Can MoviePass Owner Avoid Bankruptcy as Stock Hits Record Low?

Shares of parent company Helios & Matheson have spiraled down more than 95 percent in the year to date

MoviePass Gotti
MoviePass's Rod Vanderbilt (left), CEO Mitch Lowe and parent company Helios & Matheson CEO Ted Farnsworth, at the premiere of Gotti, starring John Travolta/Dave Kotinsky/Getty Images

Helios & Matheson, the data analytics company that owns cinema’s enfant terrible MoviePass, is scrambling for its survival as its stock hit a record-low 18 cents on Wednesday — before closing at .21.

The company, whose shares traded as high as $32.90 last October, is at risk of being delisted from the Nasdaq if shares continues to trade below $1. While that alone doesn’t spell the end of the MoviePass owner, it’s often the first of many warning signs for publicly traded companies.

“I’m probably 80 percent confident this company goes bankrupt,” Wedbush analyst Michael Pachter said of Helios & Matheson and MoviePass. “I just don’t see a business model for Helios & Matheson centered around MoviePass, even with all the extra data and stuff they pitch.”

Representatives for MoviePass and Helios & Matheson did not respond to TheWrap’s requests for comment.

The problems for the company are many — and they are multiplying as MoviePass continues to lose money even as investor confidence (and the parent company’s market share) plummets.

Helios & Matheson has poured tens of millions of dollars into the $10-a-month subscription moviegoing service, fueling its booming growth to 3 million-plus users.

But that subscriber growth has proven costly: The company reported $40 million in MoviePass losses in May, and anticipated that to grow to $45 million in June — with just $18.5 million cash on hand as of May 31.

Since the company pays movie theaters full price for every ticket its subscribers purchase,  frequent MoviePass users are driving the company further into the red. “They’re burning cash on every single movie ticket — Helios & Matheson is going away unless they can turn this around,” Pachter said.

In an April filing with the Securities and Exchange Commission, Helios & Matheson reported losses of $150 million in 2017 thanks to MoviePass and the lower subscription price launched last August — up from just $7 million in losses the year before.

Last week, Helios & Matheson announced plans to raise $164 million through a bond issuance in an effort to help buoy the business and boost the company’s sinking stock price. Two days prior to that announcement, Helios & Matheson proposed a number of measures to bolster its stock, including a reverse stock split and a quadrupling of shares, to 2 billion from 500 million shares.

The idea is that Helios & Matheson would be able to stabilize the company and shore up its stock. According to Nasdaq listing rules, when a company’s stock has been trading below $1 for 30 consecutive days, it is in jeopardy of being de-listed.

There’s not a one-to-one causation for delisted companies going bankrupt. But according to the SEC website, “In most instances, companies that file under Chapter 11 of the Bankruptcy Code are generally unable to meet the listing standards to continue to trade on Nasdaq or the New York Stock Exchange.”

Shares could still trade as an over-the-counter stock, however.

“I looked at the financials, and in our world, [MoviePass is] basically bankrupt,” Ross Gerber, CEO of investment firm Gerber Kawasaki, told TheWrap. “The model of burning money and racking up as many users as possible with the idea being that the value is in the users, that’s just not working. They’re trading at like 20 cents. Any basic analysis would tell you this is basically a doomed company.”

“They bought themselves maybe to the end of the year,” he added.

As if the specter of financial trouble wasn’t enough, MoviePass is facing a looming threat from exhibitors as they smarten up and launch rival subscription services of their own — without having to pay themselves full price for tickets.

AMC, the world’s largest movie theater owner,  this week launched a $20-a-month service, dubbed AMC Stubs A-list, allowing users to see up to three movies a week and receive discounts on concessions. And Cinemark offers a Movie Club service where members get one ticket every month and 20 percent off concessions for $9 monthly fee.

As subscription services from cinema chains continue to develop and more theaters follow suit, MoviePass will continue to suffer, Gerber and Pachter said.

But the new competition further puts the squeeze on MoviePass. A day after AMC announced its subscription service, MoviePass said it would start allowing users to buy tickets for Imax and 3D movies, and that it would tack on a surcharge for screenings that are in high demand.

And analysts said that MoviePass’ promise to monetize the data from its subscriber base has yet to materialize. “The gimmick they had with MoviePass was that they’d have access to all this data they’d be able to monetize,” Pachter said. “MoviePass has 3 million members, AMC has 15 million members in its loyalty program and you have to assume they have plenty of data too, but Disney doesn’t seem to care, so…”

As Gerber said, “That data just isn’t really that special.”

The company’s foray into investing in and owning content hasn’t really panned out either. While the indie darling “American Animals” it scooped up out of Sundance had a solid opening earlier this month, John Travolta’s “Gotti” got whacked at the box office after receiving a zero percent Rotten Tomatoes score.

“Whoever gives them money is just going to lose it,” Gerber said. “It’s just a matter of how fast.”

“If you’re interested in this company, really you should just wait until they go bankrupt and buy them there,” Patcher said. “The only way to avoid bankruptcy is to raise prices to where it makes economic sense — unfortunately, that’s no longer palatable.”