Helios & Matheson’s Attempt At A Hail MoviePass Likely To Fall Incomplete

Do public companies also get 15 minutes of fame? Helios & Matheson Analytics (HMNY) was a sleepy and tiny data analytics company that made a splash after acquiring MoviePass in the summer of 2017 and slashing the price from $50 to under $10/month, less than the cost of a single movie ticket in most places. Unfortunately, the blaze of glory seems to be coming to a sad end and the company recently announced that it confidentially filed to spin off MoviePass into a standalone company.

We don’t usually cover nanocaps, but sometimes they are too interesting to ignore. Almost always, nanocap spinoffs make bad investments. This case is no different. As we mentioned, Helios & Matheson cut MoviePass’s monthly pricing to $10. Great deal for consumers, but as they admitted, they were paying the theaters full freight for the tickets! There were talks about ‘data’ and partnerships, but no one could figure out how the economics would work long term since it was sure to generate oceans of red ink. If only this ‘industry disruption’ could have happened before my kids were born.

Naturally, subscriptions exploded, but with that came massive cash burn that the company couldn’t handle. The more subscribers, the more losses. The hope had been that like gym memberships, most subscribers did not use the product most months. This turned out to not be the case. There were some additional challenges as well. Abusers hit the company hard – some bought movie tickets just to use the restroom! – and of course new competitors came about including from the theater owners themselves (ex. AMC Stubs). Ultimately, service collapsed, outages occurred and the company was forced to change its benefits time and time again in order to stem the bleeding which battered its reputation and didn’t help with customer retention. Rumors are currently floating  that the company is relaunching its unlimited plan, but as of this writing, no details were available, particularly regarding pricing. It’s also unclear if consumers are willing to trust the company again or if it’s even a going concern able to fulfill its end of the bargain.

That last part is a valid concern. HMNY is now literally a penny stock and its odds of remaining listed itself are dim. It already did a 1:250 reverse stock split and is now planning another reverse stock split, this time at 1:500! A shareholder who had 125,000 shares prior to the first split would have just a single share after the second. Barring some new partnership or massive infusion of capital, bankruptcy – of MoviePass at least – seems likely. In the meantime, the company is floating the spinoff which would involve tossing its movie assets (which include Moviefone…seriously) into a separate entity and distributing a minority stake to shareholders. H&M intends to retain a controlling interest. It’s hard to believe the SEC will approve a spin that seems destined to go broke or that it will be able to obtain a listing (both conditions to close), but maybe they can find someone willing to sink more cash into the entity and give the government some confidence. Much like Idearc though, the parent company may still remain on the hook for any liabilities and pending lawsuits, but it’s not like there are asbestos claims or legacy pension assets here.

Rich Duprey at The Motley Fool sums it up well:

MoviePass may have changed the way theater tickets are bought and sold, but the innovation will likely outlive the company, and investors should simply avoid being part of its eventual implosion.

Is there a glorious second act on the horizon for MoviePass or is the fading company on its way out for good? Will its production company, MoviePass films (yes, seriously), win an Oscar for Borders? How do you think this saga will end?

Disclosure: Author holds no position in any stock mentioned.