MoviePass Faces Steep Climb to Raise $1.2 Billion
Wall Street hasn't been impressed with the app's new bid to raise funds and hit 5 million users (even with "peak pricing").
MoviePass is betting that there are enough believers in its gym membership-like subscription model to keep it afloat for years despite burning cash at a risky rate. Yet Wall Street hasn't been impressed with those efforts.
Helios and Matheson Analytics on July 2 filed to raise $1.2 billion to pour into MoviePass. Yet the stock fell 29 percent to 22 cents a share that day and is now down 93 percent since Aug. 15 of last year when MoviePass dropped its price to $9.95 a month for a ticket per day.
For a company with a market cap of $47 million, $1.2 billion is a ton of money to raise, says Michael Pachter of Wedbush Securities. "I'm skeptical that they will have any success borrowing money, so it is up to equity investors to pony up. If they keep losing $20 million a month, that amount will last them five years, but I don’t think they will be able to find that many people who buy into their vision," he says.
Nevertheless, the SEC on Friday officially cleared the plan, and CEO Ted Farnsworth says some unnamed institutional investors are already on board. The naysayers, therefore, are simply wrong, just as they were when they predicted doom and gloom late last year when he raised $400 million for MoviePass, he says.
“They don’t even know what structure I’m using. They don’t have a clue,” says Farnsworth.
On Tuesday, Farnsworth revealed one phase — filing to sell shares of Helios common stock and warrants to purchase shares, as well. That disclosure also caused the stock to fall. According to the filing, MoviePass will run a cash deficit of $45 million this month and ran one of $45 million last month, too, while the company has only $45.9 million in cash and money owed to it by merchants.
Also working against MoviePass is competition from AMC Entertainment, which launched a service for $19.95 a month that gives subscribers three tickets per week to use at 640 of its theaters. And on Thursday, MoviePass introduced peak pricing, which adds a surcharge of up to $6 for the most popular showings, though Farnsworth says the introduction hasn’t slowed growth.
Farnsworth says he will use the $1.2 billion to not only grow MoviePass from 3 million subscribers now to 5 million by year’s end — when it should be cash-flow positive through marketing and revenue-share deals — but also to make acquisitions and fuel MoviePass Ventures, which invests in movies like American Animals.
The exec also will sink more into MoviePass Films, a joint venture that was formed by a May 30 merger with Emmett Furla Oasis Films. That deal has Helios owning 51 percent of the venture while EFO Films keeps 49 percent. Via EFO, MoviePass Films is developing movies based on the games Monopoly and Hungry, Hungry Hippos and also owns a library that includes stakes in Lone Survivor, Rambo and three Escape Plan movies. Farnworth says MoviePass ventures will make “studio-level” films with budgets of $30 million to $80 million.
“We’re used to the skepticism. We’ve been dealing with it for nearly a year,” says Farnsworth.
This story first appeared in the July 11 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.