Helios and Matheson Analytics (HMNY): Canaccord Continues to Be Confident Despite Stock Crash

Though Canaccord's Austin Moldow lowers his 12-month target expectations on HMNY following the company's capital raise, he still spotlights 402% in return potential.

Canaccord analyst Austin Moldow continues to be bullish on Helios and Matheson Analytics (NASDAQ:HMNY) and its highest ownership stake in MoviePass yet: a boost from 78% to 92%. In fact, the analyst anticipates even more revenue from this tech player now for next year, raising his expectations from $985 million to $1,018 million.

That said, the analyst’s key points of focus in his research note today on the company shine light on a jump in visibility from a 10-K filing for last year along with a roughly $30 million equity offering- one of 10.5 million shares and 500,000 pre-funded warrants at $2.75 per share. The HMNY team aims to utilize its strengthened balance sheet to lift its stake in MoviePass, the future Netflix of the movie theater arena, fuel MoviePass operations, as well as square away debt liabilities as well as fund acquisitions.

In light of the capital raise along with the company’s acquisition of Verizon’s entertainment subsidiary Oath, the analyst maintains a Buy rating on HMNY stock while cutting the price target from $15 to $12. This nonetheless implies a confident 402% upside from current levels. (To watch Moldow’s track record, click here)

Consider that HMNY’s acquisition of MoviePass was only contributing revenue under a month to HMNY’s financial results for 2017- an M&A move that closed at the end of the year. However, in the 10-K filing, it is clear the fourth quarter GAAP revenue contribution from MoviePass totals $6 million, translating to around a $26 million implied full quarter- $1 million shy of the analyst’s previous expectations. Additionally, MoviePass’ fourth quarter GAAP COG hit $17 million, pointing to around a $74 million implied full quarter- also coming up short of the analyst’s previous expectations looking for $77 million.

“While the sample size is small, there were no big surprises and the filing increased our confidence in current model assumptions. We also found two positive data points related to the company’s capital structure: 1) ending cash was $25M, above our estimate, possibly helped by the timing of acquisition payments; and, 2) deferred revenue increased $17M (we estimated $16M), giving us confidence in the upfront cash dynamic necessary to support early viral subscriber growth,” highlights Moldow.

The analyst adds, “We continue to believe that if events unfold similar to what our model projects, the company can achieve breakeven operating cash flow and gross margin sometime in 2019. However, if management prioritizes growth above these levels, additional capital may be required. In addition to the equity offering, the company announced an equity distribution agreement for a $150M at-the-market offering, allowing the company to sell shares into the open market at its discretion.”

Buzz has circulated following a Variety article where Chairman Ted Farnsworth mused of a rebrand, taking HMNY’s focus to be all about MoviePass, notes Moldow. This makes sense with a Benzinga piece pointing to the HMNY management team supposedly boosting 2018 subscriber expectations another million up to 6 million; in other words, momentum is steamrolling right along here. On a final note, should HMNY’s plan offering come to play, where for 3 months, subscribers have a trial for free iHeartRadio All Access, this spells out a maximum movie cap of four per month. Ultimately, Moldow remains unfazed, not seeing any narrowing of MoviePass monster mass market appeal.

TipRanks indicates the initial word on the tech player bodes positively, with 2 bulls betting on HMNY stock. With a monster return potential of nearly 549%, the 12-month average price target stands at $15.50.

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