For MoviePass Parents Helios and Matheson Analytics (NASDAQ: HMNY) we may not get any Hollywood endings. The stock fell 31% on Tuesday after a SEC filing confirmed the liquidity crisis for the seemingly unsustainable business model.
Helios and Matheson had only $ 15.5 million in disposable money at the end of April. There are another $ 27.9 million deposited with merchant sales companies from the sale of annual and quarterly payment plans available to Helios and Matheson later this year. There does not seem to be a lot of dry powder for a company that admits it loses more than $ 20 million a month. MoviePass is on the verge of ducking without a cash injection or a direct buyout, but multiplex operators who speak MoviePass may be sorry if they decline the movie subscription service.
The silver screen is for the bronze
MoviePass in its present form is built to scale quickly without blowing a ton of dough got to. For $ 9.95 a month, a person can see a standard movie show every day in most local cinemas. Entertainment Smorgasbord subscriptions are exploding in popularity, but it is usually through digital platforms where costs can be reasonably controlled.
MoviePass is banana. It has to pay retail prices on most chains, and even AMC Entertainment (NYSE: AMC) trolls the platform these days. MoviePass appeared at the beginning of the week on AMC's profit call. AMC CEO Adam Aron points out that "hundreds of thousands" of MoviePass subscribers are coming to AMC theaters, with a frequency of 2.62 in March and 2.75 in April. MoviePass pays AMC $ 12.02 per movie, far more than the average price of $ 9.78 per ticket at AMC during the quarter. MoviePass members tend to watch more expensive screenings. Why see a cheaper matinee if it is on another cent?
AMC has openly criticized MoviePass, arguing that it invalidates the theater-experiencing experience. This opinion is correct, and Aron has been thinking about the sustainability of his model on Monday during the payout.
"I took out a calculator and multiplied 2.75 by 12.02," Aron said. "I got a number that was well over $ 9.95."
AMC has reduced MoviePass since last summer when Helios and Matheson acquired a majority stake in the service and lowered its price to $ 9.95 a month. The problem with movie theater chains trying to work against MoviePass, rather than finding a way to make it work, is that when MoviePass goes down, most of those subscribers will not come back. MoviePass could be very good this year, as well as the hundreds of thousands of members who see nearly three AMC movies a month. Those who stay will of course buy cheaper tickets on average.
The cash crisis is real. Helios and Matheson shares suffered a blow in mid-April when they raised $ 30 million through a diluted stock offering. Now we learn that MoviePass only had $ 15.5 million less than two weeks later.
It will be easy for MoviePass to raise money through another share issue and it is a bad credit risk as even its accountants have expressed their doubts about the deal. MoviePass has been able to improve its cash flow by selling discounted annual passports in the past, but would you make an advance payment for a service that may not be available during the term of the offer?
A silver lining here is that MoviePass said it was able to cut its cash deficit by more than 35% in the first week of May after it introduced initiatives that hampered the use and, above all, the misuse of its product. MoviePass accounts are now tied to a single smartphone, preventing the widespread sharing of subscriber accounts with friends and family in the past. MoviePass now enforces its rule, which limits the ability to see the same movie twice, which limits its use with some of the more active users.
The model needs to be repaired. MoviePass mentioned in an interview last week that it would introduce new plans for families, groups, and even the premium screenings it does not currently offer. It also has ambitious plans to subsidize some of its losses through advertising, the sale of user data, sponsorship and the marketing of goods. It will take time to see one of these additional sales streams, but now time is not on its side.
The same company, which said it runs at a cash deficit of an average of $ 20 million a month for the six months to March, now says it has lost an average of $ 21.7 million in the seven months to April. In other words, it lost more than $ 30 million last month.
The MoviePass may go down if it does not find a fat cat admirer interested in reaching its nearly three million members, but if it suffers, there'll probably be a few cocky multiplex operators around.
Rick Munarriz owns shares in Helios and Matheson Analytics. The Motley Fool has no position in any of these values. The Motley Fool has a disclosure policy.