Maxim analyst Nehal Chokshi assumes bullish coverage on Helios and Matheson (NASDAQ:HMNY) noting survey data points to a business model that is both “sustainable” as well as “achievable.” Should the company’s majority-owned company MoviePass, the future Netflix of the movie theater market showcase traffic jump from sporadic moviegoers to roughly 1 movie each month, Chokshi sees HMNY with an enterprise value of roughly $1.4 billion.
As such, the analyst assumes a Buy rating while dialing down the price target from $16 to $12, which implies a just under 382% upside from current levels. (To watch Chokshi’s track record, click here)
“Survey data lends validity to overusage being contained to a sliver of subscribers and incremental value being delivered to exhibitors,” writes Chokshi, who adds: “Auditors highlight going concern risk, but we believe there is a path to a sustainable business model.”
The analyst points to a survey he held at the Regal E-Walk Stadium Theater in Times Square, where out of eight participants, zero answered having seen over two films each month since signing up for a MoviePass (MP) subscription. “We believe this lends validity to management assertions that 12% of subscribers are heavy users with the remaining being ‘profitable’. We also conducted a survey at Landmark theater and found strong evidence that Landmark is benefitting from the MP partnership,” continues Chokshi.
Breaking down his explanation for the revised price target, Chokshi boils down his estimate to the following key points: “(1) our limited survey data that shows MoviePass appears to be resonating better within the independent theater ecosystem (tend to be bigger exhibitors of independent films too), (2) precedent with Studio Movie Grill of a ~20% rebate, and (3) capping usage to 2x/month to achieve a sustainable business, we believe it is reasonable MoviePass will be able to broker a 20% rebate on tickets and concessions (~$3/movie seen with MoviePass) from independent movie theaters.”
Studio marketing spend through mobile could reach a total addressable market (TAM) circling $685 million in two years, wagers the analyst, who anticipates MoviePass can capture a 20% slice of this by then. By Chokshi’s estimation, HMNY could be bringing in approximately $138 million to the table in net income by 2020. In exhibiting a sustainable business model, the analyst predicts HMNY’s shares will rise in value. This should then allow the company to raise the rest of the $80 million Chokshi calculates is required to boost HMNY to a cash flow breakeven point, with fully diluted shares outstanding on back of the capital raise reaching 118 million shares.
On a final encouraging note, a new monthly movie limit through a new iHeartRadio promotion has Chokshi betting the monthly limit will apply to the full subscriber base, which will in turn ease cash burn as well as the rate of subscriber adds.
TipRanks highlights initial word on the Street points to the bulls on the tech player’s prospects. Unanimously, all 3 analysts polled in the last 3 months rate a Buy on HMNY stock. With a monster return potential of 492%, the stock’s consensus target price stands tall at $14.33.