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One of the saddest tales of this year has got to be Helios & Matheson Analytics (NASDAQ:HMNY). The IT service management company, which owns subsidiary MoviePass, suffered an intractably horrific loss. Over the past three months, HMNY stock lost a mind-numbing 99% of market value.

Practically speaking, the company is worthless. If you had to be precise, Helios & Matheson shares are worth $85,900. While they’re currently listed on the Nasdaq exchange, that will change very shortly. I think they’ll be lucky to be listed over-the-counter.

This company is now the very definition of what Jordan Belfort referred to as “dogsh-t” in the film, The Wolf of Wall Street.

But of course, humans love the dogsh-t, don’t we? The intrepid among us discount-dive for these opportunities. On the surface, I can see their rationale. The MoviePass subscription service jumped from 20,000 subscribers in August 2017 to three million last June.

And despite the impact of streaming-content services, the movie industry is still viable. This year will likely produce the biggest box-office haul in recent memory. As an “outbound” entertainment form, movies represent affordable escapism. Plus, HMNY stock was once trading at hundreds of dollars per pop.

MoviePass and its parent Helios & Matheson supposedly has the right ingredients for contrarian success.

 

Unfortunately, MoviePass had a Fatal Flaw

Although MoviePass demonstrated strong popularity, the demand came at a cost. To achieve their multimillion-subscriber haul, the parent company had to drop pricing from $45 to $9.95 per month. But at that rate, management couldn’t sustain the business model.

That’s because at $9.95, Helios & Matheson was paying full retail price for movie tickets. According to MarketWatch, it cost the company “$136 million to generate just $47 million in subscription revenues.” Furthermore, cineplex operators could bypass MoviePass by simply offering their own iteration.

But it became readily apparent that MoviePass and HMNY stock was going to stumble last fiscal year. In 2017, cost of goods sold jumped from $4.86 million in the prior year to $20.54 million. Gross margin slipped from 28% to -96.7% over the same time frame.

The situation eroded quickly in the company’s first-quarter earnings report. Still, some people were betting on MoviePass and HMNY stock, taking signals from the technical charts.

While I’m a big proponent of the technical approach, the fundamentals always matter. If the financials are available to you (and why shouldn’t they be?), you must assess them.

The money that you’ll save will be yours.

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