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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’m going to make this quick, because I currently have no interest in HMNY. I’m watching from a distance to see how they weather the summer blockbuster season. Until then, I continue to tell people that I wouldn’t buy the stock.
I will, however, provide my quick, honest, and unbiased thoughts on their Q1:
1. It looks like they made a profit, but they didn’t. The “profit” came from reversing the value of the warrants they’ve dished out, which now have virtually no value.
Here’s how to look at the quarter…
Just doing quick math (not 100% accurate, but surely close enough), it looks like they did about $47M in MoviePass revenue, while incurring $134M in ticket expenses.
That’s $2.85 spent for every dollar brought in. If they were getting a full $9.95 per customer, that would equate to 2.9 movies per customer per month. In reality, my model shows that the number was closer to 1.9…
…but neither number is good. This is a function of collecting less than $9.95 per month from each subscriber (back of the napkin math says that it was closer to $7.50).
Factoring in their SG&A expenses, if they’re recognizing $7.50 per subscriber per month and paying $11 per ticket, they need to get utilization down to 2 movies every 3 months (0.65 per month). Right now, it’s running at around three times that level.
They’re not even close.
2. Speaking of SG&A, it rose $15M year over year, a LOT more than the $2.5 million I modeled. So much for their “free” advertising. People thought I was being a bashing bear, but you can now see that I wasn’t.
Yes, my numbers were negative… but also too optimistic.
FYI, they incurred $40M of non-cash interest expense and share-based compensation (a.k.a. dilution).
Adding it all up, if we adjust for the change in deferred revenue, they burned about $100M in the quarter. This ties back to the 47M in revenue, 134M in COGS, and 15M increase in SG&A. The numbers match up. #ugly
3. At a glance, I didn’t see much progress on generating revenue from theaters and studios. In fact, the word “theater” only appeared five times in the entire 10-Q… and none of the mentions even alluded to making any significant sums of money from them. Very odd coming from a company that likes to boast.
All I saw was this…
“MoviePass has, to date, monetized marketing services with two large Hollywood studios, conducted sanctioned tests with multiple others, and has also monetized its marketing and data services with at least six other independent distributors. For the quarter ended March 31, 2018, the Company recorded $1.4 million from these new revenue streams. We believe our technology and subscriber base provides us with a unique ability to target moviegoers both geographically and based on their viewing tastes.”
…and $1.4M = nada.
4. The latest $30M round & ATM broke the stock in a way unlike any round before it. They sought to push the boundaries of public financing and they found it. I now expect that any further dilution will create an exponential impact on the stock (not just -35% per $100 million, as was the case for prior rounds).
Because of this, the math says that they won’t ever get close to achieving their goal of movie-industry critical mass. My advice to them would be to take the sweat equity they’ve built and retrench into a smaller, niche company, exclusively servicing smaller theaters and smaller-budget movies.
That’s where their success seems to be. I believe that’s where their future lies… and it can be a profitable one… just not one that will make investors whole.
Other than that, the 10-Q was filled with lots of fluffy stats alluding to better days ahead. Based on what we’ve seen from them, it’s best to take a wait-n-see attitude towards all of that. I’m not saying to dismiss it — I’m saying to see if they show any progress before jumping in.
Better to show up in the second inning than to get rained out.
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- Mark Gomes Research
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Disclosures / Disclaimers: I am long XXX. 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.