3 Reasons MoviePass Stock Is No Sirius XM Radio

Things are getting pretty dire in the world of Helios and Matheson Analytics (NASDAQ: HMNY), the reeling parent company of the MoviePass multiplex subscription service. The stock has surrendered 97% of its value in 2018, and there doesn't seem to be an easy way out.

Optimists may want to look at Sirius XM Radio (NASDAQ: SIRI) for inspiration at this point. Helios and Matheson may be trading for pocket change now, but Sirius XM stock bottomed out at $0.05 in early 2009, and there other similarities beyond the penny stock pricing.

Sirius XM was hemorrhaging money at that point. The satellite radio provider had just completed a potentially game-changing acquisition, but it was warning that it was on the brink of filing for bankruptcy reorganization. Sirius XM also blew up its outstanding share count in an mad-dash effort to raise money to stay afloat, just as Helios and Matheson is doing right now. MoviePass may be popular, but there are a few reasons why it's not the second coming of Sirius XM, a stock that would go on to become a scintillating 140-bagger after bottoming out at a nickel.

1. Sirius XM got a life-changing capital infusion

Sirius XM was running out of money, but it had a pair of media moguls willing to step up with a financial lifeline. Sirius XM chose to go with John Malone's offer. Sirius XM was desperate. It handed Malone a 40% preferred share stake in exchange for a $530 million loan that it would have to repay at 15% interest.

It wasn't pretty -- and it was another step in dramatically expanding the share count -- but it was what Sirius XM needed at the time. The problem with Helios and Matheson is that there aren't a lot of sugar daddies likely waiting in the wings.

A multiplex operator isn't going to step up because MoviePass devalues their product. With 3 million premium subscribers, MoviePass has value, but likely not enough to drum up the interest from acquirers that could actually make the most of the MoviePass platform. Even if there was a company with deep pockets eager to help, the model itself could be a deal breaker.

2. Sirius XM turned profitable

Sirius XM was able to post positive net income within a couple of quarters of bottoming out, and it's pretty much been that way ever since. There is no reason to believe that MoviePass will be profitable anytime soon.

Sirius XM operates a model where the fixed income costs are high but the variable rates are low. Once it hit a point where scalability would kick in, it was easy to see where the bottom line would grow exponentially. MoviePass is the other way around. The company pays retail prices for most of the movie tickets it subsidizes, so it spends a lot more than $9.95 a month on tickets. Variable costs are high, and gross margin will continue to be negative at current price points.

Sirius XM had a compelling business model, and that made it easy to raise money. Helios and Matheson won't be so lucky.

3. MoviePass doesn't have pricing elasticity

Sirius XM has been able to consistently grow its subscriber count, and that's with the music royalty fees that it passes on to listeners inching higher with every passing year. MoviePass is going to be a hard sell outside of $9.95 a month. There were just 20,000 subscribers last summer when the service cost most accounts $29.95 a month. The spike to 3 million has come as a result of the value proposition.

It's not a sustainable value proposition for MoviePass, and it's rolling out surge pricing -- making folks pay a bit more to view movies during peak levels. This could be the beginning of the end for MoviePass, and it comes at a time when actual exhibitors -- the multiplix operators that can actually turn a profit by discounting ticket sales -- are beefing up their rival offerings.

MoviePass is in a pickle. If it raises its price it will lose subscribers, particularly the light users that it needs to offset the heavy eaters of its celluloid buffet. Adding new fees and restrictive conditions will have the same effect.

Sirius XM and MoviePass are entertainment subscription services, but only one of them has shown the ability to offer its platform sustainably for the long haul. Helios and Matheson is going to need a model overhaul to stay afloat at this point.

10 stocks we like better than Sirius XM RadioWhen 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 quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sirius XM Radio 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 June 4, 2018

Rick Munarriz owns shares of Helios and Matheson Analytics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.