Why Helios and Matheson Shares Fell Today

Markets Motley Fool

What happened

Continue Reading Below

Shares of Helios and Matheson (NASDAQ: HMNY) fell today, down by 13% at the close, after rival Netflix (NASDAQ: NFLX) reported stronger-than-expected subscriber growth last night. Helios and Matheson has majority ownership in MoviePass, which has been described as the "Netflix for theaters" and may compete to some degree with the online video streamer.

So what

Netflix added 5.3 million memberships globally during the quarter, setting a new record for Q3 subscriber additions. Netflix had forecast subscriber additions of 4.4 million, and analysts were modeling for 4.5 million in subscriber gains.

The company said it "under-forecasted" U.S. and international subscriber additions. The strong performance could suggest that MoviePass demand could have a hard time keeping up with Netflix, even at the comparable price point of $10 per month.

Now what

Continue Reading Below

Helios and Matheson shares have surged since MoviePass dropped its price in August to $10 per month for unlimited moviegoing, when shares were trading below $3. The stock reached as high as $38.86 last week, and closed out today at $18.23. With such a massive run-up driven by speculation, investors should expect a similar level of volatility as MoviePass's prospects come into question. Some traders could also be taking profits off the table, or could be fearful of Netflix's brand strength, exemplified by Netflix CEO Reed Hastings wearing a Christmas sweater last night to promote the upcoming second season of Stranger Things.

MoviePass said last month that the price drop drove subscribers from 20,000 to 400,000 within a matter of days, and is having trouble keeping up with the growth. The service is hoping to add a whopping 2.5 million customers next year, and investors are certainly pricing in lofty growth expectations already. Netflix's continued popularity, driven by its growing catalog of original content, could undermine MoviePass' ability to reach those ambitious targets.

10 stocks we like better than Helios & Matheson North America
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Helios & Matheson North America wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Evan Niu, CFA owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.