I’m not really sure if Genius Brands (NASDAQ:GNUS) brands classifies as a meme. Certainly, though, GNUS stock is incredibly popular among social media circles. But what distinguishes this trade from other speculative ideas is that it’s not part of a coordinated and monolithic attempt to swing momentum toward a specific trajectory.
Instead, you may be surprised at the diversity of opinions present for GNUS stock. Yes, there’s always that “apes together strong” element that aims to drive shares to the moon. But a vocal element exists that casts nothing but aspersions and troubling ad hominem attacks against the bulls.
Frankly, you wouldn’t see this kind of diversity of opinions with many other meme stocks because the naysayers will be sent to the back alley and summarily executed. I’m being facetious but not really.
The 10-K Provides All You Need to Know About GNUS Stock
Still, for this round, I’m not worried one bit about attracting the wrong attention regarding my take on GNUS stock. That’s because everything that I’m going to discuss – both good and bad – is listed on Genius Brands’ most recent 10-K filing with the Securities and Exchange Commission. If you have a problem with it, well, you should take it up with management.
First, on the positive end of the scale, GNUS stock primarily benefits from what the underlying company calls “content with a purpose.” What this translates to is “edutainment,” or entertaining children with cartoon characters while teaching them valuable life lessons.
Here, Genius Brands does offer an intriguing narrative. It levers the intellectual property of Stan Lee outside of his Marvel Comics universe. As well, notable celebrities like Arnold Schwarzenegger lends his voice and support for Genius content.
Even more bullish for GNUS stock, the novel coronavirus pandemic essentially gave the underlying company a hostage audience. As you might expect, screen time for kids increased dramatically. With so many parents worried about their young ones being influenced by the wrong content, Genius Brands offers an extremely compelling solution.
So, why are GNUS shares encountering such troubles on the charts?
Genius Brands Is Suffering from a Contradiction
On May 10, GNUS stock dropped more than 4% and now the stock’s trading at $1.50. So long as prices stay below $2, the law of small numbers will be both its allure and pitfall. But if the fundamentals start to matter to investors, I’d be worried about the latter than the former.
According to Genius’ 10-K, the company generated total revenue of $2.48 million for the full year 2020. This was down significantly from the $5.9 million it posted in 2019. While most revenue-generating segments succumbed to weakness due to the Covid-19 impact, the “Television & Home Entertainment” line item took the most heat, dropping to $1.46 million from $4.8 million.
Not surprisingly, Genius mentioned on its 10-K that Covid-19 “has had an adverse impact on the entertainment industry” and that if the pandemic is prolonged, it could have an adverse impact on Genius specifically.
But then, after listing various disruptive elements, the company mentions that “we have not experienced any disruption in our supply chain, nor have we experienced any negative impact from our animation production partners. With regard to content distribution, we have observed demand increases for streaming entertainment services in 2020.”
What this implies – and straight from the company’s mouth, mind you – is that GNUS stock dodged a bullet. Not only did the animation pipeline not suffer from disruption, demand increased for streaming entertainment services. So it begs the question, why did the home entertainment segment lose roughly 70% of revenue?
Drilling further into the 10-K, management admits one of the risk factors is that it might misread trends in popular culture. As well, the company’s content could lose relevance for whatever reason. I believe this is the pivotal risk factor because honestly, Genius shouldn’t be shedding so much revenue if its content resonated with its target demo.
Competition Can Sweep in at Any Time
Finally, management revealed that GNUS stock faces competitive risks. While it strongly believes in its content with a purpose ethos, other companies, particularly Disney (NYSE:DIS) have far greater resources. They can move in at any time in the edutainment space and make life possibly unbearable for Genius Brands.
Because while Genius has certain Stan Lee rights, Disney has the rights to the intellectual property that matters. And this gives the Magic Kingdom the easy road to squash Genius.
For instance, take a look at Grogu, colloquially known as baby Yoda. Now that’s a face that anyone can love – kids, tweens, teens, young adults, middle-aged adults and boomers. Imagine Disney doing a Mandalorian-themed edutainment platform. It’d be game over for Genius or anybody else.
Of course, I’m not suggesting that Disney will do this. But the possibility exists, leaving GNUS stock vulnerable to catastrophe. Investors might be recognizing this threat, a risk factor that Genius itself warned about.
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.