There’s a dark cloud hanging over movie subscription provider Helios and Matheson Analytics (NASDAQ:HMNY). Over the past year, HMNY stock has plunged from highs near $33-per-share to below $1, which has created a big problem for management.
In order for the firm to maintain its listing on the NASDAQ, the share price needs to be above $1 leading management to make some difficult decisions. With the share price in trouble and the business itself struggling against a host of headwinds, things aren’t looking great for HMNY investors.
Maintaining a NASDAQ Listing
This week, management at Helios & Matheson revealed plans to conduct a reverse stock split in which the firm would consolidate its shares in order to get them above the $1 minimum. The company would choose a multiple between 1-for-2 and 1-for-250, which would bring the share price higher by the chosen figure. However, shareholders will have to agree to the plan, which is scheduled to go up for a vote in July.
If the plan is denied, HMNY will likely lose its NASDAQ listing and “could have serious adverse effects on the Company and its stockholders,” according to Helios & Matheson’s proposal.
While the sub $1 share price is certainly a concern, it’s not the only obstacle that HMNY shareholders should be worried about. Most notably, the firm is about to go into battle with movie theater chain AMC Entertainment (NYSE:AMC). On Wednesday, AMC announced its own movie subscription pass that will directly compete with HMNY’s MoviePass.
The new AMC program is set to debut on June 26 and would allow moviegoers to enjoy up to three movies per week for a fixed monthly price of $19.95.
The announcement sent HMNY stock markedly lower despite the fact that the AMC pass doesn’t stack up against the MoviePass subscription that Helios & Matheson offers. For one, MoviePass is just half the price of AMC’s service and allows people to visit a wide variety of theaters, including AMC locations. Not only that, but MoviePass allows users to see one film each day compared to AMC’s three per week.
Competition from AMC is nothing new — Cinemark (NYSE:CNK) rolled out a similar offer last year, but MoviePass remains the best value for moviegoers’ money. So why are investors panicking?
To Beat the Competition, You Must Remain in Business
The reason shareholders are spooked isn’t so much the AMC competition, but the fact that HMNY is on the ropes and it looks unclear whether the firm will be able to outlast the competition despite its better value proposition.
Helios & Matheson is hemorrhaging cash — the firm has been burning through upwards of $20 million per month, leading most to question whether the company will be able to continue operating for long. HMNY management has been adamant about it’s future success, saying that it has secured a “$300 million equity line of credit.”
However, there is some question as to what exactly the firm is referring to. Although HMNY CEO Ted Farnsworth referred to the incoming funds as a “line of credit,” MoviePass CEO Mitch Lowe clarified saying it was actually an “at-the-market” sale of Securities and Exchange Commission certified shares. Essentially, the SEC has agreed to allow HMNY to sell up to $300 million worth of additional shares as long as people are willing to buy them.
That’s the catch … are people really willing to buy them?
There’s likely a small group of believers out there who see MoviePass and HMNY stock recovering from all this turmoil, but are there enough to snap up $300 million worth? I doubt that very much. Especially with the firm’s latest NASDAQ issues, shareholders who are still hanging on are probably few and far between, let alone those who are willing to jump on board now.
The Bottom Line
Sure, there’s a chance that things can work out for MoviePass and HMNY, but that chance is getting extremely slim. HMNY stock looks like it’s headed to rock bottom and I’m not sure there’s any potential for a turnaround at this point. Although the company offers the best movie subscription pass out there, it looks like its business is simply not sustainable.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.