Something should not sit right with investors when a company hints at blockchain technology getting incorporated into its business model. But when Helios and Matheson Analytics Inc (NASDAQ:HMNY) did such a thing on Jan. 10, it gave the stock a strong lift, at least in pre-market.
Helios is not the only company doing this: Eastman Kodak Company (NYSE:KODK) did the same thing on January 9. When it unveiled cryptocurrency, its stock rallied from $3 to over $12 a share.
To even consider investing in HMNY stock, astute investors must look at Helios’ key product: MoviePass.
MoviePass is a potential money-maker for Helios. Consumers who sign up for the service save significant sums of money. And word is spreading fast just how good a deal subscribers get. Over 500,000 signed up to the movie-ticketing service in under a month, giving MoviePass over 1.5 million paid subscribers. Subscribers may buy one movie ticket a day for a flat monthly fee. But MoviePass then pays theaters the full price for a ticket.
The obvious question is: How is losing money from each movie-goer sustainable? Unless the company collects more revenue from subscription fees than the cost of movie tickets, MoviePass will not survive for very long.
Helios may be borrowing the money-losing gameplay from Netflix, Inc. (NASDAQ:NFLX). The online TV and movie streaming giant started its business by renting out DVDs. It pivoted its business by selling online streaming subscriptions. In that time, subscriptions soared. These days, Netflix may raise monthly subscriptions without its customer defecting. Helios probably has the same ambitions as an early Netflix: Grow the user base in the hundreds of thousands monthly and then worry about revenue later on.
MoviePass must work quickly. Already, Cinemark launched Cinemark Movie Club in November at a competitive price. MoviePass may still have the first-mover advantage, building its brand-name awareness ahead of the competition.
Having a massive user base will inherently increase the value of MoviePass, not only for the subscription revenue. The app will collect useful user data that the company may then mine. This would let movie theaters pitch more suitable advertising to the movie-goer.
“The deal from our side and why we’re excited is we still get paid the full price of admission. If this succeeds in driving attendance, it will pay for itself,” said Chris Aronson, head of distribution at 20th Century Fox. “And they’ve made no secret that their goal is to mine data from subscribers. We’d be very interested in that.”
HMNY Stock Red Flag
Helios’ hint of an ICO (Initial Coin Offerings) last week is still a disturbing announcement. Not only is the technology straying away from the MoviePass core business, it looks more like a distraction for investors and for the company.
Thankfully, investors may assume the ICO association was taken out of context. At most, the company would only consider in passing the prospects of blockchain in its business.
Helios will need more capital in supporting the business that is taking on millions of subscribers. On January 12, the company raised $60 million in total: $25 million through a convertible debt offering and another $35 million through an investor note. Sure, Tesla Inc (NASDAQ: TSLA) and Netflix raised significant sums (relative to company size) early on. But by taking on more debt and paying high-interest rates, risks go up for existing HMNY shareholders.
Takeaway on HMNY Stock
Helios is a speculative investment but has the potential to reward shareholders handsomely.
The company must grow its user base to at least 5 million subscribers. This would it squeeze short sellers, where the short float is 23% because markets like to buy companies with a growing user base.
MoviePass has yet to prove that its business is scalable but if it monetizes user data and works out favorable deals with theaters, the company may even start earning a profit.
As of this writing, the author did not own shares in any of the companies mentioned.