MoviePass Admits To Misleading Statements; What’s The Truth?

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Oh man. Just when you thought this story couldn’t get any crazier. In the wake of this bombshell, I will help HMNY shareholders understand what their stock might actually be worth.

Let’s start with something I said in my last post. It’s actually something that HMNY shareholders already know (all too well):

Institutions (many of which are non-shareholders to begin with), have been benefiting from HMNY’s financing deal terms. By simply being a Canaccord customer, they’ve been getting HMNY for 30%+ below market price (and getting free warrants as a bonus).

Meanwhile, loyal shareholders are getting diluted by those very same deal terms.

Welcome to Bizarro World. HMNY’s loyal shareholders are the only ones holding the stock price up. Yet, they are the only ones getting crushed.

Management has attractive compensation package. Theaters and studios are getting more business at no cost. Investment bankers are getting a nice cut of each funding round. Funding round participants are getting a big discount and warrants.

Does this seem fair?

As if things weren’t bad enough, last night TechCrunch reported that CEO Mitch Lowe has officially admitted to “misleading both consumers and advertising execs with statements last week that the company tracks the location of users before and after they go to the movies.”

“We don’t do the things I described,” he told TechCrunch. As for location, “We don’t record it, we don’t save it, we don’t follow it.”

Of course, this comes as no surprise to me. I’ve been saying this for a long time (and even repeated myself just two days ago).

“The amount of data that MoviePass has about you as a customer is relatively small. I’m a MoviePass customer and they don’t have much data on me. They don’t track me around because my location is not always on for them, nor is the app open very often. So that’s an overstated opportunity IMHO.” – Mark Gomes (March 11, 2017)

Incidentally, I’ve also been saying that Helios is not a Big Data company of any consequence. I covered Big Data companies before officially winding down my Pipeline Data operations. I can honestly say that none of my industry research contacts ever gave them any credit for offering anything of substance.

These revelations call into question the timing and credibility of MoviePass’ long-term plan and strategy.

Mr. Lowe said it himself:

“Sometimes I get all excited about our future vision of a night at the movies and building an ecosystem around it,” he said. “I need to correct what I said. The way I portrayed what we do is not accurate. I implied we know where you are when you’re on the way to the movies, and that’s not what we do.” – Mitch Lowe

For the record, I’m not here to do a victory dance. This isn’t about being right. It’s about properly analyzing the information at our disposal. Anyone with enough Wall Street experience and an unbiased mind can do that. The only thing I’m doing is quantifying their public statements against public industry data points.

As data experts, they must know what their statements look like when run through a simple spreadsheet, no?

Personally, I’m becoming more and more disappointed by the day, because I want MoviePass to succeed, but I’m not going to fool myself into thinking it’s going to happen just because the story and vision sound good. I’ve heard (and often invested in) enough great stories in my career to know that most of them prove to be nothing more than pipe dreams.

This is well known in the investment industry. It is often stated that even successful VCs build portfolios of 10% winners and 90% losers.

The key is having the professional experience to identify enough winners (and losers) to maintain a healthy slugging percentage (because hits have varying degrees of value).

For the record, I offered to help the company with their messaging and strategy many times (it was a part of my job for many years before launching Pipeline Data).

Interest was expressed, but they never followed up.

Moving on… I’ve also previously explained that loyal shareholders are being penalized because institutions aren’t supporting HMNY’s valuation. This is largely because they smell more rounds coming (never mind their doubt in the business model and executive management, due to their wildly-variable public discourse).

In the meantime, MoviePass continues to require more funding. This is not just my opinion anymore. If management’s statements are to be believed (which we now know is questionable), the rounds of financing are going to become increasingly critical and onerous:

“…it is losing money at a phenomenal rate and only survives by frequent cash infusions.” – TechCrunch

“Today what you do is you raise enough money month by month to fund essentially that negative cash flow” – Mitch Lowe

I understand the strategy. They’re trying to build their customer base to a level where they can exert power over industry participants (especially theaters). The key question are, “How many customers is enough?” and “How much funding will that require?”

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The answer to the first question remains to be determined. However, based on management’s recent public statements and year-end goals, it’s pretty safe to say that 5 million subscribers is the minimum needed.

This makes sense. I’ve previously analyzed how much $$$ MoviePass believes it is bringing to the theater operators. That analysis concluded that a moviegoer becomes nearly 3x more profitable when they subscribe to MoviePass (again, assuming that MoviePass is correct in their assumptions, which has been a hit-or-miss affair to this point).

This is good news and bad news.

It’s good news, because it gives MoviePass the right to ask for a cut of the benefits they bring to bear. However, it’s bad news because the theater operators are currently getting this benefit for free. It’s also bad news because the benefit is so big, MoviePass has to stop supporting about 65% of an operator’s theaters to create a negative impact (relative to the original status quo).

Thus far, they’ve only stopped supporting 10 of AMC’s theaters nationwide. That’s about one percent (1%) of AMC’s theaters. If they shut off 65% of AMC theaters, I suspect that the backlash from MoviePass customers would be far more devastating than the impact on AMC.

That’s especially true at present, since MoviePass only has 1% of all moviegoers as customers. ONE PERCENT. That’s not enough to scare any theater chain, major or otherwise. That’s why MoviePass is rushing to obtain 5 million+ subscribers.

The minor theater chains are cooperating, but only because they need all the help they can get to gain market share against the majors. If they don’t, they will lose the ongoing industry battle of attrition. That makes MoviePass the ally of minor theaters and the enemyof major ones. This is why the majors aren’t playing ball.

To force the issue, MoviePass needs a lot more subscribers. To do that without a cut from the majors, they will need to raise a lot more money.

This was confirmed by Mr. Lowe’s statement last night that they hope to get to cash flow break-even early next year. Of course, that’s a big change in his January guidance which called for them to be cash flow positive this month. Of course, we now know (though I’ve been saying it for a while) that the numbers don’t match what management has been saying.

This is all clearly outlined in my models (which, again, have been built on assumptions provided publicly by Mr. Lowe — see my last post).

By the way, I’m not saying that MoviePass won’t be successful… but I am saying that there won’t be much value in the stock, even if they are. Regarding that success, if they can keep convincing investors to give them funding, they might be able to build the critical mass needed to force theaters to give them a cut.

I’ll explore where that can lead them, momentarily. Before I do, allow me to reiterate…

The major theater operators see MoviePass as a threat and an enemy, not a ally or a boon. They donot want to give MoviePass a cut.

Here’s another reason why…

It’s 100% true that MoviePass can deliver increased profits to the theaters. However, giving MoviePass a cut will aid their quest to become a strategic industry powerhouse.

Anyone with an MBA (or enough business experience) knows that you don’t trade a critical strategic advantage for money (unless it’s a lot of money… as in a buyout).

So, while the money is great, the major theater operators would surely prefer to see MoviePass either 1) tread water, below critical-mass levels or 2) go out of business.

The majors are already increasing profits and market share via theater renovations, electronic ticketing, liquor sales, etc. This is causing the gradual disappearance of weaker competitors, who can’t afford (or won’t risk) making the same moves as their larger competitors. As these weaker theaters go out of business, industry capacity shrinks and market share increases, both of which are positive for profit growth…

…and they don’t need MoviePass to accomplish this.

In fact, MoviePass is actually hurting the major theaters by helping to keep weak theaters afloat. This is why MoviePass is an enemy and a threat in the eyes of the major operators.

But don’t take my word for it…

“the road to getting a share of concessions — famously the most profitable part of the (theater) business — will be a bumpy one, especially given the antagonistic stance MoviePass has taken with industry leaders like AMC.” – TechCrunch

These are simple laws of business / economics.

Anyways… getting back to the money and critical mass, if MoviePass can raise another $800 million in funding, they may be able to gain enough critical mass to pressure the major theaters. Even bull leader, Ben Rabizadeh, is outspoken in his expectation for $1 billion in total fundraising. We’re in the same ballpark in this regard.

Of course, that would be positive for MoviePass. However, believe it or not, current shareholders might not benefit much, despite to the high risk they’re incurring. Here’s why…

The last round of funding priced at $5.50 with warrant coverage, which drove the stock down to $$4.50 (even though the stock was trading at $8 beforehand). The round before that priced at $6.50 with warrant coverage, which drove the stock down to $5.50 even though the stock was trading at $10 beforehand.

The rounds were both done at 30%+ discounts and included warrant coverage. The warrant coverage entices arbs to participate, but also leads to post-deal selling pressure. You see, arbs buy the units (the stock + warrant) and then sell the stock. If they get a decent price for the shares (which is a good bet, since they’re buying at a 30%+ discount to the prior day price) they’re left with a cheap effective price on the warrant.

On the last deal, those who were able to get $5.50 for their stock were left with a free warrant — a free 5-year MoviePass lottery ticket. No wonder they bought in — who wouldn’t?

Arbs don’t care about the value of the stock. They just need to sell at a good enough price to end up with a cheap warrant. The resultant selling pressure knocks the stock down. For HMNY, the knockdown has left the stock an additional 15% lower each of the last two times. This is common in deals that are structured like this — it also happened to my shares of SMSI last week.

Thankfully, SMSI doesn’t need any more money. However, MoviePass / HMNY does (again, based on the statements management has publicly made about year-end customers and utilization, among other things). In other words, a continuation of that discount / knockdown trend is to be expected.

The reason is simple…

HMNY’s share count is rising at an acceleratingrate. That increasingly reduces the long-term upside for investors (the “S” in EPS). This keeps institutions away (even bullish ones, because they know they can simply open an account with Canaccord and gets shares and warrants for a 30%+ discount when the next round comes up (spoiler alert: soon???).

That leaves retail investors to shoulder the load of an ever-larger share base. That load becomes harder to shoulder as more investors realize that the rounds of funding will continue (and with increasing regularity, because the cash burn is likely to worsen until they achieve enough critical mass to secure rev-share deals with the theaters — I’ll explain why shortly).

If you run the numbers using management’s statements + the last two rounds as guide, you’ll find that HMNY could end up with 1.3 billion shares outstanding before critical mass is achieved. At that point, the stock might finally be able to start rising, but millions of warrants would go into-the-money all the way up, raising the share count to something closer to 2.5 billion in my personal model.

I’m not making this stuff up. I’m simply typing numbers into a spreadsheet and seeing what comes out… same as I’ve done with every company I’ve analyzed since the early 90s.

This is why I’ve been talking so much about modeling the capital structure. If you haven’t modeled the capital structure (or don’t understand what that means), you’re investing with at least one eye blind.

And lest we forget, if they end up with 2.5 billion shares, a 20-cents share price will be enough to trigger Mr. Farnsworth’s 10% stock bonus… yet, common shareholders will have lost 95%+ of their money from current levels.

Market Capitalization Milestone Bonus. Mr. Farnsworth will receive a stock bonus based upon the Company’s achievement of certain market capitalization milestones during the term of the agreement, as set forth in the table below. Each award of common stock to a market capitalization milestone will vest upon the later of February 15, 2019 and the end of the applicable three-month period following the applicable date of the grant. The Company’s market capitalization for each applicable milestone and measurement period will be determined based on the market capitalization reported by Bloomberg LP.

Market Capitalization Milestone Percentage
$100,000,000 3%
$150,000,000 3%
$200,000,000 4%
$250,000,000 4%
$300,000,000 5%
$350,000,000 5%
$400,000,000 7%
$450,000,000 7%
$500,000,000 9%
every additional $100,000,000 thereafter (cumulated with the applicable immediately preceding milestone) 10%

Each milestone above is a separate milestone for which Mr. Farnsworth may earn the applicable percentage. Mr. Farnsworth will be entitled to earn the applicable percentage for each milestone only once.

In other words, management’s incentives are not properly aligned with common shareholders. I said this on the day that this comp plan was announced (and I believe I was still long the stock on that day).

The silver lining? The warrants being triggered would bring in $1 billion+ of additional capital. However, if MoviePass reaches that critical mass and eventually earns the maximum enterprise value ($28 billion) I outlined last week, that $1 billion will only add 4% to the market cap.

That maximum valuation (let’s round it up to $30 billion), divided by 2.5 billion shares, equates to $12 per share. From these levels, that sounds pretty good… until you realize that it took Netflix 17 years to achieve a $30 billion valuation.

And as I’ve said before, MoviePass is nothing like Netflix. NFLX acquires content once and shows it millions of times. There’s virtually no extra cost for a subscriber to watch an extra movie or show. That’s called a “scalable model”. In contrast, MoviePass pays $10 every time. Even if MoviePass accomplishes its goals (rev shares, etc.), the model can never be as scalable as NFLX’s.

Thus, from these levels, I believe that retail investors will endure several more funding events (even some of the mega-bulls agree), which I believe will continue resulting in dilution and stock price knockdowns before eventually, possibly, maybe, getting that $12 reward.

Final calculation — that “success scenario” only equates to a long-term average annual return of 6% for MoviePass loyalists.

Of course, that long-term success scenario valuation is dependent on everything that management, Canaccord, and Maxim have outlined (which more of us now know to be questionable).

Concessions are in doubt. The “Night At The Movies” vision is in doubt. This places the entire model in doubt. According to uber-bullish Canaccord, those two items represent 40% of MoviePass’ ancillary revenue opportunity.

If you believe Canaccord, MoviePass will get a 20% rebate on nearly half of the tickets they have to buy by 2022. If you don’t believe that, there’s another chunk of their opportunity out the window.

If you ask me, their true maximum potential (if I’m being kind) is closer to 16 billion or around $7 per share in my long-term model.

But wait… the entire theater industry only has a total market cap of around $10 billion. So, the bulls’ assumptions suggest that MoviePass will eventually attract a valuation of three times more than the entire industry has been able to achieve.

Just sayin…

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Disclosures / Disclaimers: I have no position in HMNY. Nor is this is a solicitation to buy, sell, or otherwise transact the stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The sole purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

37 thoughts on “MoviePass Admits To Misleading Statements; What’s The Truth?

  1. I agree it’s time to be bearish but I believe it has NOTHING to do with the math of the business model. The business model makes sense and if there was better management in place, they could have raised $1B at much better valuations. The conversation is finally where it needs to be. MANAGEMENT.

    I initially invested mostly because of MITCH LOWE and his background at Netflix and Redbox.

    However, in recent weeks, we have seen some issues with Mitch:

    1. I thought it was Ted with loose lips but then Mitch followed Ted’s act and started talking about near-term cash-flow neutrality and then profitability at 3-4M subs. He then had to back track from this after the Cannacord report came out and has been saying early 2019 which is more in-line with the Cannacord model. Did Mitch lie at first? Did he not have a handle on things? Did Ted’s loose lips rub off on him?

    2. re: privacy incident… it is 100% evident to me that the app was in fact tracking location in the background. Mitch did not lie at the event. The problem was this was not disclosed in the TOS. Obviously, legal made him backtrack and someone advised him to come up with the “joking” defense. If you read last night’s email, it would have read just as well without this “joking” phrase. Bottom line, a proper team is not in place for dev team to work with legal team. This disclosure should have been there. Additionally, who is advising him on Public Relations? Whoever told him to go with joking defense needs to be fired.

    These mis-steps are also hurting the brand. My investment thesis was based on Brand, Management, Industry, and Moat. Brand and Management are big issues now and I can understand and agree with the bear outlook until or unless things change.

    Again though, this has nothing to do with the viability of the business model. It’s brilliant in my view but only works with deep brand penetration when you can sign up casual users. I thought this sell would be easy to Wall Street who would fund it happily and fair valuations. That has not been the case. If I had a spare $1B, I would invest it right now for 50% of the company and watch this go profitable and to a $50B valuation. I am very bullish about the MoviePass idea and the business model however Management has failed us in selling this vision to wall street. The problem is management, NOT the math.

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      1. exactly management is everything. We wasted time for weeks debating the business model on Mark’s blog. I wish we had been discussing management instead – perhaps I could have gotten out higher.

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    1. The math of the business model is what warned me that management was messing up.

      You won’t believe that, so I’m only addressing this to people who are willing to learn from an experienced professional investor. Indeed, I CONTINUE to endeavor to learn from my mentors and peers every day.

      For the record, you’re RIGHT about the business model being viable. I never said it wasn’t. If I didn’t think it was viable, I wouldn’t have gotten involved in the first place!!!

      But the math of the business model warned me that management was not executing on the model. The math of the business model told me that utilization has been coming in too high. The math of the business model told me that the capital structure was going to get ugly. From there, my professional experience told me that it would crater the stock, creating the vicious cycle the company now finds itself in.

      The math of the business model was my GUIDE, not the JUDGE of whether this could possibly succeed.

      THAT is why the math of the business model matters. THAT is why professional investors build those models.

      But you never did my job so you don’t know that… yet, you implicitly insult my profession by telling me (and by proxy, everyone in my industry) that we’re doing it wrong.

      But this is nothing new. You’re just the latest in a long line of smart people with potential who have refused to learn the basics of this business. You have a LOT of knowledge and zeal. The only thing missing from your game is a complete skill set. I hope you develop it. You have a lot of potential.

      To be clear, this is not a victory dance or a berating. Just as MoviePass’ hopes remain alive, my hope remains alive that you will develop the required skills to hone your accuracy and get the most out of your hard work. I don’t need followers. I need research partners. That’s what I’m recruiting (and successfully so) through this blog.

      I’m just leading horses to water. Whether they want to drink what I’m offering is up to them.

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      1. I don’t believe the math of the business model showed you that. Particularly

        “The math of the business model told me that utilization has been coming in too high. ”

        I don’t see that you can make this definitive claim.

        Rather it seems to me you have/had some doubts about management perhaps in your subconcious which was causing you to cherry pick data and/or interpret all data negatively.

        To me there is still nothing surprising or alarming about the #s to date. Apparently you made an error in judgement early on not realizing the early utilization rates would be high because initially avid users and users from more expensive cities would join. Early bulls were thinking avg # of movies would go from 3, 2, 1 in the first few months but I knew they would be losing money hand over fist. I knew utilization drop would not occur until much later in the process. Seeing 2.5-3 movies a month is right in line with my expectations for Q4. It should have been in your expectations from day one. If it wasn’t, you missed that. But I don’t think you missed that. I think you were more positive on management early on so you saw what you wanted to see. Then sometime around the fire and cancellation of investor meeting you became sour on management and then saw what you wanted to see.

        Your instinct led you the right way but sorry, it wasn’t about the math. Everything continues to be in-line with my expectations.

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  2. Mark,

    An insightful read as always.

    Just one point I’d hope you could clarify for me, please.

    You frequently state you want MP to succeed but you must be aware that your reports lessen the chance of that every time you post. Do you wish for the venture to succeed as a customer, stockholder or shorter?

    The overarching thing that makes me believe this idea will suceed is because it is good for all parties. Be that studios, theatres, distributors and viewers/fans/customers (the most important people who are frequently overlooked). Do we think we should go back to the days of recent memory of poor attendance and empty theatres? The term disrupters is thrown about all to often. But for me, and I would like to think the general public, a couple of hours watching a film is an immersive and collaborative way to spend a couple of hours, enjoyed with fellow movie goers. If we carry on on the previous track, cinemas will soon die out to be replaced by watching Netflix on your phone; you, me, shorts, longs, Adam (the AMC chief) Mitch and the rest should be trying all we can to prevent this. Grinding HMNY into the dirt won’t help anyone but at best will help those who foresaw it happen to feel smart by saying “I told you so”.

    As John said, give it a chance.

    SR

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    1. GREAT POST.

      Listen, I’m not God. I’m just an analyst… and not a particularly famous one.

      To my recollection, no analyst has ever sunk a company.

      I haven’t crushed the stock. The fundamentals have. If the math said otherwise, the stock would not fall. If my analysis didn’t ring true, the majority would rule. If my work is influencing the stock, it’s only because the majority of investors deem that analysis to be accurate.

      There are MANY professionals looking at this, many smarter than I. If they saw things differently than I do, their buying would more than overwhelm any selling that I can possibly influence.

      Thanks for the post. Cheers.

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  3. Yeah the “joking” defense really rubbed me the wrong way. So unprofessional. We get it Mitch you are excited about the “night at the movies” and all the data it encompasses. It is the same thing you have been saying since Day 1 but this misstep was very concerning on both sides for investors if you either have or don’t have the data. If you don’t have it, then what are you excited about near term? If you do have it and lied about it or backtracked then I’m seriously concerned about your management.

    I’ve talked to Mitch, I genuinely believe he is a good guy, he is excited about the company and he loves movies. But everything is unraveling now and we are playing fast and loose with money and utilization. This isn’t RedBox or Netflix with fixed costs that can be scaled up safely and slowly.

    Not to mention as an investor future dilution is now a given and it has to come from HMNY. Where else could it come from when HMNY/Mitch/Chris have to own nearly 100% of MP now? I’m nearly out my 6 fig gains from the first run.

    The biggest thing I learned from this investment are, fundamentals DO matter even for a speculative investment. Dilution DOES matter, especially when it is raised on the way down and not the way up. And retail always gets it in the end 😉

    Do I want to wait 10 years now for a chance to get back to $10-$12 a share?

    We are now on track to having the highest volume sell-off day since the 2/13 dilution. Coincidence? The power of Mark Gomes or Mitch’s foot in mouth 🙂

    Liked by 1 person

  4. 2 quick points.
    1. I think we may be prematurely burying MP. Yes it looks rough today, but the utilization tables you presented in your last article I believe will not happen simply because they can’t happen. What I am looking for is what comes out that addresses this so that i can weigh the negative against the positive.
    2. I do not think the deep pocketed backer is HMNY. I think it is someone funding MP directly. Just my opinion, but one I think is worthy of consideration.
    Thans

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    1. 1. I’m not burying MP. My feeling on MP hasn’t really changed over last 24 hours!

      The only thing that’s happened in the past 24 hours is that Mitch Lowe admitted to something I already knew (thanks to my meaningless models 😂).

      To be honest, I saw this morning’s move as a bit of capitulation, at least from a short-term trading perspective.

      2. Interesting thought. I will ask around and see if I can put that question to rest.

      Nice post. Thanks.

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    2. For #2 – think about what ownership is left of MP. I estimate the Chris/Mitch/HMNY own pretty much all of MP now. Who else would fund it directly and not get ownership??

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      1. Can’t happen with share ownership. HMNY has a nasty non-dilute in place with them. Has to be debt (and I’m not even sure of that). For more on the anti-the loop, read the SEC documents carefully. It’s the reason why you haven’t heard about anybody else putting money into MoviePass.

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      1. They actually have not given them that much money. I think it’s less than 100m for 78% on what is a now a 300m valuation (should be 220). If there is another MP backer it would have to be debt.

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  5. You want MoviePass to succeed, yet you refer to Lowe as lying. Wow! He speaks loosely, this was mis-interpreted, and then got spread around (you’re evidence of such), and he is addressing and correcting the mis-information. ‘Watching what a customer does,’ was an extrapolation only. Not a perfect one, not precise, but that is all. You say he lied. Come on! Not appropriate. And you pretend to want MP to win. Maybe you in fact do, yet you prefer your salaciousness first.

    >

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    1. Lowe has officially admitted to “misleading both consumers and advertising execs”.

      “Misleading” denotes intention. Plus, this was not a one time thing. He’s been saying this for months. It was MUCH worse than you’re characterizing (Google the various articles – he was very strong worded). It’s only when somebody called him on it that he finally had to come clean.

      But I understand your point. I’ll re-examine the evidence and consider a more appropriate title for this and future articles. Thanks for the feedback. Cheers.

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    2. Here it is. If you don’t think this falls under the category of lying, I 100% respect your opinion, but I have to disagree.

      His company doesn’t collect much data, yet he allows himself to be a speaker at an event called data is the next oil, and makes statements like that, and the allowed the press to run with it until someone called him out on it.

      If he had told the public that moviepass doesn’t have any of that data, would shareholders have valued it as highly? Not fair to shareholders. 😓

      “I said something completely inaccurate as far as what we are doing,” Lowe said. “We only locate customers when they use the app.” He added, “If you get in your car and drive five miles, we don’t know where you are or where you are going.”

      The last sentiment appears to be a direct rebuttal of comments Lowe made at the Entertainment Finance Forum earlier this month in his talk “Data is the New Oil: How will MoviePass Monetize It?”

      “We get an enormous amount of information,” Lowe said at the event. “We watch how you drive from home to the movies. We watch where you go afterwards, and so we know the movies you watch. We know all about you.”

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      1. Did not realize my email reply to your email would be and was published on your blog as a comment. Had not read your blog until this evening March 26, 2018. Had read only your emails.

        Did you ever think that MP app was sophisticated enough to track your every move? Seemed a junky app to me. Much better already, yet still rather basic.

        “Misleading” does not denote intention (do the math both ways). “Misleading” I interpreted as Lowe’s public relations concession, with arm twisted to give-in to the grander gossipy zeitgeist, negative PR and social media vortex. I did think his comments at the Entertainment Finance Forum were outright exaggeration. Had you seen that app?, it was pretty weak. “We know all about you.” No, you don’t. It may be a MP goal, but not currently accurate at the time of his talk. That’s just PR stuff, and loose description, not lies. “We know all about you,” an exaggeration of MP knowing enough about residence, credit card, one’s name, location (home) to location (theater) information and travel time, and time of day, and where one goes afterwards based upon accessing one’s card for another non-MP credit card purchase transaction somewhere. And, what one sees as movies, and what one watches, and what one responds to in the MP app, and via email, to viewing trailers, and rsvping for MP shows. All decent and a fair amount of personal and individual MP user profile information which can be utilized to drive future movie theater attendance, ticket sales, theater concessions, and targetted MP-driven seat-filled per individual attendance, with expectation and actual understanding of one’s viewing habits and viewing preferences.

        I do not see Lowe as having had intention to dubiously mislead, as you have re-suggested. I do think the company requires strong leadership, and a representative skilled in public communication.

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        1. I can agree with that, but if there was no intention, then he’s not fit to lead such a company. I can’t imagine making such a comment in a public (or non-public) forum knowing that it’s simply not true…

          …and yes, I knew that they weren’t doing that. I wrote about it a couple times when describing why their ancillary revenue model was (is) exaggerated (another reason why I knew that institutions would flee, leaving them with insufficient support to survive without killing the common shareholder base).

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  6. Hey Mark. Thanks for the article. I do have a few questions however. Could you explain in a little more detail how you came up with 1.3 billion and 2.5 billion shares outstanding number. It just seems too high when their last public offering only increased their shares outstanding by around 20 million shares. Is it due to the falling stock price so they need to sell more shares to raise the same amount of money?

    Also, I don’t think I agree with your statement about Moviepass hurting major theaters. I don’t see how Moviepass favors smaller theaters significantly more than larger theaters, and definitely not enough to erase the 3x profit Moviepass subscribers offer theaters. Major theaters have had good earnings, which shows that Moviepass is helping them. Major theaters dislike Moviepass because they are afraid if they fail, ticket sales will decrease dramatically because people are used to a cheaper price. Also, Moviepass won’t have to take away all its benefits to major theaters to try and convince them to give them a discount. For example, a discount of tickets and Moviepass being allowed to all of the AMC theaters may be more profitable to AMC than if Moviepass shuts off 40% of AMC theaters and no discount.

    Two other things that confused me were why you used managements number to estimate shares outstanding and your comparison to Ben Rabizadeh. You stated yesterday that you don’t believe managements number are true, so why did you use them? Its pretty obvious they are wrong. Why didn’t you just use Model 2’s numbers? And I don’t think its valid to support your statement that Ben also states Moviepass will raise 1 billion dollars because you state they will need to raise 1 billion by the end of the year (5 mil subs) and Ben states they will need to raise 1 billion to reach 20 million subs.

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    1. The answer to your first question is yes. You can re-create the calculations just by running through what I said in the article. It’s an aggressive dilution scenario, but was designed to illustrate how to share account can balloon, and hurting investors even if the company succeeds. In reality, I don’t expect if your account to get that high. However, I also don’t expect the company to succeed anywhere near the extent that investors are expecting. That’s not to say that they won’t succeed. It’s all a matter of degrees. Of course, it’s also a matter of how much investors will make from those degrees.

      You are entitled to your opinion regarding the major theaters and I respect that. However, carefully consider why the smaller theaters are signing up in the bigger ones are not. If the answer still doesn’t hate you, call the Major theater operators and ask their investor relations people.

      As for your final comment, I understand what you’re saying. Just understand that it’s tricky for me to outline all scenarios for all people, bulls and bears. I’m just trying to help by providing a framework. My hope is that you understand what I have outlined and then change things to suit your personal beliefs. I’m providing research and analysis, not the word of God. I hope that doesn’t sound sarcastic. It’s not meant to.

      Cheers!

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      1. Thanks! Also, I have a non-related question to your article. Would you know how a subsidiary company, like Moviepass, would affect and show up on the earnings report of a parent company, like HMNY? Would only the public offering and money spent acquiring more of Moviepass show up on HMNY’s earning report or would the revenue, expenses, and profits of Moviepass itself also show up on the earnings report? Also, if Moviepass chose to IPO, how much capital would they be able to raise? Does an Moviepass IPO limit the upside of HMNY? Thanks!

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  7. Helios now owns almost 82% of MP. I’ve said no IPO from almost the beginning. When Ted was looking to get an additional 400 mil shares authorized from 100 million…I knew where this was going. Mark…where do you think they are headed? Do you think Helios will spin off their MP subsidiary and do an IPO?

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    1. Funny thing is, my valuation comments all assume 100% ownership (which would obviously require more $$ / shares). Nobody picked up on that yesterday. 🤷🏻‍♂️

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