Once upon a time, Cinedigm was called Access Integrated Technologies. Founded in March 2000, it owned and operated nine internet data centers in eight states. Its customers included AT&T (NYSE:T). If it had grown this business, my guess is we’d be having a different conversation today.
Now trading slightly above $1, some genius investors think they’re going to get rich playing the company’s latest pivot into non-fungible tokens (NFTs).
The problem with this idea is that they’re not the only ones looking to exploit the latest trend in collecting. Companies with a lot more money than Cinedigm will pick up the best real estate in NFTs, leaving the crumbs for everyone else.
So, if you think Cinedigm’s pivot away from digitization’s got traction, here’s why you might be wrong.
The Last Time CIDM Stock Traded Above $5
Cinedigm’s share price hasn’t traded consistently above $5 since November 2015. A lot has happened in 66 months. Heck, the S&P index doubled in value.
Getting back to Cinedigm’s history for a second.
Cinedigm’s predecessor went public In November 2003 at $5 per share. Here’s what it had to say at the time about its future:
“We are actively seeking to expand into two additional and interrelated business areas and we expect these new businesses, enhanced by our IDC business activities, to become our primary focus,” page 2 of the IPO prospectus stated.
“In February 2003, we organized Access Digital Media, Inc., or AccessDM. AccessDM is an 80%-owned subsidiary of ours that has completed its development and final testing of proprietary software designed to enable worldwide delivery of digital data — including movies, advertisements and alternative content such as concerts, seminars and sporting events — to movie theaters and other venues having digital projection equipment.”
That would be the legacy business that became Cinedigm.
Cinedigm’s a Prolific Loser
In 2001, Access Technologies had revenues of $71,000. In 2002, those jumped to $1.91 million, according to the prospectus. It lost $6.6 million in those two years. By 2008, they’d grown to $81 million but were still losing $5.9 million and had an accumulated deficit of $100.8 million.
Fast-forward to 2021.
Cinedigm had revenue of $23.2 million in the first nine months of fiscal 2021, an operating loss of $56.3 million, and an accumulated deficit of $467.2 million.
So, it’s grown its accumulated deficit by 12.8% annually over the past 13 years since 2008. That’s not much of a record.
People are willing to invest in this company today because some of the streaming content it distributes has potential value as NFTs. I find it almost laughable that someone would look to Cinedigm to strike it rich via NFTs.
Oh, and in case you’re wondering, Funko had 2020 revenue of almost $653 million and $89 million in free cash flow. Its stock is up 102% so far in 2021.
The Bottom Line
I find it hard to take an entertainment company seriously whose best product is CONtv and something called The Bob Ross Channel. Bob Ross, while an interesting guy, has been dead for 26 years. He’s hardly current despite his loyal following.
My InvestorPlace colleague David Moadel recently suggested investors buy CIDM stock as a streaming play and not as an NFT gamble.
“[D]uring the company’s third fiscal quarter, Cinedigm’s ad-supported streaming channel revenues were up by 150% year-over-year (YOY). Moreover, the company’s quarterly consolidated streaming channel revenues increased by 85% YOY,” Moadel wrote on April 9.
My colleague is correct. These are facts you can’t deny.
In Q3 2021, its over-the-top (OTT) streaming and digital business were $4.9 million, up 150% from a year earlier, accounting for 49% of its overall revenue of $10.0 million. More importantly, the company’s Content & Entertainment Business had an operating profit of $905,000 for a 10% operating margin.
There’s no question the OTT business is what’s driving its growth and giving investors hope.
I don’t understand why you would put your hard-earned capital toward a company that’s proven repeatedly that its corporate DNA is all about losing money, not making it.
There’s got to be another penny stock to capture your imagination. There’s just got to be.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.