Genius Brands Should Get a Strong Boost From Its M&A Activities

Genius Brands International (NASDAQ:GNUS) stock has grown a modest 11% in the first six months of the year. This comes as a surprise, considering how the children’s media company has been on a roll.

An image of two young girls looking at a tablet and smiling while an adult reads in the background.
Source: Syda Productions/ShutterStock.com

It has built up a strong head of steam with its Kartoon streaming channel, announced some major deals, and had an incredible first quarter.

Moreover, it has a sizeable cash balance, which it will use to acquire more multimedia content. Therefore, despite the risks, GNUS stock is worth investing in and has an impressive growth runway.

Genius Brands had a solid first half, posting several victories including the release Superhero Kindergarten, starring Arnold Schwarzenegger, which garnered over 30 million views.

Moreover, its earnings results show a healthy 221% increase in its sales numbers on a year-over-year basis. A lot of it relates to its acquisition of ChizComm Beacon Media, which was completed in February.

Television and home entertainment revenues rose 60% from the prior-year period, offset the 19% drop in licensing and royalties. These wins have had little impact on GNUS stock, but its merger and acquisition (M&A) activity results should bear fruit.

Organic Growth

Genius Brands has been shoring up its finances to produce new TV shows and engage in new acquisitions. From December to March, its cash increased by a hefty 40% to $143 million.

A significant contributor to its cash balance is the $98.6 million sale of common stock last year. Moreover, the company has no financial debt.

Furthermore, its revenues in the first quarter came in almost three times higher than they were in the same period last year. Hence, Genius Brands is going all-in on its M&A strategy with all its internal reserves.

The company has recruited Bedi Singh, an ex-CFO of Sony Pictures, to acquire some of its competitors. The appointment of such an experienced individual suggests that the company is serious about gobbling up some of its competition.

Risks

Despite its massive potential, there are a few inherent risks that are associated with Genius Brands. Firstly, its business is heavily dependent upon the popularity of its content with its viewers and distributors.

If it fails to mark with them, it could lead to renewal disagreements with distributors and a loss of market share. Therefore, viewer preferences and audience acceptance are essential for the business to continue growing into the juggernaut it intends to become.

However, it’s challenging to make predictions about viewer response to the company’s content or the appeal of competing programming.

Genius Brands operates in a highly competitive market and is up against some of the most established companies in the world. Some of these include Cartoon Network and Walt Disney (NYSE:DIS).

Its operations are sensitive to various aspects, including promotional pressures, competitive pricing and other competitor actions. A lot of these factors are beyond the company’s control but can have a significant impact on its business at this time.

Bottom Line on GNUS Stock

Genius Brands had a solid start to the year and has built up a healthy cash balance to pursue its growth strategy. It now has over $140 million in cash and a special consultant to advance its M&A activity.

The results of these activities remain to be seen; however, it appears that the company is moving in the right direction. Moreover, GNUS stock is trading at a substantial bargain, which makes it even more attractive at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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