MoviePass has become an incredibly popular service for regular moviegoers, as the company allows its subscribers to go to a movie every single day (if they so choose) for just $10 a month. That, to many, has sounded too good to be true and, in the long term, that may be the case. MoviePass parent company Helios and Matheson recently announced a new public offering, which caused their shares to plummet.

After announcing their new offering, which seeks to sell $10.5 million in "Series A-2 units" at $2.75 per unit, the company's stock fell by 40 percent. Year to date, the company's stock is down 63 percent. This has to do with their acquisition of MoviePass last August. While the service has made a splash and has managed to shake-up the industry a little bit, calling into question high ticket prices at movie theaters, MoviePass has been bleeding cash ever since they lowered their prices. As outlined by Helios and Matheson, this new public offering is meant to raise funds in order to fuel the growth and (hopefully) the sustainability of the increasingly popular subscription service.

"[Helios & Matheson] may use the net proceeds from this offering to increase the Company's ownership stake in MoviePass or to support the operations of MoviePass and MoviePass Ventures; to satisfy a portion or all of any amounts payable in connection with previously issued convertible notes; and for general corporate purposes and transaction expenses."

Part of the problem with this new public offering is that it will dilute the holdings of those who have already invested in the company. Since MoviePass lowered its price, the service has amassed more than 2 million subscribers and, according to CEO Mitch Lowe, they expect to have an impressive 5 million users by the end of the year. However, at just $10 a month, the company's business model doesn't make much sense. They pay full price for every ticket, so if a moviegoer uses their MoviePass just twice in a month, the company is in the red. With that, an independent auditor recently declared that there is "substantial doubt about the company's ability to continue as a going concern."

Helios and Matheson owns 92 percent of MoviePass and they are hoping that showing their worth to the industry can eventually present an opportunity for profit. They're also getting into the business of distributing movies as well. But for now, they're hemorrhaging cash. In a recent filing with the Securities and Exchange Commission, it was revealed that the firm lost $150 million in 2017. The majority of that had to do with their acquisition of MoviePass.

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Now, on top of that, the company's stock is dropping. Looking at the numbers, from a business perspective, MoviePass doesn't seem sustainable. But if they can find a way to bridge that gap, there is a clear demand from the consumer end to find a more affordable way of going to the movies. If they can't sort it out, this too-good-to-be-true service for lovers of going to the movies may soon be a thing of the past. This news comes to us courtesy of The Wrap.

Ryan Scott at Movieweb
Ryan Scott