MoviePass’ owner is suddenly trading around $14, but one expert warns the service still has a major challenge ahead

  • MoviePass’ owner, Helios and Matheson Analytics, was trading at about $US14 on Wednesday morning after a reverse stock split.
  • If it trades at $US1 or above for 10 straight trading days, with a market cap of at least $US50 million, the stock will no longer be at risk of being delisted from the Nasdaq.
  • But according to Erik Gordon, a clinical assistant professor at the University of Michigan’s Ross School of Business, HMNY’s getting the stock above $US1 was the easy part – what will be hard is finding new money.

At the end of trading on Tuesday, MoviePass‘ owner, Helios and Matheson Analytics, did a reverse stock split that rocketed its stock price from $US0.09 to about $US14 on Wednesday morning.

Because of its low share price, HMNY had been at risk of getting delisted from the Nasdaq by mid-December if the stock continued to trade below $US1. That’s why HMNY got approval from its shareholders on Monday to do a 1-for-250 reverse stock split – meaning they got one share for every 250 they held – to try to stave off that fate.

If shares of HMNY stay at $US1 or above for 10 straight trading days, at a market cap above $US50 million, the stock will no longer be at risk of being delisted, according to Nasdaq. If it goes back down below $US1, however, it will still be at risk, and it will have become clear that the company’s gambit didn’t pay off.

“I’m not worried,” Helios and Matheson CEO Ted Farnsworth recently told Business Insider when asked about the company’s finances. “We’re taking a company from literally doing $US10 million a year to the end of this year we’ll be on a run rate of probably $US500 [million] to $US600 million.”

However, though HMNY is currently trading above $US1, the reality is that it’s still a risk in the eyes of most on Wall Street, according to Erik Gordon, a clinical assistant professor at the University of Michigan’s Ross School of Business.

Before the reverse stock split, HMNY stock was down 99% from its high in October 2017 of more than $US38.

“You do the reverse split and get over $US1, but I don’t think that will attract people,” Gordon told Business Insider. “I mean, theoretically there could be somebody stupid enough to go, ‘Wow, it went from $US0.09 to [$US14].'”

Gordon said the easy part for HMNY was getting the stock above $US1 – what will be harder is attracting money.

“Their real challenge is how they are going to attract substantial amounts of cash to finance their business model and stay in business,” Gordon said. “And that means new cash.”

And it’s going to be hard.

Gordon said that because of its financial troubles, HMNY would not be attractive to smart tech money or suddenly appear on Edward Jones’ pick list. And at least at the start of trading on Wednesday, it looked as if most of the market didn’t have much confidence in HMNY. Based on Tuesday’s prices, one share worth $US0.09 would be worth $US22.50 after the reverse split, but the stock opened soft off the bell.

However, Farnsworth is staying optimistic.

“Wall Street understands how we operate,” he said. “They love the story. They think we’re the next unicorn company.”

Along with the reverse stock split, HMNY shareholders on Monday also approved an increase of the company’s common stock to 5 billion from 500 million.

“We could have made a conscious decision to slow down. We talked about it for months – ‘If we raise the [subscription] price, we’ll slow down the growth’ – but what Wall Street really wants is to see that growth,” Farnsworth said of the growing number of MoviePass subscribers, which he hopes will hit 5 million by the end of the year. “As long as you show that growth story with Wall Street, they will always be behind you.”

But Gordon isn’t so sure about that.

“At some point, parts of your story have to start looking true,” he said. “For some investors, that’s the scariest thing you can hear, ‘They love the story.'”