Helios and Matheson Analytics (NASDAQ:HMNY) is known primarily for MoviePass, its struggling movie-ticket subscription service, but that may not be the case forever.
Ted Farnsworth, chairman and CEO of the company that's been focused for many years on data analytics, says that because Helios and Matheson has become synonymous with MoviePass, "the market perception of HMNY might benefit from separating our movie-related assets from the rest of our company." The comment came in a Oct. 23 press release titled "Helios and Matheson Analytics Inc. Announces Preliminary Plan to Spin Off MoviePass Entertainment Entity as Separate Public Company."
Spinoffs can be exciting, but if a publicly traded MoviePass company becomes a reality, investors would do well to stay away from this box-office bomb.
Dreams of stardom
The reality is that Helios and Matheson wasn't so much interested in creating a movie subscription service that would give theatergoers a smorgasboard as it was in gathering the data such a subscription model generated so it could target movie marketing and advertising at subscribers. With millions of subscribers, that could be the difference between a movie's success or failure, and might even help to make one a blockbuster.
Of course, it didn't work out like that. MoviePass' reputation as a viable business is in tatters, and Helios and Matheson stock trades for under two cents per share, despite a reverse stock split that artificially, but only temporarily, boosted the price. It is looking to do yet another reverse split to keep shares from being delisted from the Nasdaq exchange. Which explains why Helios and Matheson wants to get rid of MoviePass. If it were no longer publicly associated with the movie ticket subscription service, the market could value HMNY stock on the basis of its analytics operations. But what of a MoviePass stock?
A vertically integrated box-office bomb
Helios and Matheson wants to create a subsidiary called MoviePass Entertainment Holdings that would own all the shares of MoviePass that the data analytics firm owns, which are 92% of all outstanding shares; as well as the other film-related assets held by Helios and Matheson, including its movie production company, MoviePass Films; a film acquisition outfit, MoviePass Ventures; and movie directory service Moviefone, which it acquired earlier this year.
Helios and Matheson, which would retain control of the new company, would then focus on its Zone Technologies, which produces a GPS navigation app called RedZone Map that incorporates crime data into maps to route you to your destination the safest way.
What the new MoviePass spinoff would have is a collection of negligibly valuable assets and a broken business model that still wouldn't be able to make money. Helios and Matheson says it wants to distribute stock to its current shareholders as a dividend, but even if it can't do it that way, it's still moving forward with the plan. Essentially, it wants to shed this albatross regardless of how it happens.
As well it should. MoviePass hemorrhages money from its unsustainable business model. Moviefone, which Helios and Matheson acquired for $23 million in April, is a thin shadow of the $388 million company it was when AOL purchased it in 1999. The investments in backing movies haven't been paying off and Helios and Matheson sold a 49% stake in its new film production company, MoviePass Films, right after establishing the business in an effort to raise money.
MoviePass Entertainment would be a mix of cobbled-together entities spanning the movie business, from distribution to exhibition and content and right on through to marketing, advertising, and selling merchandise. By retaining control of the enterprise, Helios and Matheson probably hopes to continue aggregating data on moviegoers' habits, but keep a distance from all the bad press it might still create.
The data analytics firm isn't out of the woods yet either, even if it does spin off MoviePass, because the New York state attorney general has launched an investigation into Helios and Matheson to determine whether it misled investors on its financials. The company denies it misled investors and says its public disclosures have been complete and truthful.
Regardless of the outcome of the probe, investors would do well to spend their money going to the theater to take in a flick rather than putting it into a separately traded MoviePass company.