RIP MoviePass

While MoviePass and its parent company, Helios and Matheson, are not officially bankrupt yet, all signs point to the fact that their business as we know it is nearing its end. There is potential that MoviePass can weather this storm, but its unlikely to return to the same level of service that attracted millions of people to begin with. 

Background
MoviePass gained a huge following in early 2018 on the promise of any subscriber being able to watch essentially as many movies as he or she wants in theaters for a very low cost (generally <$10/month, or ~$105 annually). While the company presumably knew they would take huge losses in the beginning, I don't think they anticipated just how quickly they would run out of cash.

Thesis
The investment thesis is predicated on 1) a large, monetized user base and 2) using large scale for leverage in negotiations with theaters for ticket price / concessions. 

There are a some major holes in both this thesis to begin with. First, the ideal subscription model is one where the subscriber does not typically use the service. For instance, a gym membership is great for many companies, because people sign up as part of their New Years resolutions, then stop going within the next 2-3 months. In this way, the company gains more in revenue from each subscriber than the cost of providing the services. This is definitely not the case for the average movie-goer. Going to the movies is a very passive, enjoyable activity that people do regardless. It is unlikely that people will simply forget about going to the movies, because there are always new releases and blockbusters to see. MoviePass has to pay for the face value of the ticket (as much as $16-17 in some regions), so if a person in a metropolitan area watches movies even once a month, then they're losing money per each subscriber. In addition, you have plenty of people whose appetite for movies dramatically increased, given that each movie was now "free" with the subscription service. Several friends of mine watched 5+ movies in their first month of owning a MoviePass card. It's not enough to have a large, monetized user base. The revenue generated has to at least outpace the cost of revenue. 

Second, it's possible that MoviePass could have eventually reached a large enough user base to negotiate more favorable terms with AMC and other theaters (on the basis that MoviePass helps to drive so much volume). However, the service clearly was priced far too low, and therefore they burned through all of their cash by the end of July. 

So what now?
After news broke regarding MoviePass outages (read: ran out of cash), the stock tumbled all the way into penny-stock range. After that, the company did a 250:1 reverse stock split (ie combined 250 stocks into 1), and the shares still fell again to pennies on the dollar. They have made some emergency changes to the service (ie not letting people watch major films 🤔), and now it remains to be seen whether or not they can hold on long enough to avoid delisting on the Nasdaq and Chapter 11 bankruptcy. 

All things said, I really enjoyed the service while it lasted. I think I was actually a profitable customer for them, because I purchased the annual pass and "only" watched 6 movies over the past 5 months. RIP, MoviePass. Our relationship was great while it lasted. 

-Ezekiel Emunah

Edit 8/3/18 - I am now long HMNY. Picked up 300 shares at about $0.07 / share. At worst, I lose my lunch money. At best, it becomes like Priceline and finds its way out of penny-stock territory and becomes a respectable business again. Time will tell. 


Disclosure: I am/we are long HMNY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Ezekiel EmunahComment