Helios and Matheson Analytics Inc (NASDAQ:HMNY) has again gained attention by its purchase of Moviefone. However, unlike gaining the majority stake in MoviePass last summer, this move has failed to attract investor interest. Since MoviePass lowers the cost of going to theaters, it provides the disruptive effects needed to change the movie theater industry. However, without a path to eventual profitability, buying Helios and Matheson stock at these levels will likely not lead to outsized gains in the long run.
The Shifted Focus of HMNY
The New York-based company describes itself as an IT solutions and big data company. Investors now know them as the parent company of MoviePass. Its ownership of MoviePass has led the stock’s wild ride over the last few months.
HMNY acquired a majority stake in MoviePass in August 2017. With this, they offered unlimited movie tickets for $9.95 per month. The move attracted 150,000 additional subscribers within two days. This wave of excitement sent the price of Helios and Matheson stock to almost $39 per share at one point.
Though the subscriber base has grown from 1.5 million to 2 million subscribers in the last month alone, the stock now trades at below $3 per share.
Despite the lower stock price, the company continues its expansion. HMNY acquired Moviefone from Verizon Communications (NYSE:VZ) subsidiary Oath, Inc. for $1 million plus 2.55 million shares of Helios and Matheson stock. Since Moviefone attracts about 6 million visitors per month, this will connect information seekers with its low-cost movie service.
Cost of Revenue Still Plagues Helios and Matheson Stock
However, HMNY stock still struggles on one big issue—earning revenue that exceeds the cost of revenue. Without revenue-sharing, MoviePass loses money when a customer sees more than one movie per month. Revenue sharing has become a struggle. In fact, MoviePass recently removed AMC from its platform over this issue.
This struggle exists despite the fact that concessions drive the majority of movie theater profits. Investors have lost confidence in HMNY for this reason. Adding Moviefone is unlikely to change this dynamic, despite its potential to boost ad revenue.
At present, the company sustains itself by floating new shares of Helios and Matheson stock. However, the dramatic drop in the stock price in the last six months hurts this strategy’s performance.
Moreover, its last released earnings report occurred around the time of its MoviePass purchase. Hence, eight months after it purchased its MoviePass stake, the company has yet to release quarterly income statements with MoviePass fully included in the quarter.
Revenues have also pointed to a long-term downtrend. The company brought in $13 million in 2013. For the first three quarters of 2017, it had only earned $3 million in revenue. The company also spent $3 million to earn that revenue.
Furthermore, it appears Helios and Matheson stock also suffers from an identity crisis. On its website, it lists companies such as Goldman Sachs Group Inc (NYSE:GS), Pfizer Inc (NYSE:PFE), and Metlife Inc (NYSE:MET) among its clientele. It also lists RedZone Map as one of its major holdings. However, with the drop in revenue over the last few years, one has to wonder how about the value of this client base outside of MoviePass.
The bottom line on Helios and Matheson stock
Investors should avoid Helios and Matheson stock unless a clear path to profitability presents itself. To be sure, HMNY has led MoviePass to impressive subscriber growth. However, the current MoviePass business model leads one to wonder whether the costs of revenue exceed the revenue itself.
Moreover, the fact that the company has not released a quarterly earnings report that wholly incorporates MoviePass indicates even more bad news. Finally, an impressive list of clients combined with negligible revenues creates further doubts about the identity and purpose of HMNY itself.
Unless and until the company addresses the doubts about its financials, investors should avoid Helios and Matheson stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.