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)

7/3/18, 6:18 PM $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.

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:

• The Quick Investor’s Guide To SMSI
• Tracking Sprint’s Safe & Found Roll-Out On Twitter
• Videocast: AEHR 10-Q, MoviePass Update
• Does SMSI Stand For “Smart Money Speeding In”?
• MoviePass Projected To Burn $600M In 2018
• Sprint Finally Rolling Out SMSI’s Safe & Found Nationwide!
• AEHR Grows 175% — Beats On The Top & Bottom Line (Buying More)
• SMSI 10-Q Released — Strategies For Trading The Stock
• Lose 33% In 9 Months To Make 1,000% In 15?
• GAIA vs. MoviePass: CAC Shows Which One Is A True Mini-NFLX
• Buying SMSI — Today Is The Day I’ve Been Waiting For!
• SMSI: Riding A New Trend & Making Its Latest Comeback
• Mark Gomes 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.