You can get a month of movies for $9.95 a month with MoviePass, or you can get a month of volatility by buying into its majority stakeholder. Either way, you're going to want to grab some popcorn as you enjoy all of the drama and plot twists.
Helios and Matheson (NASDAQ:HMNY), the data analytics company that secured a majority ownership stake in MoviePass this summer, has been on fire over the past few weeks. The stock rose 29.5% this week. But that's not a fair snapshot. The stock had more than doubled for the week by Wednesday's close, building on its earlier momentum and news that Helios and Matheson was acquiring a slightly larger position in MoviePass. However, a sell-off on Thursday fueled by a bearish Citron Research tweet ate away at a good chunk of those gains.
Mining for gold on the silver screen
Helios and Matheson has been the market's hottest stock over the past month, even after Thursday's profit-taking. The stock has gone from $2.50 to $20.40 over the past month, a beefy eight-bagger for investors who bought in just before MoviePass announced that it had gone from 20,000 paying subscribers to 400,000 in the first 30 days, after slashing the monthly rate for its multiplex smorgasbord to $9.95.
The stock hit as high as $38.86 on Wednesday, when Helios and Matheson announced that it had completed the financing condition to its pending investment. It also revealed that it increased its investment from $27 million to $28.5 million, bumping its ownership stake from 53% to 53.71%.
Citron Research posted a stock-dissing tweet, suggesting that Helios and Matheson wasn't worth more than $20 given the widely voiced concerns that the MoviePass model isn't sustainable.
$hmny stock to trade back to $20 Retail investors are warned. You might like product but $1+bill it isn't. Giving away $1 for .90 no biz— Citron Research (@CitronResearch) October 11, 2017
A day later, Citron got its wish. The stock retreated back to $20, and Citron covered its short position.
Covering $hmny. Don't like to stay short companies that are expected to lose money high borrow $hit tgt price in one day. all timing— Citron Research (@CitronResearch) October 12, 2017
The popularity of MoviePass is legit. You don't go from 20,000 to 400,000 accounts in 30 days -- and MoviePass expects to acquire at least 2.5 million more paying subscribers in the next 12 months -- without being as magnetic as an A-lister celebrity at a cocktail party. The problem is that it's a service that seems unlikely to turn a profit. Box office buffs are paying $9.95 a month for a debit card that allows them to see a movie a day, and MoviePass pays list price for those tickets in most cases.
Please grab a seat
MoviePass argues that it will have other revenue streams. It will market products and push advertising to its subscribers, and it can sell data on millennial consumption trends to studios hungry for insight. It doesn't seem likely to be enough, but we can't dismiss the power of a growing army of MoviePass-wielding movie watchers.
MoviePass has the power to save the multiplex industry, particularly with young viewers that are no longer going to the local multiplex. MoviePass also has the power to torpedo the industry, irreparably disrupting the value proposition of a night at the movies.
At least one Wall Street pro thinks MoviePass has a shot. Maxim analyst Brian Kinstlinger initiated coverage of Helios and Matheson with a "buy" rating and a $20 price target when the stock was trading a lot lower earlier this month. The only certainty is that the near-term volatility will continue, given the growing interest in MoviePass and the equally growing bearish sentiment that the model itself is doomed at its current price point.