It’s only been a few days since we took this look at Helios and Matheson Analytics Inc (NASDAQ:HMNY).
As part of the just linked to coverage, we outlined what we thought was a unique and interesting opportunity in the markets; specifically, a chance to pick up an exposure to a young, fast growing and disruptive private tech company with big-name backers – something that is usually only afforded to venture capitalists in Silicon Valley.
At the time of our highlighting it, Helios and Matheson was going for around $8.50 a share.
At close of play on Friday, the company had added close to 50% to this price and will open on Monday for $12.69 a share.
So what’s driving the move and what can we expect next?
We went into our thesis in some detail last time, so for anybody that missed last week’s coverage, it might be worth jumping back for the detail. By way of a brief introduction to the situation, however, the company had just announced a deal that would see it pick up a stake in an entity called MoviePass, with said deal expected to close during the next couple of months.
As per the terms of the arrangement, Helios and Matheson gets a 51% stake in MoviePass in return for a $27 million investment. MoviePass is a sort of movie theatre subscription company whereby users pay a monthly fee and get unlimited access to movie theatres to go and see films.
So why is this worthy of such a dramatic move?
Well, because MoviePass isn’t just any tech startup.
The company has been around for a few years and hadn’t done too much in terms of growth from inception to the start of this year, with around 16,000 subscribers paying a monthly fee of a little over $30. Then, however, Mitch Lowe, co-founder of Netflix, Inc. (NASDAQ:NFLX), came on board at MoviePass and reduced the cost to $9.99. Over the last six months, membership has risen to 400,000 and the company expects to increase this to 2.1 million within 12 months.
In other words, this is a company that is just about to explode from a user count perspective, led by a guy who has a proven track record in turning a subscription entertainment service into possibly the most disruptive media presentation innovation of the last two decades.
He did it with Netflix, he thinks he can do it with MoviePass and we can pick up an exposure to his efforts through Helios and Matheson. That’s why this whole situation is so interesting and it is why Helios and Matheson is rising in value right now – investors are taking advantage of a one of a kind opportunity to get a hold of the coat tails of a VC in a disruptive space.
So what comes next?
Chances are that Helios and Matheson will continue to appreciate in line with the growth of MoviePass, assuming the deal gets closed off smoothly. The price paid for the 51% stake, the $27 million, seems incredibly cheap, so shareholders will likely be on edge right up until everything is signed and sealed. That’s the primary risk here – that things fall through or that terms get altered. With that said, there’s no indication that there will be any problems and, so far at least, everything seems to be progressing. Even with that risk in place, there’s considerable reward on offer; reward that dramatically outweighs the downside on any hiccups. As such, this makes the company very much one to watch, with the deal closing out on time and as planned serving as a major catalyst in the coming months.
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Image courtesy of Leo Hidalgo via Flickr
Disclosure: We have no position in HMNY and have not been compensated for this article.