Six months ago, Cinedigm (NASDAQ:CIDM) stock looked like a toxic investment only the clinically disturbed would touch. Not only did the market price CIDM stock well below one-dollar territory, but the company lost a staggering amount from its June closing high of $3.63. Yet now, it’s one of the most celebrated equity units, at least among social media circles.
If you don’t know much about the hype surrounding CIDM stock, you might assume that it has to do with its underlying business.
Billed as the leading independent entertainment studio in North America (according to its website), Cinedigm has several revenue-generating channels, including film/TV/digital production, over-the-top (OTT) channels and content and marketing distribution.
Of course, the novel coronavirus pandemic imposed a dark cloud on the front-facing components of the entertainment industry, particularly on the box office side. Obviously, with the early response involving lockdowns and a cap on non-essential activities, the movie industry suffered.
Still, we’ve been cooped up in our homes for what some might seem forever. While Covid-19 is still a serious health threat, it’s fair to say that many are exasperated with the new normal. That could explain some of the bullish swings we’ve seen in CIDM stock.
However, the pandemic didn’t impose a wholesale negative impact on the entertainment industry. With people stuck at home combined with the early suspension of live events (such as sports), there was little incentive to watch “corded entertainment.” Logically, this dynamic strongly benefitted streaming services such as Netflix (NASDAQ:NFLX).
Even Disney (NYSE:DIS), which earlier in the crisis suffered extreme skepticism for its massive exposure to in-person entertainment venues quickly garnered bullish interest, in part due to its Disney+ streaming service. Therefore, CIDM stock probably received some residual love thanks to its own streaming (OTT) business.
Still, the overriding catalyst for Cinedigm has been the non-fungible token (NFT) and this is where the story gets an unwelcome plot twist.
The Fundamentals May Soon Beckon CIDM Stock
To give a very brief explanation of NFTs, they represent another evolution of the cryptocurrency saga. First, the blockchain facilitated peer-to-peer monetary transactions. Next, the architecture sparked the development of smart contracts or the replacement of human intermediary-based transactions with artificial intelligence.
Now comes the ability to tokenize art and content, stamping a unique signature on it, much like the security protocol associated with cryptocurrencies.
What a mouthful. And here’s the kicker – it might not even truly relate to CIDM stock.
According to InvestorPlace contributor William White, a company called Wizard Brands (OTCMKTS:WIZD) co-operates with Cinedigm an OTT service called CONtv. Wizard announced a fan-engagement initiative that incorporates NFTs. While it’s a bit of a stretch, it’s not unreasonable to assume that Cinedigm will introduce its own NFT initiative. That could easily send CIDM stock to the moon.
The problem is that it’s all speculation, from what I can gather. Further, even if Cinedigm went NFT, you’ve got to wonder if this market subsegment hasn’t gone into a bubble already. Worst, it detracts from the fundamentals for CIDM stock, which is really what will sustain any spikes in bullishness.
Unfortunately, Cinedigm doesn’t seem to offer many compelling reasons to bet on it at these prices. For one thing, the original content that the company brings to the table arguably isn’t that interesting. I don’t want to dive too deeply into this opinionated realm, but what’s undeniable is that streamed original content is hugely competitive.
You’ve got major studios that are hurting from the Covid-19 crisis. They’re going to put up a full-throated assault into whatever viable revenue channels are available, which doesn’t augur well for CIDM stock.
Second, the people have spoken. Since fiscal 2015, Cinedigm’s annual revenue has consecutively declined. The trailing-12-month revenue of $30.89 implies a 21% loss from FY2020 revenue.
Don’t Get Too Comfy With Cinedigm
Countering the negativity is that we could be on the cusp of normalization in the entertainment sector. Restrictions are loosening, vaccines are rolling and people are going out and about. It’s a great time to be contrarian with CIDM stock, no?
According to Morning Consult, maybe not. Most Americans still feel uncomfortable going back to movie theaters based on a recent survey. What it did discover, though, is that free tickets and concessions could draw skeptics in. And blockbuster films could still command a (relatively) big audience.
Either way, CIDM stock seems risky because it’s a small fish in a declining pond where the biggest fish are increasingly desperate. Plus, if the NFT rumor doesn’t pan out, Cinedigm could suffer a thrashing.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.