The share price has plunged more than 75% this month alone after execs warned in an SEC filing that they were running low on cash reserves. Exhibitors, most Wall Street investors and even many customers continue to express skepticism about the long-term viability of MoviePass. Its top execs counter that they have a sound strategy and access to hundreds of millions of dollars in additional financing. After flirting with higher subscription prices, they have doubled down on their effort to sign up as many fixed-rate subscribers as possible, at a rate of just $9.95 a month. Subscriber levels have passed 3 million and the company expects to be in the neighborhood of 5 million by year-end.
Expenses, though, already average $22 million a month, and that number is likely to rise as the subscriber base expands. The company must pay exhibitors for each ticket bought by members, even though subscription revenue is limited by the fixed-price model. Down the line, MoviePass sees its biggest opportunity in data mining, mainly the selling of user data to third-party advertisers.
Even after the worrisome SEC filing noted that the company had just $15.5 million in available cash reserves at the end of April, management noted a silver lining in some key policy changes it implemented. The company implemented new technology designed to restrict sharing of membership cards and also limited members to one movie per day. The moves helped shrink the monthly deficit by 35% as of May, according to the filing.
In a post for Seeking Alpha yesterday, financial blogger Julian Lin became the latest number-cruncher to conclude the company has a nearly impossible path to prosperity. “Even using incredibly optimistic assumptions,” he wrote, the company “may still be way overvalued.” In taking a closer look at the balance sheet, he added, “it becomes clear why Wall Street has thus far shown a complete lack of interest in buying their stock.”