Cinedigm’s Growth Picture Is Muddied by Reddit and NFTs

With new services rolling out from tech and entertainment powerhouses in late 2019, 2020 was expected to be a huge year for video streaming. Then, the coronavirus pandemic made streaming video even bigger. With the big names in play, few would have paid any attention to tiny Cinedigm (NASDAQ:CIDM) stock.

Image of Cinedigm (CIDM) logo in a black web browser, amplified by a magnifying glass.

Source: Pavel Kapysh / Shutterstock.com

That changed on June 4, 2020, when CIDM rocketed to a single-day 177% gain. Since then, Cinedigm has been in the news constantly. It’s a content streaming company, a Reddit stock, and most recently it has been lumped in as a potential NFT stock.

There is a lot to unpack with this company. Let’s start with the fact that Cinedigm earns a ‘B’ rating in Portfolio Grader. So we’re not talking a company that’s circling the drain, like so many of the stocks that have seen their valuation blown completely out of line by retail investors.

An investment in CIDM stock is not pure gambling, as with many Reddit stocks. The question is — taking the Reddit effect out of the equation — is CIDM positioned for long-term growth? 

The Reddit Effect

On June 4, 2020, Cinedigm announced an agreement that would see its content available on some 300 million smart TVs. Channels such as “The Bob Ross Channel” and “Comedy Dynamics” would be available to owners of many of the leading TV brands. That’s a big deal for a company whose paid subscriber base numbered in the low hundreds of thousands.

You would expect CIDM stock to pop on that news, but it exploded. CIDM started the day’s session at $1.31, and closed at $3.63 for a 177% gain. 

The dramatic gain came partially because retailer investors on Reddit’s r/WallStreetBets board were driving it up. The rapid gains immediately began to trip warnings that something was afoot.

Cinedigm Is Now an NFT Stock … Sort Of

Adding to the confusion over what exactly is going on with Cinedigm shares is the company being lumped in with NFT stocks.

NFTs (non-fungible tokens) are unique digital items, and they are being pushed as the new collectible. NFTs are a recent development that quickly hit wildfire status. In March, a single JPEG file (a digital image) sold at auction for $69.3 million. In comparison, one of the highest prices ever paid for an Impressionist painting was $110.7 million for Claude Monet’s 1890 painting “Meules” in 2019. That’s for an actual painting — not a digital file — and from one of the world’s most celebrated painters.

The angle on Cinedigm is that the company owns or is involved with content that could be mined to create NFTs. Even if Cinedigm isn’t directly involved, the theory is that it could potentially get some sort of cut of the proceeds from selling NFTs. It’s a stretch, but the mere suggestion of NFTs was enough to pump up the volume of CIDM stock trades in late March while causing yet another spike in the price of shares. 

Bottom Line on CIDM Stock

For the past five years, CIDM stock has typically traded in a band between $1 and $2 per share. It was in 2020 when the pattern was disrupted. The stock market crash dropped CIDM to 32 cents and then several months later it surged to that $3.63 close. That was followed by a long decline, including several months back in penny stock status. So far in 2021, it has been back to trading within the $1 to $2 band.

At its current price of $1.33, CIDM stock has significant upside, even within that traditional trading band. The risk is the volatility introduced by Reddit and now the NFT craze makes it difficult to predict where shares are going. 

In terms of its business, Cinedigm seems to be on the right track. The company has been signing deals that make its content available to streamers on major platforms. In its latest quarter, the company noted that between acquisitions and organic growth, subscribers were up 216% year-over-year. While overall revenue was down due to Covid-19’s impact on its legacy theater business and DVD distribution, streaming channel revenue was up 85% YoY. Ad revenue was up 150%. Streaming content licensing was up 34%. The company also cut its debt by 51%.

In other words, there are no glaring red flags, and plenty of signs that Cinedigm’s business is healthy. But investors need to be prepared for what could be a roller coaster ride.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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