August 14, 2018
With its stock worth about a nickel, Helios and Matheson Analytics – parent of fiscally-challenged ticket subscription service MoviePass – has been a draw to entry-level investors.
That worries Robinhood, an upstart online trading app with a business model that pledges to help first-time investors navigate Wall Street.
The firm operates on margin trading charging subscribers from $6 monthly to buy and sell stock. This week, Robinhood reportedly sent an email to subscribers announcing it had suspended new purchases of HMNY stock.
“In order to protect our customers from the risks associated with some low-priced stocks, we remove the buy option for stocks like HMNY that consistently trade under $0.10 [per share],” said the company, as reported by Business Insider.
HMNY stock, which underwent a 1-for-250 shares reverse stock split last month, has lost 99.99% of its value since the split. The stock is reportedly held by more than 74,000 Robinhood subscribers, who can still hold and sell the company’s shares.
Robinhood’s move is in stark contrast to Maxim Group and Canaccord Genuity, two Wall Street investment firms that have profited from marketing shrinking HMNY shares.
The firms worked with HMNY pushing the stock on investors since last August after the latter acquired controlling interest in MoviePass. In return, they reportedly made millions on commissions while holding a “buy” rating on HMNY stock.
“We see numerous ways to monetize a large user base and drive profitability, such as movie promotions, profit sharing, rebates, concessions, data sales and advertising,” Brian Kinstlinger, analyst at Maxim, wrote in an October note.
Kinstlinger set a price target of $20 per share for HMNY stock.
Of course, HMNY shares have only declined over the past 10 months as MoviePass hemorrhaged millions more than it generated. The service reportedly spent upwards of $45 million monthly in June and July reimbursing exhibitors for tickets redeemed by subscribers.
An investor buying $100,000 worth of HMNY stock last October, would now hold about $1.85 in value.
Indeed, axiom “buyer beware,” is a mainstay on Wall Street precisely because investment banks’ ratings on third-party stock are often undermined by their cozy relationship with the same clients.
“Human nature being what it is, no CEO is likely to throw business to a bank whose analyst is negative on the CEO’s company,” Erik Gordon, professor at the University of Michigan’s Ross School of Business, told Business Insider.
“There are examples of analysts reiterating ‘buy’ ratings 30 days before a company went under,” said Gordon.