MoviePass: Disruptive Technology Or Destined To Fail?

Welcome to Episode #128 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.

In this episode, Tracey is joined by Ryan McQueeney, Zacks Associate Stock Strategist, to discuss what is going on in the movie theater industry.

Is MoviePass Too Successful?

In the summer of 2017, MoviePass, which allows movie fans to subscribe to unlimited screenings every month for a subscription fee, dropped its price from $50 to as low as $9.99 a month.

Movie fans rushed to subscribe and MoviePass’ parent, Helios and Matheson Analytics (NASDAQ:HMNY) , was hoping that big subscriber numbers could entice the movie theater chains to share proceeds from increased concession sales and that the data from subscribers could be monetized as well.

But recently, Helios and Matheson reported an overall $150.8 million net loss for 2017, which was mostly due to keeping MoviePass up and running. It spends more to keep the subscriber than the revenue it gets from the subscriber.

In other words, too many subscribers are seeing too many movies. It is too successful.

MoviePass has announced a new subscriber plan which isn’t quite as generous as previously. Now, subscribers will pay $10 for 4 movies a month, instead of unlimited.

This is still a bargain compared to current movie prices.

Impact on the Movie Chains

Not surprisingly, there have been some growing pains between MoviePass and the theater chains even though MoviePass is, presumably, bringing in more patrons who will eat and drink in the theaters.

But the movie chains are already facing performance pressures from Netflix (NASDAQ:NFLX) and Amazon Prime Video (NASDAQ:AMZN) .

Will the theater go the way of the video store thanks to the streaming options available right on your couch?

AMC Entertainment (NYSE:AMC) saw a loss of $0.89 last year. The 2018 Zacks Consensus Estimate is calling for a loss of $0.01.

For Cinemark Holdings CMK, the earnings outlook looks a little bit better as it’s expected to grow earning in 2018 by 2.7% to $2.32.

Investing in Disruptive Technologies

Even Helios and Matheson acknowledged that its auditors expressed “substantial doubt” about its ability to continue on as a going concern.

And the theater chains may win this round against MoviePass, but its sheer popularity has opened the door to other disruptors to walk on through.

Should an investor even look for opportunities in the theater industry?

Find out the answer to this and more on this week’s podcast.

[In full disclosure, Tracey owns shares of AMZN in her personal portfolio.]

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