MoviePass Could Be a Victim of its Own Success

Volatility has been the calling card for Helios and Matheson (NASDAQ: HMNY) since the data-analytics specialist moved to acquire a majority stake in MoviePass. The speculative stock has seen its value cut in half over the past five trading days, and the wild ups and downs are likely to continue.

Helios and Matheson shares took a break from the cascade, moving higher early on Thursday. Online chatter about MoviePass hitting a million subscribers -- unconfirmed by the company itself -- is being credited with the move, but it could just as easily be a dead-cat bounce. However, even if MoviePass is at a million subscribers just two months after lowering the price of its cinema smorgasbord to a mere $9.95 a month, that may result in more pain than gain for the spunky platform.

Coming attractions

MoviePass offers members a card that can be used to buy a single movie ticket per day for $9.95 a month. It's a great deal for you, even if you see just one or two movies a month. It's hard to see how it will be a good deal for MoviePass and 54% stakeholder Helios and Matheson.

MoviePass pays most theaters face value for its admissions. Box Office Mojo estimates that an average movie ticket costs $8.93 these days, and that's including cheaper matinees and lower-priced rural theaters. If you own a MoviePass you're probably not going to have to cut corners. Your ticket is probably setting MoviePass back at least $10 per screening.

It's easy to see why MoviePass is popular. The service went from 20,000 paying subscribers in mid-August to 400,000 a month later, after slashing its monthly rate (which was as high as $30 before). Going from 400,000 to a million wouldn't be a stretch, especially as summertime subscribers tell their friends so they can all go see a ton of flicks together.

The problem here is that Helios and Matheson has a huge stake in a platform that may never turn a profit at that price. We'll eventually find out the consumption trends of MoviePass members, but if they're seeing a movie every week, how can a model be sustainable if it's paying out $40 for every $10 it takes in?

Citron Research, which shorted and covered the stock earlier this month, argued that MoviePass -- and by proxy Helios and Matheson -- was a bad business selling a buck for $0.90. What if it's actually trading a dollar bill for a quarter?

MoviePass argues that it will be able to monetize its members through marketing and data. Helios and Matheson specializes in data analytics, and it feels it can package membership usage trends to movie studios and other companies hungry for insight. There's also the potential to sell members soundtracks and related merchandise, and push-advertise for upcoming movies. But if you're trying to sell products to people gravitating to a MoviePass, you've probably missed the mark with this penny-pinching audience.

Folks bidding up Helios and Matheson the way they did just before the recent slide may as well just buy Pandora (NYSE: P): More than 71 million of that company's 76 million members are freeloaders. Pandora's struggling to turn a profit on those thrifty millennials -- and on LeBron James -- and it just has to shell out less than a buck in content costs a month per member, for a lot more data-consumption points than MoviePass.

MoviePass is popular, but it's perhaps too popular to effectively monetize under the current model's math. Pandora isn't making it work with 71 million ad-supported members, and the math is far more cruel with every new movie buff who orders a MoviePass debit card.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.