated net loss for HMNY of approximately $6.6 million, the company said.
That and other non-cash errors (of approximately $2.9 million) resulted in HMNY reporting its quarter losses as of September 2018 at over $137 million. The company now estimates they were over $146 million.
That’s actually a slick move. Suspend your customers and then recognize revenue as though they had paid you. Until you start looking for the money, anyway.
Anyway, we hope you’ve never owned this stock. If you are ever considering doing so don’t. There is no business here, and there will be no spinoff. There is just pain.
Disclosure: The author holds no position in any stock mentioned and has never owned any stock mentioned.
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