MoviePass/AMC “Settlement” Update

Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

 

I’ve had a busy day, making it difficult to complete my analysis of the AMC/MoviePass situation. In the meantime, HMNY announced the acquisition of Moviefone. Last night, in this blog’s chat boards, I said:

Looks like an asset purchase. $1M, 2.55M shares, and 2.55M warrants ($5.50 strike price). Very smart to use equity IMHO, but shows that they don’t feel the stock is undervalued.

http://secfilings.com/searchresultswide.aspx?link=1&filingid=12671337

I’ll continue investigating the situation as soon as time permits. In the meantime, here’s some of my raw findings for your perusal…

 

First of all, there’s a reason why “Settlement” is in quotes…

MoviePass Now Covering All AMC Theaters After Winter Feud; Talks Have Not Resumed http://deadline.com/2018/04/moviepass-amc-theatres-at-all-theaters-1202358572/

 

Next, let’s take a step back in time…

Jan 26 — MoviePass Vs. AMC: Ticket Service No Longer Covers Chain’s Busiest Theaters; Exhibitor Rips “False Statements” http://deadline.com/2018/01/moviepass-lack-of-amc-theatres-coverage-1202269412/

 

And now look at what the company had to say about it…

“According to a MoviePass insider today, the company claims that the kibosh on AMC wasn’t so much a ban but rather a test of their consumers’ ticket-buying habits. Essentially, by turning off the spigot, MoviePass got to see how that impacted moviegoer traffic to other competitors and claims that they saw a spike in overall business of 23% in the four days following the AMC block.”

 

My question is, a 23% increase… compared to what?

 

Here’s the bull case…

According to BoxOfficeMojo, this spike can not be explained away by a spike in overall movie going:

Week Overall Gross Change #1 Movie
Feb. 16–22 $419,082,759 109.50% Black Panther
Feb. 9–15 $200,068,671 54.40% Fifty Shades Freed
Feb. 2–8 $129,598,904 -30.00% Jumanji (2017)
Jan. 26–Feb. 1 $185,254,627 0.80% Maze Runner 3
Jan. 19–25 $183,723,402 -21.40% Jumanji (2017)
Jan. 12–18 $233,759,864 6.20% Jumanji (2017)
Jan. 5–11 $220,043,919 -35.00% Jumanji (2017)

In other words, the competitors likely did see a 23% spike due to MoviePass. That sounds like a lot (and therefore, b.s.), but I’m not here to be positive or negative — I’m here to analyze facts and see them for what they are.

Plus, this section is for the bull case.

So, here’s why the 23% figure makes sense to me:

Let’s say there are 3 theaters in an area, all with 33% market share. If one of them goes offline, the other two should gain 50% more business, increasing their 33% share to a 50% share.

But that’s not the case here. MoviePass has only signed 1% of all U.S. movie goers.

HOWEVER, I suspect that’s it’s closer to 4% penetration (admittedly a rough guestimate) in the high-priced / high-traffic cities we’re talking about. Further, according to my model and calculations (using industry data from BoxOfficeMojo and the MPAA), MoviePass customers currently go to about 6x as many movies (which I would call “6x utilization”) as the average movie goer.

Thus, shutting down one of three competitors in a high-price / high-traffic area should logically impact market share by 24% (4% penetration, times 6x utilization = 24% impact).

This is bullish, because it means that MoviePass has gained quite a bit of influence, at least in these 10 areas. If so, it’s a start and may be a sign of things to come.

 

Now, here’s the bear case…

The 24% figure I calculated is the total share shift. If that 24% has to be shared by multiple theaters, then the cited 23% figure makes no sense…

…except for the fact that the shutdown occurred on Friday.

So, the “four-day impact” occurred on Friday, Saturday, Sunday, and Monday (just about the busiest four-day period of any given week).

Date Day Top 10 Gross
Jan. 20 Sat $47,764,511
Jan. 21 Sun $25,141,996
Jan. 22 Mon $7,822,169
Jan. 23 Tue $11,025,234
Jan. 24 Wed $7,828,388
Jan. 25 Thu $7,612,674
Jan. 26 Fri $29,073,174
Jan. 27 Sat $44,575,586
Jan. 28 Sun $28,978,087
Jan. 29 Mon $7,232,905

Which is why I said, “My question is, a 23% increase… compared to what?

 

This is why in-depth research is so critical!!!

Retail investors are too quick to react. Professional-level investors do their homework first and then act. This is why you often see a delayed reaction to news. Sometimes, you see a reversal in the trading action. Often, that’s the smart money finalizing their conclusions and jumping in (against the dumb money action).

For those who remember, this was most prevalent during the years when I was covering ATTU. It would report seemingly poor results and retail investors would quickly react. Then, the conference call would reveal bullish information and the stock would rally, leaving the dumb money behind.

BTW, I mean no disrespect in using the term “dumb money”. That’s just the industry term. To be honest, I was dumb money for many years (before my mentors taught me how to be a professional-level investor). In fact, I still make dumb money moves when I’m being lazy (which is an easy trap to fall into — doing the professional thing takes a lot of work and discipline).

This is one of the reasons I do this. The education I provide here is my way of giving back for the education that my mentors gave me.

Stay Tuned…

 

More Research:

 

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Disclosures / Disclaimers: I hold no position in HMNY. However, this is not a solicitation to buy, sell, or otherwise transact any 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 primary 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.

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9 thoughts on “MoviePass/AMC “Settlement” Update

  1. Great research Mark. I think the scenario with amc Can be boiled down in my mind like this. Rather than how great amc’s “losses” would be, Perhaps the question how much money is enough for them to miss having it(opportunity cost)? Much of MoviePass revenue to amc is “extra because the subscribers go more often then they would have before. Here’s the big question imo..
    If MoviePass buys 1.5 million tickets from amc each month and MoviePass decides to take away 500k Paying customers away from amc every month(6+million tickets a year), is that enough for amc to ask for them back? I would think so.

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    1. As I’ve said MANY times before, it’s not about the tactical money that AMC can make. It’s the strategic position that they can lose by allowing moviepass to become big.

      Make no mistake about it AMC sees moviepass as the enemy no matter how much money they can make them. If you don’t believe me, call the company and ask them.

      Like

      1. I would 2nd that. I have talked to some local AMC managers just to see what their attitude is. They are quick to point out that they will gladly accept the card, but their company has no intention of partnering. I can say with confidence they have received communications from above to that effect.

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      2. I should add, that does not mean they will not change their minds eventually, but I think it is more likely they try their own subscription service first. That’s my own conclusion based on my own analysis of all the things I know. Not confirmed by the company. Of course the CEO contradicted my conclusion in his interview yesterday, but I do not put much weight in him saying he is fine with having fewer customers and just charging them more to make it up.

        Liked by 1 person

      1. Starting to look more bullish to me. So many ways to operate this in a profitable way. The real question to me comes down to management executing. Can they? I am still watching.

        Like

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