Helios and Matheson Analytics Inc (NASDAQ: HMNY) is having yet another strong day in the market today. In fact, the stock has been enjoying an uptrend for the past five trading sessions. However, while it’s easy to get your hopes up about the stock at the moment, I’m here to tell you not to. In my view, the end is likely closer than you think. Today, we’ll talk about:
- Why HMNY is going to fall further;
- what we’re seeing from the stock today; and
- what we’ll be watching for ahead.
Why HMNY Is Likely To Fail
Helios and Matheson made it to the mainstream back in August of last year when the company announced the acquisition of the majority stake in MoviePass. At the time, the market cheered and the stock started to dramatically gain. However, in time, it became clear that the company simply could not sustain what it was doing.
While HMNY got no discount on movie tickets, it was offering its members unlimited passes to spend all the money it had in the bank by viewing as many movies as it wanted. Soon, this problem became apparent to investors and the stock started to tank. From there, it was a race to reduce customer utilization, making it so that the service wasn’t a big money burning pit!
While the stock fell for quite a while, giving up 99.999% of its value, it seems to be on the uptrend after the most recent earnings report, which makes sense to an extent. The first thing that we saw when we opened the report was a chart that showed that MoviePass utilization was finally down. In fact, members only used MoviePass to view 0.77 movies per month on average. Investors cheered, and why shouldn’t they. At this rate, MoviePass could become profitable right? Well, there’s only one problem.
With the news HMNY essentially told us that they have succeeded in making MoviePass a service that NOBODY WANTS! Sure, utilization rates are down, but what does that tell us? Essentially, at this rate, for every one member that uses the service to its full extent, going to the movie theater three times per month, there are nearly four users that aren’t actually using MoviePass at all. Now we’re getting to the meat and potatoes of the issue.
While Helios and Matheson was able to get utilization rates down dramatically, the company has failed at creating a profit. To make matters worse, there’s no insinuation that a profit is coming. After all, for profit to come down the line, the company will have to grow its subscriber base while keeping utilization rates low. So, in essence, the company is going to have to find a way to market and sell a service that nobody wants to use! Think about it, if nobody wants to use the product, what are the chances that HMNY will be able to grow its subscriber base?
Now, here’s what’s actually likely to happen. As users realize that they are being automatically billed $9.99 per month for a service they are not using, they are going to cancel. So, utilization rates will likely stabilize a bit higher over the next 12 months as those that stick around will be those that actually use the service. At the same time, subscriber base is going to shrink dramatically. Considering the current utilization rates, the idea that 70% of those paying but not using will cancel over the next 12 months, and the current number of subscribers, the company’s subscribership will likely fall to 1.5 million or so over the next 12 months, and could fall further. At this rate, the company simply doesn’t have the money to survive much longer, which brings me to my next topic.
I’ve recently found the MacroAxis Probability of bankruptcy tool, and if nothing else, it’s fun to use with regard to bankruptcy speculation. According to the tool, the company has a 43% chance of bankruptcy in the next 2 years based on the most recent financial data. That’s already a harsh reality. However, adding in the idea that subscribership is likely to see tremendous declines, I believe that the likelihood of bankruptcy within the next 2 years is more like what MacroAxis predicts for Top Ships (TOPS), around 85%.
To make matters worse, HMNY recently abandonned its plans to move forward with a reverse stock split. While this move was made because the company didn’t believe that it would have investor support, and investors were happy, there’s a dark cloud hanging over the party. Without the RS, the company is not going to be able to regain NASDAQ compliance. As such, it is likely to become delisted in just a few weeks on December 15, 2018. That is, unless the company finds a way to pull a rabbit out of a hat.
The bottom line here is this: Yes, utilization rates are down. Yes, HMNY is closer to profitability because of it. Yes, there are reasons to be excited. However, looking beyond all the glits and glamour, we find the ugly side of HMNY. The side of the company with very little cash to rely on. The side of the company that has effectively made a service that nobody wants to use. The side of a company that is likely destined for failure. Sure, the company is digging for straws, trying to make a hit movie and more, the bottom line is that it failed badly with MoviePass. While some company’s can recover from a knockdown punch over time, MoviePass didn’t just knock the company down, it’s likely to prove to be the knockout punch for HMNY!
What We’re Seeing Form The Stock
While there are plenty of reasons to stay away from Helios and Matheson Analytics, investors seem to be excited with the dwindling utilization rates. This has led to a decent run in value that’s continuing today. Albeit, HMNY is a worth just over a penny a share, so even big moves are small on a per share basis. Nonetheless, the stock is currently (1:03) trading at $0.017 per shar after a gain of $0.00060 per share or 3.61% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the iWatch Markets team will continue to keep a close eye on HMNY. In particular, we’re interested in following the company’s cancellation rate and seeing if our predictions with regard to the mass cancellation ahead of the compnay are correct. We’re also interested in seeing where the utilization rate ends up as the vast majority of those not using the service at all are likely to cancel. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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