NEW YORK, NY / ACCESSWIRE / August 13, 2018 / Investors should use MoviePass’ flaws as a lesson: monetizing data could be a lucrative business, but only if the cost of acquiring a customer can be recuperated.
MoviePass’ subscriber base soared when Helios & Matheson (NASDAQ:HMNY) pivoted the business model to profit from big data rather than monthly subscriptions. What MoviePass’ strategy overlooked, however, was the cost of acquiring a customer. This fatal flaw led to HMNY’s current financial hardship.
Conversion Labs (CVLB) is monetizing consumer data by targeting users through online channels like Google, Facebook and Amazon. The company directly sells their brands to consumers using data-driven techniques and marketing campaigns. We think that CVLB is nearing an inflection point and shareholders could see triple digit returns or more. The company has planned to launch 3 new products during the remainder of 2018 and we believe that the massive amount of consumer data they have collected will drive down customer acquisition cost and lead to profitability.
HMNY’s Expensive Customer Acquisition Strategy Led to 99% Drop in Share Price
When MoviePass announced that they would be dropping their price from $45 per month to $9.95 per month, subscriber numbers jumped from 20,000 in August 2017 to 3 million by June 2018 (see figure below). The company is expecting to grow to over 5 million users by the end of 2018 .
Due to the growth of paid subscribers, HMNY’s revenues jumped to $47 million for the first quarter of 2018. However, so did the company’s costs, because MoviePass was paying full cinema ticket to theaters like AMC & Regal (RGC). It cost HMNY $136 million to generate just $47 million in subscription revenues .
MoviePass customer acquisition cost is approximately $45.33. They are only able to generate about $16.47 of revenue from these customers (figure below). Unless the company finds a way to generate at least $45.33 in revenue, the model is broken. This has led to MoviePass reporting a $107 million loss from operations in the first quarter of 2018.
To recuperate the high customer acquisition cost, HMNY must:
Lower Customer Acquisition Cost
Company must cut a deal with theaters like AMC & Regal or limit the amount of movies members can see. It seems like the company has decided to take the second path and limit members to 3 times/ month .
The company’s second option is to sell their collected user data (which people watch what movies, at what time, etc.) to studios, distributors, and theaters. These corporations would then use this data to market different products. The company started showing signs of monetizing their large database by advertising movies like “Forever My Girl” and “I, Tonya” through their email and app. But this generated just $1.4 million in revenues for the first quarter of 2018.
MoviePass’ obvious unprofitable pricing model has led to investors losing 99% of their investment in the last 3 months. This should have been an expensive lesson: customer acquisition costs must not be overlooked.
Conversion Labs Is Monetizing Data with Profits in Mind
Conversion Labs launches branded product lines that are sold directly to consumers through online channels such as Google, Facebook and Amazon. This direct selling model carries the potential to collect massive amounts of customer data, and to build brand loyalty. CVLB showed this in the first quarter when the company announced that it had served over 35,000 customers with just their Shapiro MD hair line product. The company also announced it had generated positive cash flow from operating activities. With this news Conversion Labs established that it may monetize data to sell products at a rate that keeps customer acquisition costs under control and creates shareholder value.
The company’s existing massive consumer database can be combined with data-driven techniques to improve marketing campaigns, lower customer acquisition costs and allow the company to make adjustments that can perfect the user experience. Their lead products, Shapiro MD hair care line & iNR Wellness supplements, are examples of how CVLB monetizes data. Both brands have demonstrated tremendous traction as the company reported sales for the first 6 months of 2018 were up 76% from the comparative year over year period.
With three planned upcoming launches, we think CVLB will be positioned to add to their already large consumer database and cross market these brands to fuel their robust growth rate throughout the remainder of 2018.
CVLB Shareholders Could See 500%+ Returns
The modern-day giants that have monetized data, like Amazon, Alibaba, Netflix and JD.com are trading at about 7x price/sales ratio. If we assume CVLB has a $10M run-rate for the year and the company trades in line with e-commerce peers, it would warrant a valuation of $70 million, or $1.40/share. This presents CVLB investors with returns greater than 500%.
Data analytics have become a hot sector because marketers are willing to pay big dollars to make informed decisions with data about their consumers. Google and Facebook have built billion dollar businesses from data.
In the small cap space, companies like Helios tried to monetize data, but overlooked the cost of acquiring a customer. Another company, SinglePoint (OTCQB:SING) is using large quantities of automotive and consumer data through their ShieldSaver subsidiary with the plan of selling this data to insurance companies and other potential clients who have interest in knowing that windshield needs repair. So far, the company has signed a collaboration agreement with CarFax and is looking for additional clients.
It should be noted that small cap stocks, like CVLB and HMNY, are riskier than their peers that have more mature businesses and a lot more cash in the bank. Although these stocks can offer very big upside if management executes, they also can go to zero if management doesn’t.
Conversion Labs (CVLB) is monetizing consumer data, while keeping customer acquisition costs at reasonable levels. The company is using relationships with Facebook and Google, and marketing expertise to build a platform that is able to scale additional brands. With 3 upcoming product launches, we think CVLB is well positioned for serious growth, which could present investors with triple digit upside during the second half of 2018.
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One Equity Stocks is a provider of research on publicly traded emerging growth companies. Our team is comprised of financial professionals that strive to find the companies and management teams that will outperform the market and deliver investment returns to our subscribers. We are not a licensed broker-dealer and do not publish investment advice and remind readers that investing involves considerable risk. One Equity Stocks encourages all readers to carefully review the SEC filings of any issuers we cover and consult with an investment professional before making any investment decisions. One Equity Stocks is a for-profit business and is usually compensated for coverage of issuers we cover as well as other advisory work we perform. In the case of CVLB, we are reimbursed for actual costs we incur, received 500,000 shares of restricted stock, and may receive additional compensation for Business Development, Capital Markets, and Research Services. Please contact us at firstname.lastname@example.org for additional information or to subscribe to our intelligence service.
SOURCE: One Equity Stocks