MoviePass: Weekend Research Points To Further Pain Ahead

Opening Disclosure — 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 and context 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.

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SPECIAL NOTICE: I’ll be going LIVE on YouTube at 4:00PM ET TODAY for a 100% Q&A session. I’ll answer any question on any company I know!
 https://www.youtube.com/watch?v=sD28EOccaFw
Hey everyone. I appreciate the gratitude coming in from HMNY bulls that have been getting out before these big drops.
Those who have looked into my background find a guy that had a run in with the SEC and doesn’t hesitate to short stocks.
Easy to look at that guy as a bad guy.
But a growing number of investors have looked beyond the headlines and found that I actually am trying to help. I won’t rehash the story of why. Those who want to find out will find it. I can’t help the rest, because they don’t want the help.
Horses can be led to water,m but they’ll only drink once they’re thirsty.
Anyways…
You’ll not be shocked to hear I did more research on SMSI and HMNY this weekend. I’ll talk about SMSI in a separate post. As for HMNY, the news just keeps getting worse for shareholders.
Aside from the box office setting records (thus forcing their cash to burn at a faster rate than my estimates), I also ran across this fan of the MoviePass service. You won’t think he’s a fan when you read the post, but being a fan and being realistic are mutually exclusive things.
MVPS_Lobbyist_2017 (@MVPS_lobbyist)
$HMNY DUMMY Ted thought he would have support from RATS #HudsonBayCapital ⁦‪@sandergerber1‬⁩ ⁦‪@Yoavrm‬⁩ but never researched their destruction history. Now he wants them out of the stock, that’s why you have seen many past filings about these notes. Private fight going on(STOP BUYING)

Ominously, based on his assessment of the company’s capital structure, he believes that the stock will go below $0.07 and possibly as low as $0.01.

That might sound crazy, but it’s right in line with the $0.05 figure I recently discussed.

(FYI, if you don’t know about HMNY’s “capital structure”, you’re missing virtually the WHOLE REASON the stock has been in a free fall).

The saddest part about this is that it’s been one of the easiest situations to assess in my entire 24 year professional equity research career.

In other words, nobody should be losing money on this. The math has been too easy and undeniable.

But you don’t need to understand capital structure to understand this — the company is increasing its share count at a rate much faster than its subscriber count. When I discovered HMNY and introduced it to investors back in September, they had 13 million fully diluted shares outstanding and about 300,000 subscribers.

Since that time, the subscriber count has increased by 10x… but the share count has grown by 20x.

Worst of all, the discrepancy is getting worse. The company is expected to increase its subscriber count by 66% by year-end, but I anticipate that it’s share account will double within the next few weeks.

Utilization and cash burn should moderate a bit until November (when the holiday floodgates will open), but Management has indicated otherwise. SEC filings show that MoviePass expects to burn an increasing amount of cash in the months ahead. They have filed to raise $1.2 billion and CEO Ted Farnsworth is on record as saying he’ll “likely be able to access that entire amount over the next year or two”.

That’s at least $50 million per month.

To put that into perspective, the stock has fallen by 99.4% under the weight of a fraction of $1.2 billion of fundraising. In other words, further (and significant) share-price erosion is more likely than not, according to what has already transpired (not to mention, my calculations).

It doesn’t matter what he does with the money. In fact, they plan to buy films, produce films, and make acquisitions with the portion that they don’t use to fund the growing cash burn. Most of those activities may or may not provide a return in the future, but has definitely impacted the share price in the present, due to the dilution involved.

I see that continuing, at least for now. I’ll be sure to inform folks if/when that view changes.

HMNY Use of Funds

Staying in to support the stock is noble, but it’s also very unwise. The stock market is not filled with noble people, nor companies with noble causes at heart. This is American business… and it’s not pretty sometimes.

In this case, it’s about as ugly as it gets.

But don’t take my word for it. Do your own research. I’ve provided links and snapshots here. In addition, my MoviePass model is open for public viewing and provides insight into the impact of its fundraising on the stock.

Like MVPS Lobbyist, I’m a fan of the service and what the company is trying to accomplish. However, I detest what they are INTENTIONALLY doing to retail investors in pursuit of those goals.

I’m short because the data clearly points to further declines ahead, not because I’m trying to make the stock drop. In fact, based on the current capital requirements, short seller have been at a significant disadvantage (something that will change as soon as the reverse stock split is approved). At that point, I believe things will get markedly worse.

Sadly, there isn’t much that I can say to convince most of the longs that I’m really trying to help (despite my short position). That was the case when I found and bought the stock below $3. It was also the case when I announced selling my last share at $34. It was especially the case when I said it was significantly overvalued at $12.

…and it’s never been truer than it is today.

Mark my words, the stock is going to go down in history — just not for the reasons current shareholders expect.

#DoYourResearch

More Research:

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Disclosures / Disclaimers: I am short 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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25 thoughts on “MoviePass: Weekend Research Points To Further Pain Ahead

  1. who is this twitter guy – do you find some of this claims credible? In particular – he/she claimed to have personally set up a meeting with MP/HMNY management and a private equity group for a buyout offer of $500M. https://twitter.com/MVPS_lobbyist/status/1014912655172096000

    Does that seem far-fetched to you? Also, just curious whether there would be any NDAs or legal issues with disclosing private buyout offers. If this really happened – wouldn’t you assume that Ted would try to pump it into the news?

    Like

    1. I’ve been investigating what he has been saying relative to SEC documents, but what you just said makes no sense at all. That makes me think he is largely crazy, although what he is saying about Hudson Bay maybe true. Looking into that further.

      Like

      1. Interested in hearing your thoughts on MVPS_Lobbyist’s claims regarding HBCM not filing 13G’s. Have they been fully compliant with SEC rules? Are they really not required to file any 13G’s, despite their short selling? Is there some loop-hole?

        Also, HBCM is clearly not a passive investor, given that they have voting rights and already plan to vote on the upcoming SH meetings. So why have not filed a 13D yet?

        As you may know, HBCM has been fined by the SEC in the past – and what they are doing now seems extremely similar!

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      1. I somewhat agree since they are taking a course of action they know that existing shareholders will likely not recover from. If you can just issue unlimited shares, everybody would do it. Right? But to me the worst part of it is the CEO says he will not need more dilutive financing this year or that he has a line of credit available when he indeed does not have a line of credit. That is lying. No two ways about it. Perhaps it is not illegal because he can claim that is what he thought at the time or that is how he sees the shelf, but I think we all know what his intentions were. It is certainly obvious in hindsight.

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  2. Yes it is an accepted principal of American business that management is obligated to work in the interest of the shareholders who actually own the company. Intentionally destroying shareholder wealth for your own interests should be criminal. If all companies operated like Ted capitalism itself would go out of business..

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  3. From your executive interview with Ted, “FYI, Studio Movie Grill is “partnered with EFA Partners and Goldman Sachs who recently helped increase the company’s debt facility to $85 million.” At the end of 2016, Studio Movie Grill took an equity stake in MoviePass. My sources suggest that Goldman is now deeply involved with MoviePass. If Goldman banks/endorses their IPO, the valuation implication for HMNY will surely be meaningful.” –In your opinion, how come this hasn’t come to fruition?

    Like

    1. For the same reason almost nothing else has come to fruition except the subscriber count. Their business model is flawed… not to mention the fact that they abandoned The original plan when the service went viral (without going through another planning cycle).

      Given the capital, almost any of us could have accomplished what they have done so far.

      Like

  4. I’m out of this disaster for a while, but I still watch, let me ask you this, you (and Ted) believe the sub count will continue very strong, HOWEVER, don’t you think the possibility of the sub count actually slowing dramatically if people don’t believe they can stay in business and thus not be able to use the subscription they’ve paid for??

    Like

        1. If you pay for it 😂 That stuff takes time and money. About $40 admin fees + 1 dollar per minute of transcription.

          When I provide a transcription, I foot that cost, but I don’t do it too often (because I’m footing that cost). Hope you understand. 🙏🏼

          Like

  5. Hi Mark,

    Random question, but I want to give some equity analysis research to a small organization (school) in my area to assist them in managing their savings. I was wondering if I could work for them part-time for an hourly wage? Is there any way to go about this without a license in Illinois? For example, sell my research without giving recommendations?

    Could I also pursue a similar model with other clients?

    If a license is the only way, which license would I need to get? RIA?

    I am wondering if you could take a moment and address this. I would be happy to post this on a new board or Q&A if it will serve everyone else more.

    Thanks!!

    Like

  6. What is the title and date
    Did you do it since they announced the date of the 2nd quarterly report I just find it hopfull they are reporting 20 days earlier then usual

    Like

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