Is Genius Brands Stock A Buy?

Is Genius Brands Stock A Buy? Genius Brands [ NASDAQ: GNUS] is a leading multimedia entertainment company dedicated to developing, producing, marketing and licensing branded children’s entertainment properties and consumer products for media distribution and retail channels.

The company’s award-winning ‘content with a purpose’ portfolio includes entertainment that engages, entertains, and educates toddlers and young children.

Genius produces original content and licenses the rights to that content to a range of partners. The company, headquartered in Beverly Hills, CA, owns a portfolio of original children’s entertainment, including:

• Baby Genius,
• Stan Lee’s Superhero Kindergarten,
• Llama Llama,
• Warren Buffett’s Secret Millionaires Club,
• adventure comedy STEM series Thomas Edison’s Secret Lab, and
• Rainbow Rangers, among others.

The company’s new Kartoon Channel! is broadcast in over 100 million U.S. television households through a broad range of distribution platforms, including Amazon Fire, Amazon Prime, Apple TV, Comcast, Cox, DISH and more.

When the internet becomes obsessed with a stock, it should generally set the alarm bells ringing. Genius Brands [NASDAQ: GNUS] has been the subject of much online speculation as its stock price has been zooming ahead at a breakneck speed.

Here, we analyze if the rally is realistic or sustainable for the company that’s trying to stand up to the larger players in the challenging space of offering children’s television programming.

GNUS Stock Has Been Soaring

The past few months have been a dream ride for the shares of Genius Brands International [NASDAQ: GNUS]. It may sound surreal, but the returns from April to June had been in excess of whopping 3300% – an insane hike by any stretch of imagination, and that, too, in just a couple of months. 

Such infatuation with a stock may be a sign of impending doom, warn experts. The multimedia entertainment company for children has been a subject of much intrigue and speculation over the past few months, as day traders have bid up the stock of the company which bills itself as the free “Netflix for Kids”.

The million-dollar question that begets answer is: what is leading to this stunning soaring of GNUS stocks?  In short, it seems investors have become extremely bullish on the stock, with their confidence in the company taking the stock price to new altitudes.

Genius Brands Boasts Strong Leadership

Apart from strong distribution, the company also boasts of strong management. 

Margaret Loesch, the founding president and CEO of Fox Kids Networks Worldwide, and CEO of Marvel Productions before that, will serve as executive chair of Kartoon Channel!, whereas former Walt Disney Television President, David Neuman, will be the Chief Content Officer. 

The company is partnering with Archie Comics to publish new comic books and graphic novels as part of its long-term plan to build and monetize the Stan Lee Universe.

The Archie Comics deal and onboarding of Uslan comes roughly a month after Genius launched its Kartoon Channel! which is available for free on popular streaming platforms like Comcast, Amazon Prime, Apple TV, and DISH, among others.

The company, interestingly, has doubled up on its rhetoric, waxing eloquent about its Kartoon Channel! in the following manner:

“We previously described Kartoon Channel! like ‘a Netflix for kids, but it’s free.’ Our model is, what is called in the industry, AVOD (Advertiser Video on Demand). There is an important significance to this, which in today’s children’s broadcast world, brings powerful ‘wind to our sails’”.

The same letter to shareholders also includes the name of another heavyweight, Disney’s Disney+ streaming service.

In short, Genius has lofty ambitions wherein it wishes to stand and be counted amongst all the big boys of the industry.

However, there is a lot of difference between boasting and achieving as experts believe Genius faces a long and uphill road in order to corner even a small share in a market dominated by big players.

Challenges Lie Ahead For Genius Brands

In the run-up to launch its Kartoon Channel!, Genius boasted about its unprecedented carriage and launch footprint, speaking glowingly about its reach in 100 million U.S. TV households and 200 million mobile devices.

“As we run up to the launch of Kartoon Channel! on June 15, we are all excited about the unprecedented carriage and launch footprint, which covers more than 100 million U.S.

TV households and 200 million mobile devices through a broad range of distribution platforms, including Comcast, Apple TV, Amazon Prime, Amazon Fire and DISH among them,” the company stated.

Unfortunately, for Genius, the reality is significantly different from the optimism it tries to project. In fact, the fly in the ointment is not too hard to find for the simple reason that being offered on popular platforms is no guarantor of the content being found or, for that matter, eliciting viewers’ interest.

Moreover, none of the platforms are paying Genius anything for its programming content. The only way the company is going to make money is by generating viewership, an uphill task that the company itself acknowledges.

“We want our shareholders to measure expectations. We will start providing projections beginning Q4, at which point we will have visibility on viewing patterns and advertising,” the company stated.

Genius is displaying some caution here which should not come as a bolt from the blue given the fact that generating viewership in a crowded marketplace with unknown content is nothing short of a Herculean challenge.

How Can Genius Brands Get Eyeballs?

Genius Brands is trying to make its content conspicuous in its space by signing some well-known names, including Stan Lee’s Superhero Kindergarten, starring Arnold Schwarzenegger; Llama Llama, starring Jennifer Garner; and entrepreneurship series Warren Buffett’s Secret Millionaires Club, among others.

Experts, however, are casting aspersions over the choice of bringing in a couple of celebrities of yesteryears for the simple reason that today’s kids may not identify with them.

Genius, no doubt, has lofty goals but it may find the going incredibly tough when it comes to actually getting viewers’ attention.

Heavy Spending Is A Worry For Investors

The company lost close to $1.7 billion from operations in its just concluded quarter.

It has about $10 billion in cash or cash-like assets, which gives it some breathing space but not for long if it continues to hemorrhage cash without generating significant return on its investments.

Its Kartoon Channel! may be a hit or it may prove to be a damp squib. There are a lot of potential viewers but then, there is also a lot of content out there vying for their attention.

Only time can tell if Kartoon Channel! manages to generate a good ROI by creating compelling programming content, and, more importantly, find enough of an audience for it. Genius Brands is a potential growth stock, which may swing either way. It may reward its investors handsomely or may leave them ruing their investment decision.

Competition Is Stiff For GNUS

Genius Brands International’s top competitors include Pocketwatch, Moonbug, Brit + Co and Your Family Entertainment (YFE).

Pocketwatch and Moonbug are kids’ entertainment companies whereas Brit + Co is an online community and e-commerce platform offering tools and apps that teach and simplify everyday tasks.

For the time being, Genius Brands can forget about its competitors and concentrate more on setting its own house in order.

The unsustainable spike in its share price has fizzled out quickly, and experts fear the worst is not yet over for the simple reason that the management has so far spectacularly failed to deliver concrete value to shareholders in the form of revenue growth and profit.

Negative Returns Undermine Confidence

After hitting its peak in June, it has been a downhill journey for Genius, with its share price continuously sliding.

Is it an indication of a worsening situation, or should the investors be taking advantage of the dip in the stock price? 

Future returns cannot be accurately predicted by past results, but, then, Genius Brand’s decade-long history of destroying investors’ capital somewhat dampens investors’ sentiments. Its share value has hit rock bottom in comparison to the price at its IPO. 

The main problem that continues to plague Genius Brands is that it had never been able to find a consistent source of meaningful revenue, or, for that matter, deliver any content that brought in big bucks for the company.  Its financials are a train wreck due to massive negative operating and free cash flow, which has continued to balloon over time, with the company burning investors’ cash at an unprecedented rate without having to show anything substantial in return. 

Bullish investors, as well as the company, have pinned high hopes on the slightly successful Rainbow Rangers show.  It has also inked a deal with Mattel for a new line of toys based on the show’s characters.

With a strong top management, and the upcoming Kartoon Channel! expected to be available in over 100 million households and on 200 million mobile devices, some highly optimistic investors believe it could, in actuality, be the Netflix for kids in the making.

Additionally, the company, after recent rounds of funding, has strengthened its balance sheets with adequate cash to take care of its development needs in the foreseeable future. Investors could also derive confidence from CEO Andy Heyward’s personal investment in the company.

The Bottom Line: Is GNUS Stock a Buy?

Unfortunately, the company’s past financial performance fails to inspire much confidence in it.   If you go by the company’s public history, the answer to our earlier question is ‘No’..

Apart from the moderately successful Llama Llama, Genius has no other highly recognizable shows which have managed to resonate with the audience. Genius Brands’ recently announced Stan Lee deal is all hoopla and little substance.  Moreover, it has spent a better part of the decade asking investors for cash so it can remain afloat.

On the positive side, it has onboarded some new executives with a lot of experience and expertise in kids’ TV and network building.

It also has a good balance sheet which could help it swim against the tide for a few more years. The company has been making a lot of noise, but, to date, it has failed to back up its tall claims with tangible financial results or disperse any solid information about the economic prospects of its content, or its new channel.

Until it starts to show some results instead of building castles in the air, any investment in the kids’ media company seems to be fraught with risks.

If you do invest, you need to be aware of the harsh reality that the odds of striking gold with this growth stocks are highly stacked against you. After all, in the highly competitive world of kid-oriented content, it is not that easy to recoup your costs, that, too, amidst enormous quarterly losses and skyrocketing expenses.  

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.