MoviePass: Making American Popcorn Great Again!

If only online media giants Netflix and Hulu could figure out how to sling candy and soda, than they too might have the potential of MoviePass. 

Remember the line in The Founder, when Ray Kroc's business bean counter sits him down and explains, "Mr. Kroc, if you're not making money hand over fist, something's terribly wrong"? At which point, Kroc realizes, the land under his business was worth more than his business. And so it is with MoviePass, which still trades under the nutty symbol HMNY, for Helios and Masterson, a New York-based data science company that purchased MoviePass years ago, when it realized, as we have talked about for years, that data science really isn't much of a thing at all.

MoviePass tells the same counter-intuitive tale as McDonald's. But instead of Kroc steering from burgers to real estate, MoviePass steers movie theaters to the other bedrock of American media life: Overpriced concession stand popcorn.

Because, if what we are seeing in terms of participating MoviePass theaters, here in the New York metropolitan area, is any indication, this flat-rate movie theater subscription service is becoming the dinner-hour McDonald's drive-through of concession candy, soda and popcorn plays.

So dim the lights, cozy up with your date, and let's get on with the story of the coming indie hit that will be MoviePass.

Movies for Nothing. 

That MoviePass is driving younger, hipper audiences into legacy brick and mortar movies theaters is no longer in doubt. We picked up on MoviePass' power to move millennials out of their personal cocoons about two months ago, when we were developing a theatrical project of our own, and simply could not book seats to see films in and around New York City. Once we got near some participating theaters in the Westchester area where we live, it was painfully clear the zeitgeist MoviePass had tapped into. This ever poorer, ever lonelier generation of 35-somethings and younger, have come to realize, rather sadly, that sitting in a dark theater, over and over, for a flat $15 a month, is about as close as they were going to get to an intimate thought-provoking night out. Remember, these are the same poor people with all-time low birth rates, all-time high alienation indexes, and all-crushing debt.

MoviePass solves all that, if only for a few hours.

MoviePass' penetration into younger viewers has fired off plenty of coverage at sources like Yahoo!Seeking Alpha and others. There are zippy new deals including a John Gotti biopic starring John Travolta -- He must have got the gig because the hair, right? And wouldn't you know it, the company reported something like a $.15 a-share net profit for the quarter ending March 31, 2018. That's a umptillion-percent jump over the $1.17 cents a share it lost, this time last year. For sure, there's plenty to worry about with those net profits. Remember, HMNY started off as information data consultancy. And that consulting business has fallen by almost 40 cents on every dollar year-over-year. And while its subscription revenue jumped from zero to $47 million year over year, the cost of that revenue jumped exactly $134 million (!) in subscription fees paid to movie theaters. Ah, the Internet startup and the smell of burning money in the morning.

And if you look closely at this income statement, there's all the usual nutty Web stuff floating around: Crazy warrant liabilities that made most of the profit. Some bizarre accounting charges that also juice the bottom line. All the usual Web run-for-the-hills language is here, including this gem, "Without raising additional capital, there is substantial doubt about the Company’s ability to continue as a going concern through May 15, 2019." There is the company's ridiculously overpriced offices in the Empire State Building. (What is it about losing money and pretending you have cash to burn with pricey MidTown rent, like investors don't know that one? I mean really)

And the ticker continues to tank, trading at an all-time low of, what, 23 cents? Yea, yea, MoviePass is going-to-zero, burning-down. We get it.

Smart People Are Going To The Movies.

But then of course, we pros know MoviePass ain't goin' anywhere. First of all, serious people who get paid a lot to know better are loading up on this company big time. No less than Verizon quietly announced that it is taking 5 million shares of this company. And sticking it into its hip groovy rebrand called The Oath -- which for the record is run by the sovereign overlord of losing money for fun and profit: Tim Armstrong ex of such money losing stars as AOL, Yahoo!, and Patch Media. (Just think of the seriously tense finance committee meetings on that deal. When poor Matt Ellis, Verizon's seriously bean-counterish CFO, must have scanned MoviePass' financials, and then after his face ran white, found the strength to politely ask Armstrong -- probably in front of Verizon CEO Lowell McAdam -- something like "Now wait Tim, MoviePass loses how much?" That must have been epic.)

And if you paw through the latest disclosures, you see over and over, that this operation is finding institutional demand for its paper. Let's see now, there are the five total Senior Secure Convertible Notes, for something like $12 million in 2017, if we got this right. And then there is the 2018 deal with something called Canaccord Genuity, which features the most off-shore tax havens for any Website I have seen this year, including offices Guernsey, Isle of Man and Jersey. Taxes or not, MoviePass announced a public offering with Canacocord that raised something like $107 million. Or real Web money.

And don't forget to look at page 27, where you will see MoviePass is protecting what appears to be valuable intellectual property. Sinemia, who appears to have also offeres subscription access to movie theaters, is getting sued for patent infringement. MoviePass appears to have patented paying a flat fee to see a movie. Which by the way, maybe what all the buzz about this company is about.

The Candy Covered Road to Hell. 

By now you should sense the plot: MoviePass is quietly becoming the classic Web velocity play that slashes costs, absorbs losses and partners with big enough allies to become too large to fail. The company struck a deal with iHeartRadio, where users got a bundled package of all the movies and music one wants for about $30. (Both companies lost money on that deal as well, but that is beside the point.)

MoviePass also bought up Moviefone back in April to get to official Mark Zuckerberg Creep-Level status in terms of the data it is vacuuming up about its customers. MoviePass even tripled down on its burn-cash strategy. It lowered prices to $6.95 a month back in March. Because, a business this awful needs to worry about competition, right?

And that all brings us back to Goityi Bio-Picture deal we talked about a few moments ago. If you dig into this quarters 10-Q you will find that exactly 7 vendors account for about 75 cents out of every dollar of accounts payable to MoviePass. We will go out on a limb here and say that's group is the movie house chains. There are only about seven left. so you call us analytic and research geniuses.

What gets intriguing is deeper in this filing, when something called MoviePass Ventures takes over the story. There on page 31, is the narrative of how MoviePass aims to "collaborate with film distributors" using the company's marketing and targeting services and data about its customers. Lots of smart money has stepped up to invest in movies: Orchid Enterprises, Georgia Film Fund 46, Emmitt Furla Oasis Films, Ronin Private Investment and many others are quoted in the filings. And its easy to imagine why: Quietly, and in a way regulators seem to not mind, MoviePass is vertically integrating the theatrical movie supply chain. See how it is changing the risk profile of getting movies to screens? It's marrying the last step retail ticket sale with the furst production cost and rebaking the lucrative fees made from marketing along the way. There by splitting the gravy where the industry can find it in new ways.

That is, in lucrative extras like marketing tie-ins, Web partnerships and yes, crazy-costly popcorn. And before you laugh, the popcorn industry loves to fill the Web void with profit calculators on corn, soda and cheesy chips. Our favorite is ConAgra's Food Services online model. Plunk in some numbers under the Orville Redenbacker banner, And yes, friends, that really does say "98% Profit" And yes, our takes is, that figure is true. Ninety eight cents on every dollar is sitting there waiting for you, if you can only figure out how to get there.

On Actually Betting On MoviePass.

Obviously, HMNY as tactile investment is not for the faint of heart, or the thinly capitalized. Our sense its, some sort of option spread is the way into this current nightmare of ticker. Any trader would love to model that bet out the 18 months that is probably required. Be sure you are careful. There really is a universe of shorts out there, dancing at this operation's grave. But for the patient, and the intelligent and maybe even for the private equity fund looking for a real stake in the operation, HMNY can only go up in terms pf fundamental value.

Eventually, enough subscribers will buy enough popcorn for enough movies that MoviePass finances so somebody huge has to come in and take this operation out at a serious profit. And that day, will be a serious payday. And in an age with intelligent investors pay $193 for every dollar of earnings for exactly the same idea called Netflix, MoviePass is kind of cheap.

So sit back, relax and enjoy the show. MoviePass is theater story all will enjoy watching unfold.