Man, that Canaccord report on Helios / MoviePass (HMNY) was one of the worst I’ve ever read (and I’ve read thousands in my career). Believe it or not, I love Canaccord. I have a long history and affinity for Richard Davis. Rich might be my favorite software stock analyst ever. His level of research diligence is impeccable and his track record shows it.
We generally come to the same conclusions. WDAY is the most recent example, but QADA stands out in my mind because it tripled from 11 to 33 under my coverage and has continued on to 46 under his.
But you have to judge a company on an analyst-by-analyst basis… and while Rich is top notch, the author of last week’s Helios (HMNY) initiation report showed that Canaccord has its share of analysts that need more experience.
I won’t call him out by name or belabor the point, but anyone who has done their research knows who he is and has seen his LinkedIn profile. He’s young and very inexperienced. In fact, his own company hasn’t seen fit to make him anything more than an associate analyst.
I can see why.
I won’t go into too much detail because I have a long reputation of not commenting on other analyst’s work, but I’m making a special exception in this case, because he gave HMNY a $15 price target based on metrics and assumptions that boggled my mind.
I’ll only mention a couple (for the benefit of those who have seen the report) and leave it at that:
- There’s no way that the monthly ARPU is coming in at $10.50 this quarter. Do the math. Even the bulls have to agree with this.
- I see ZERO mention or accounting for Costco’s compensation… and I think it closer to 20% than zero. If I’m right that’s an enormous math error. I mean, what’s the price target if you subtract 20% from a major proportion of this (and last) quarter’s signings?
- He has them earning close to $13 in 2022, assumes a 12% WACC, and yet gives them a $15 price target. Anyone who knows anything about DCF analyses should start laughing… right… about… now.
- Honorable Mentions: He also sees the utilization rate dropping from 2.6 movies per customer last quarter to 2.0 this quarter, thinks they’re going to get a 20% cut on 7.5% of the movie tickets they buy this quarter, and doesn’t think they will need to raise any money between now and 2022. I won’t call this “crazy”, but I can certainly think it is.
Regarding the 2.0 utilization rate for this quarter, IDK whose cohort assumptions he’s using, but things don’t seem to be playing out that way so far. If I’m right about this, the problem likely stems from this statistic (quoted directly from Mitch himself):
“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% 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.”
Do the math on that and you’ll agree with Mitch. However, that assumes that only 11% of MoviePass customers are going to be frequent movie goers (in exact proportion to their representation among the movie going populous.
Sorry, but even the bulls have to admit that’s not realistic. This product appeals to frequent movie goers first and foremost. They’re the first ones buying it and they’re more likely to renew than the average someone who goes to 6 movies in the first three months of his/her 12-month subscription period and then goes to 2 in the final four months. That someone is much more likely to non-renew.
So, over time, we could see 50% of MoviePass customers being frequent and 50% being infrequent. That’s not hard to believe because 35 MILLION people fit into the frequent category. ALL of them SHOULD sign up. What percent of them will?
Take your own guess, but while you do, understand that Canaccord only sees MoviePass attracting a total of 12 million customers by the end of 2022. If just 17.2% of the USA’s 35 million frequent movie goers sign up for MoviePass (again, ALL of them SHOULD, because it’s a LOT cheaper than what they’re spending now) then my 50% / 50% scenario plays out…
…and based on Mitch’s quote, that will create a blended average utilization rate of 2.0, which will result in a $300 million loss in 2022, instead of the preposterous $700 million profit that Canaccord has them earning (which, BTW, is based on MoviePass getting a 20% cut on almost HALF of EVERY movie ticket sold in America.
Does anyone out there believe that can actually happen? If so, I’d love to hear from you. The comments section is open to any modestly intelligent feedback or opinions. So far, things have gone well in that regard. We’ve had some good conversations, analysis, and debate.
Indeed, I WANT debate. Someone, PLEASE show me the analysis to convince me that I should be bullish.
wow… just wow.
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