Shares of Helios and Matheson Analytics , the majority owner of MoviePass, plummeted nearly 30% on Monday on news that it filed a shelf offering to stay above water. It hopes to raise $1.2 billion in equity and debt securities to fund the venture, which now boasts three million subscribers but faces a growing number of challenges.
MoviePass began in 2011 as an idea to incentivize consumers to come back to theaters to watch movies instead of at home. It is a subscription-based service that typically charges slightly under $10 a month (outside of limited-time offers) and allows subscribers to watch a movie a day at participating theaters. The idea has gained traction and popularity but led to new competition as well.
AMC Entertainment (AMC - Free Report) unrolled its own monthly subscription service in late June. It is priced at $19.95/month and allows subscribers to watch up to three movies a week with no restrictions on movie selection. The program is currently only offered to members of its loyalty program, AMC stubs.
The challenge for MoviePass is that AMC’s subscription applies to all its theaters, whereas its own program is only available at select theaters. Furthermore, the new initiatives that MoviePass is offering, including the option to watch movies in IMAX 3D (for an additional fee), is already offered under AMC’s subscription.
MoviePass has been hemorrhaging money, going from losing nearly $17 million in the first quarter of this year to losing $40 million in May, with expectations that losses will only continue to grow as it increases its subscriber base. The company stated that it acquired nearly 545,000 new subscribers between May and June, but clearly did so at a very high cost.
The company has been exhausting all options to continue raising cash, recently enacting surge pricing, charging at least $2 more for films that are especially popular. While the shelf offering is not guaranteed to succeed, it would provide a much-needed breath of life into HMNY and MoviePass.
Investors are already very concerned as to whether MoviePass can be profitable. This sentiment has echoed in its stock price, which has decreased nearly 91% in the last 12 months. Given these trends, it is best that investors sit this out and watch how the company develops. Should MoviePass design a more effective path to profitability, it could dramatically boost the number of consumers at theaters. Still, this will prove difficult given the lack of cash coupled with competition from AMC.
For now, the firm still has much to prove.
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