The volatility in penny stocks is often rough to handle. But these investments still have a place in your portfolio given the right position sizing. The best time to buy speculative stocks like these is when the market is down. More recently, I’ve been considering Genius Brands (NASDAQ:GNUS) stock as one of these worthwhile risky investments.
I’ve actually been looking at the opportunities it might provide as early as June last year. Specifically, GNUS stock came to my attention after it soared from less than $1 to as high as $9 in less than a month.
At that time, the valuation for the stock was a little too rich. However, I did like the company’s potential as an acquisition target or a niche streaming content provider.
Given the general market weakness, GNUS stock is now trading at a more reasonable valuation. And that makes it worth a closer look today.
Content Is King In the Streaming Wars
Netflix (NASDAQ:NFLX), Disney (NYSE:DIS) and AT&T (NYSE:T) are in the midst of a battle for streaming subscriptions. All of these companies have made bold moves to strengthen their content library. Because of these dynamics, creating high-quality “must-see” content is vital.
Genius Brands is a content creation company that creates, licenses and streams its own shows. The company is primarily focused on children’s content, including hit shows like Llama Llama and Rainbow Rangers. These shows were licensed to Nickelodeon and Netflix, respectively. The company’s other top shows include SpacePop, Thomas Edison’s Secret Lab, among many others.
The company focuses on what it calls “content with a purpose.” This means Genius Brands’ shows all have an educational aspect. These are important factors parents look for in kids’ shows. By developing evergreen content, the company can continuously monetize it for years to come. Content monetization can come in the form of licensing as well as other merchandise.
The dynamics of the industry mean that Genius Brands would be able to license the content it creates at favorable rates. An investment in the company also has that optionality of massive upside if it can strike gold with a mega-hit show. For example, Nickelodeon’s massive hit Paw Patrol brought in $2 billion in retail merchandise globally.
Genius Brands Is Building for the Future
Genius Brands is beginning to build out its content library for its own streaming platform. In 2020, the company launched the Kartoon Channel, which streams from its own website and is also available on several other platforms. The Kartoon Channel has a wide reach as it is available in over 100 million U.S. television households and over 300 million devices.
In a bid to beef up its own original content, the company has recently signed a partnership with Tankee to develop an exclusive Roblox (NYSE:RBLX) themed series. The series will be an action-packed show featuring top Roblox influencers. Roblox is incredibly popular with over half of U.S. children under the age of 16 having used its platform This program could turn out to be a major win for Genius Brands when it launches in June.
The company also has several existing and future children’s shows with key celebrity endorsers. The company recently launched Stan Lee’s Superhero Kindergarten — a new animated children’s series using the image of the late Marvel comic creator Stan Lee. This show is also co-produced by Arnold Schwarzenegger who also stars in it. Another upcoming show is Shaq’s Garage produced and starring NBA legend Shaquille O’Neal.
The Bottom Line on GNUS Stock
Genius Brands is currently at the stage where it is not solely focused on revenues and earnings but rather on its strategic initiatives. As detailed in a letter by CEO Andy Heyward: “I caution our investors that Genius Brands is in investing mode, building a catalogue, building brands, and investing in our broadcasting infrastructure and Human Capital, that will get us there. Revenues and Earnings will not be financial metrics now that we are focused on.”
Given Genius Brands’ potential, the company’s market cap of roughly $495 million is fairly reasonable. And when you factor in its focus on content development (as detailed above), GNUS stock is clearly worth considering as a speculative investment.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.