MoviePass Stock Is No Netflix

You don't need to look hard to find the market's hottest stock over the past month. Shares of Helios and Matheson (NASDAQ: HMNY) have soared from $2.50 to $32.90 in that time, a scintillating 13-bagger that some investments take a lifetime to achieve.

Helios and Matheson is the majority stakeholder in MoviePass, the multiplex smorgasbord that turned heads this summer when it slashed its price to $9.95 a month. A celluloid buffet for less than $10 a month drew immediate comparisons to Netflix (NASDAQ: NFLX), but it wasn't a fair comparison then given the limitations of the MoviePass product and the larger stumbling block to profitability. It's also an obsolete comparison now that Netflix has bumped its monthly cover charge to $10.99 a month.

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The monster rally for Helios and Matheson didn't kick off right away. MoviePass slashed its price by roughly two-thirds in mid-August, and the market's initial reaction was skepticism. MoviePass typically pays face value for its movie tickets, so if someone sees just two films a month -- or in some larger metropolitan markets a single flick -- MoviePass is theoretically losing money.

The value proposition was undeniable, and when the website crashed the day the price cut was announced and when MoviePass conceded that it was going to take several weeks before it could send out all of the new membership debit cards, it was clear that Helios and Matheson's multiplex marathoner was a hit. The stock would go on to languish for weeks, until MoviePass revealed on Sept. 14 that its paying subscriber base had soared from 20,000 to 400,000 over the past month.

It's been off to the races for Helios and Matheson ever since. The stock -- which went from $2.79 to $2.95 the day the new price was announced on Aug. 15 and drifted down to a $2.63 close several weeks later when it announced hitting 400,000 subscribers -- has been on fire. It's working on its fifth consecutive week of at least double-digit percentage gains.

It got some help along the way. Maxim analyst Brian Kinstlinger initiated coverage of Helios and Matheson with a buy rating and a $20 price target earlier this month. Naysayers think the business model may be bananas, but Kinstlinger feels that MoviePass will be successful in finding other ways to monetize its growing user base.

And now our feature presentation

MoviePass -- which is expected to go public itself early next year -- feels that spitting out movie tickets can be a loss leader. It sees big value in the data that it stands to collect. It's able to analyze consumer trends, patterns, and activities, and it can burn both ends of that data candle. It can market related merchandise, advertising, and concessions to its growing subscriber base. It can also approach movie studios and possibly even streaming services including Netflix with millennial consumption trends so they can make better content investing decisions.

There will be money to be made as the platform's popularity grows, and MoviePass itself expects to add another 2.5 million subscribers in the year ahead. The rub is if the data it collects will be worth every movie ticket it has to buy. We don't know the value of the data or how much studios, multiplex operators, and other marketers will be willing to pay for access. MoviePass may never be profitable, and next year's IPO -- Helios and Matheson owns just a 51% stake -- may just be a way for it to keep raising capital to remain afloat.

Netflix is different. It's profitable, and it knows that it can spend $6 billion on content this year and $7 billion next year because its scalable model and nine-figure audience make it so. Netflix can always reel in its streaming content obligations if its subscriber base contracts from its current reach of 104 million accounts worldwide. MoviePass doesn't have the same luxury. It can't tell people to see fewer movies. It can't just raise its price to $19.95 a month or limit what is now daily viewings to weekly ones and sustain its popularity. That genie is out of the bottle, and the huge run on Helios and Matheson stock suggests that it used up all three wishes at once.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.