Helios And Matheson: Another Reverse Split Coming Up

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About: Helios and Matheson Analytics Inc. (HMNY)
by: Elephant Analytics
Summary

Helios and Matheson gained shareholder approval to do another reverse split.

This reverse split may end up being 1 share for 1,000 shares, which would reduce its share count from around 3 billion to around 3 million.

MoviePass's subscriber base continues to plummet, and AMC's Stubs A-List program appears to have more subscribers now.

Cash burn should decrease as MoviePass's subscriber base shrinks. MoviePass's economic model remains nonviable without a significant source of revenue outside of subscription fees.

Helios and Matheson (OTCPK:HMNY) looks set to do another reverse split after gaining approval for it at a recent special meeting. This will likely greatly reduce its share count (which had reached over 3 billion) and should get its stock to above $2 again, at least temporarily.

Helios and Matheson's main product (MoviePass) continues to see its subscriber base shrink though. As Sinemia's shutdown indicates, it is quite hard to make a movie subscription business work when the company is paying full-price (or near full-price) for tickets and doesn't have a substantial additional revenue stream such as concession sales.

The Reverse Split

Helios and Matheson's shareholders voted to allow a reverse split of its common stock at a ratio of between 1 share for 2 shares and 1 share for 1,000 shares. It appears that a slight majority of the roughly 2 billion common shares outstanding as of the late March record date voted against allowing a reverse split. However, the votes from the Series A and Series B preferred stockholders helped the reverse split proposal pass.

Source: Helios and Matheson

With Helios and Matheson's stock trading at a minimal price now, I'd expect it to implement the maximum reverse split. A reverse split of 1 share for 1,000 shares would increase its share price to around $2.40 per new share if it maintains its most recent market capitalisation amount.

The company also indicated that it had roughly 3 billion common shares outstanding as of early April. A reverse split of 1 share for 1,000 shares would reduce this to around 3 million common shares outstanding.

Revenues And Subscribers Continue To Plummet

Helios and Matheson hasn't filed its 10-K for 2018 or its 10-Q for Q1 2019 yet. It did note that revenues were approximately $17.8 million in Q1 2019, indicating that MoviePass's subscriber base has continued to plummet. My estimate is that MoviePass's subscriber base averaged around 600,000 during Q1 2019, and that it likely exited the quarter with significantly under 500,000 subscribers remaining. This would put it at below the number of subscribers it had in October 2017. This also means that AMC's Stubs A-List program has more subscribers than MoviePass now.

The amount of new users signing up for MoviePass is pretty negligible, with its iPhone app ranking (for the Free Entertainment category) often barely holding on to the Top 1000.

Source: SensorTower

The rate of subscriber decline appears to be slowing a bit, but MoviePass could still end up with under 100,000 subscribers by late 2019.

A Business Insider report from April mentioned that MoviePass was down to 225,000 subscribers and that the MoviePass Uncapped program had only signed up 13,000 subscribers. Helios and Matheson responded to Business Insider that those reported numbers were incorrect, but didn't provide any further details. The revenue numbers and SensorTower data point to massive subscriber losses and few new signups though, so the disagreement is probably over whether the April 2019 subscriber count was down something like 88% or 93% from the peak.

Cash Burn Situation

The shrunken subscriber base should help reduce Helios and Matheson's cash burn though. At 400,000 subscribers, if MoviePass was losing $3 per subscriber per month, that would translate into $1.2 million in cash burn per month for that portion of Helios and Matheson's operations. At 100,000 subscribers, a similar rate of losses per subscriber would result in only $0.3 million in cash burn per month (ignoring the other parts of Helios and Matheson's businesses).

The company's market capitalisation is around $7 million at the moment, so while further dilution will probably occur, the rate of dilution should be significantly slower than before.

Conclusion

Helios and Matheson is planning another reverse split that will probably reduce its outstanding share count back down to approximately 3 million from its current 3 billion. It is continuing to burn cash at last report, so I'd continue to expect dilution in the future. The rate of dilution should slow down due to MoviePass's smaller subscriber base, but smaller losses due to a shrinking subscriber base isn't exactly much of an argument for investing in Helios and Matheson.

MoviePass's economic model is not feasible without significant other revenues outside of the subscription fee. It has not been able to generate much revenue from the data, advertising or other sources, and seems quite unlikely to do so in the future. AMC's Stubs A-List program works since it can offset the lost revenue from movie ticket sales with concession sales. AMC's food and beverage revenues are around 50% of its admissions revenues, and the margins on food and beverage are much higher.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.