For the past five years, Cinedigm (NASDAQ:CIDM) has been mostly neglected by Wall Street. But lately, the shares have been getting more attention. Since late December, CIDM stock has gone from 64 cents to a high of $2.33.
Although, with the recent sell-off in the markets, this stock has also lost some of its gains. Currently, CIDM is trading at $1.60.
So might this be a good entry point? Or is this one just too speculative and investors should stay away?
Well, I actually think there is a bull case here – and let’s see why.
A Closer Look at CIDM Stock
Cinedigm got its start back when the dot-com bubble burst, back in 2000. The company was initially focused on developing sophisticated equipment for cinemas to transition to digital technology.
However, this business has been fading away. To navigate this, Cinedigm has been transitioning to focus primarily on becoming an owner of niche content for streaming services.
Despite this, there continues to be pressure on the top line. In the latest quarter, revenues declined by 13.5% to $10 million. It seems the novel corona virus has taken a toll.
The streaming business did show strong momentum, though, and it looks like this will continue for some time. Advertising-based channel revenues spiked by 150%, up from 79% in the prior quarter.
It certainly helps that Cinedigm also has a strong distribution footprint. Some of its partners include Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), Comcast (NASDAQ:CMCSA), DISH Network (NASDAQ:DISH), Target (NYSE:TGT) and Walmart (NYSE:WMT). No doubt, these companies have a seemingly insatiable appetite for content.
Cinedigm also has been building its own streaming entertainment channels. Examples include The Bob Ross Channel, CONtv Anime and MyTime Movie Network.
In the most recent quarter, the streaming channel revenues shot up by 85% on a year-over-year basis. There were about 907 million minutes viewed.
A key driver for CIDM stock is acquisitions. The company has actually been quite active lately.
Take a look at the following deals:
- Fandor: This is a top subscription streaming service for independent films, documentaries and foreign feature films. The catalog includes more than 4,600 titles. Oh, and the acquisition is expected to be accretive immediately for EBITDA.
- Films Around the World: The company has a library of over 150 feature films and 500 hours of audio programs as well as remake rights for more than 150 feature films. The content is generally from between the 1940s and 1980s.
- FoundationTV: This company is a developer of streaming technology, which includes systems for AI (Artificial Intelligence), ML (Machine Learning) and data analytics. The team includes data scientists from companies like Apple, Oracle (NYSE:ORCL) and Yahoo!
- The Film Detective: This company has a library of classic film and television programing, with over 3,000 titles.
- Screambox: This has streaming horror movies.
All in all, these deals make a lot of sense, in terms of building the content portfolio and technology systems. The assets should ultimately provide improved monetization across Cinedigm’s distribution footprint, especially its own channels.
Bottom Line CIDM Stock
There are still considerable risks with CIDM stock. The company’s streaming business is still relatively small. The company also has limited financial resources and the market capitalization is only $300 million.
But then again, Cinedigm has been taking swift actions to bolster its balance sheet. To this end, the company has reduced its debt load by 51% on a year-over-year basis.
More importantly, there is a secular trend towards streaming – and this industry needs more content. CIDM looks positioned to benefit from this.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article except CIDM stock.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.