MoviePass and Tesla are both in the same boat. They’ve both built up a rabid fan following by delivering products and services at less than their cost. Both also have staved off implosion by requesting fresh infusions of cash from investors. And yet, it’s odd that many who predict that MoviePass has a rendezvous with bankruptcy, believe that somehow Tesla will flourish as a future power player in the auto industry. When in reality, MoviePass is the business which possesses the clearer path to prosperity.
Most people look at MoviePass and do the simple math in their head. If most, or even just some, of their customers pay $9.99 per month and go on to watch three movies per week. That’s not going to work out well for MoviePass. It doesn’t matter how big a fan you are of MoviePass, simple logic tells you that sooner or later, MoviePass is going to burn through their cash and the gravy train will come to an end. The intensity of MoviePass fandom is irrelevant to the lack of capital.
Similarly, with Tesla, the money is running out of the their bank account like sand in an hourglass. By my figures, the Model 3 price range needs to run between $60-85K in order for the company to survive. The Model S needs to start at over $100K. You can’t compare Tesla gross margins to other automakers because Tesla is not a wholesaler.
To put it simply, Tesla is selling cars well below their cost and sooner or later, they are going to run out of money. As with MoviePass, it doesn’t matter that there are a handful of rabid fans. Unless they are willing to pay up to 50% more it does Tesla no good. They can continue to chase more investment but that just postpones the inevitable. Like MoviePass, the math just doesn’t work out.
I see two groups of writers predicting Tesla’s future. One group says that Tesla is headed for bankruptcy and that it’s not even a controversial call. The other group says that the strength of Tesla’s brand and the sheer power of their fan base can help push them through this rough spot. One group of writers are seasoned business analysts and the other are millennial tech journalists. I think you can guess which side predicts which outcome.
So why do I say that MoviePass has a greater chance at survival than Tesla? Because they do have a clear path to profitability. It may not be easy but the math works out if they can make it happen.
Many people who watch MoviePass, assume that they are following the gym model to prosperity. Which is the assumption that the majority of their customers will not use their services and MoviePass gets to pocket their $9.99 per month as pure profit.
But that’s not the whole picture. MoviePass is also aggressively pursuing a cut of concessions revenue. This is where they would make their profit. Movie pass is trying to trade an increase in foot traffic to theatres in return for a percentage of the concessions revenue. So far, the major theatre chains are welcoming the increase in foot traffic but are refusing to share any of the concessions revenue with movie pass.
Whether or not the movie chains come around to sharing the concessions revenue is an open question. But from an operations analyst standpoint, it’s a workable plan. Because these revenue sharing agreements do not require large capital infusions by MoviePass. Once MoviePass sets up the apparatus to funnel movie goers to theatres, all the concessions revenue is like free money. MoviePass doesn’t have to build any buildings, hire any more employees, or start any new programs. It’s truly incremental revenue by leveraging their fixed costs.
Now Tesla on the other hand, has a much more rocky road to prosperity. They need to increase vehicle sales by an exponential level without investing any more in their service and sales network, research and development, or their charging stations. However, there’s no way that even Tesla customers would put up with this lack of service and support. So Tesla has many, many years ahead of massive cash requirements to support all those new customers. Thus many years of losses ahead.
If you think that MoviePass is going out of business, then you’d be measuring Tesla by a different standard if you think that they aren’t too. The math doesn’t work out for Tesla. Because right now if I had to put my money on one of these two companies surviving for another five years, it looks like MoviePass has a better chance.
Similarly, with Tesla, the money is running out of the their bank account like sand in an hourglass. By my figures, the Model 3 price range needs to run between $60-85K in order for the company to survive. The Model S needs to start at over $100K. You can’t compare Tesla gross margins to other automakers because Tesla is not a wholesaler.
To put it simply, Tesla is selling cars well below their cost and sooner or later, they are going to run out of money. As with MoviePass, it doesn’t matter that there are a handful of rabid fans. Unless they are willing to pay up to 50% more it does Tesla no good. They can continue to chase more investment but that just postpones the inevitable. Like MoviePass, the math just doesn’t work out.
I see two groups of writers predicting Tesla’s future. One group says that Tesla is headed for bankruptcy and that it’s not even a controversial call. The other group says that the strength of Tesla’s brand and the sheer power of their fan base can help push them through this rough spot. One group of writers are seasoned business analysts and the other are millennial tech journalists. I think you can guess which side predicts which outcome.
So why do I say that MoviePass has a greater chance at survival than Tesla? Because they do have a clear path to profitability. It may not be easy but the math works out if they can make it happen.
Many people who watch MoviePass, assume that they are following the gym model to prosperity. Which is the assumption that the majority of their customers will not use their services and MoviePass gets to pocket their $9.99 per month as pure profit.
But that’s not the whole picture. MoviePass is also aggressively pursuing a cut of concessions revenue. This is where they would make their profit. Movie pass is trying to trade an increase in foot traffic to theatres in return for a percentage of the concessions revenue. So far, the major theatre chains are welcoming the increase in foot traffic but are refusing to share any of the concessions revenue with movie pass.
Whether or not the movie chains come around to sharing the concessions revenue is an open question. But from an operations analyst standpoint, it’s a workable plan. Because these revenue sharing agreements do not require large capital infusions by MoviePass. Once MoviePass sets up the apparatus to funnel movie goers to theatres, all the concessions revenue is like free money. MoviePass doesn’t have to build any buildings, hire any more employees, or start any new programs. It’s truly incremental revenue by leveraging their fixed costs.
Now Tesla on the other hand, has a much more rocky road to prosperity. They need to increase vehicle sales by an exponential level without investing any more in their service and sales network, research and development, or their charging stations. However, there’s no way that even Tesla customers would put up with this lack of service and support. So Tesla has many, many years ahead of massive cash requirements to support all those new customers. Thus many years of losses ahead.
If you think that MoviePass is going out of business, then you’d be measuring Tesla by a different standard if you think that they aren’t too. The math doesn’t work out for Tesla. Because right now if I had to put my money on one of these two companies surviving for another five years, it looks like MoviePass has a better chance.
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