To hear Genius Brands (NASDAQ:GNUS) management tell it, GNUS stock is the next big winner in streaming.

And it seems like there’s a real business here. Management is experienced in the children’s entertainment industry. The company has developed multiple brands in conjunction with well-known personalities. It has its own distribution capabilities, and now has acquired a marketing and media agency.

But the story management tells simply doesn’t match reality.

This is not some new startup looking to disrupt an industry. It’s a company that’s been around for years now. It’s accomplished little, except for ongoing and immense sales of its own stock.

Even looking forward, if you look closely at management’s story, it doesn’t quite add up. Trading below $2, GNUS stock might seem cheap. But with a market capitalization of $492.5 million, it’s not.

Looking Closer

From a distance, Genius Brands seems to have it all. The company itself says its strategies has “three pillars“: a growing portfolio of brands, global consumer products and distribution, and an owned distribution platform.

But let’s consider what those assets actually are.

The portfolio of brands simply isn’t that impressive. The company has shows like Llama Llama, Rainbow Rangers, and coming launches developed in conjunction with the estate of comic book legend Stan Lee. None look like hits.

Rainbow Rangers and Llama Llama have been sold to networks and larger streaming platforms. But not for much. In 2020, according to the Form 10-K filed with the U.S. Securities and Exchange Commission, revenue from “Television & Home Entertainment” was just $1.5 million.

That figure was down 70% year-over-year, apparently because Genius Brands lost distribution.

The global consumer products business? The “Licensing & Royalties” line item totaled less than $1 million in 2020 and 2019. Direct product sales were less than $3,000.

The “owned distribution platform” refers to Genius Brands’ Kartoon Channel. That’s simply a channel available on larger streaming platforms (and not on any major cable or satellite providers).

It’s not much of a success, either. Advertising revenue in 2020 totaled just a quarter of a million dollars. The figure rose 13% year-over-year, yes, but amid school closures and accelerated “cord-cutting,” that performance hardly seems impressive.

So Genius Brands can act as if it’s some integrated, growing provider of children’s entertainment. The truth is the company itself is but a blip in the U.S. media ecosystem.

A Long History

Indeed, in 2020, Genius Brands on the whole generated just $2.5 million in revenue. The figure was down 58% year-over-year. And even if you back out non-cash share-based compensation, Genius spent more than $11 million to generate that revenue.

Now, an investor could argue that the novel coronavirus pandemic played a role in 2020’s performance. Rainbow Rangers did see a delay, according to management.

But the problems here go back further than just a year. Genius was created by a merger that occurred back in 2013 between A Squared Entertainment and Genius Brands. A Squared brought in some of the intellectual property that Genius Brands is  still talking up, like the concepts developed by Stan Lee.

And in 2012, pro forma for the merger, the two companies generated revenue of $7.5 million. The figure in 2019 — obviously before the pandemic arrived — was $5.9 million. The Stan Lee content is still supposedly just around the corner from contributing to results.

All that Genius Brands has done well in its history is selling GNUS stock. It April 2014, the company had a little over 6 million shares outstanding. Adjusted for a one-to-three reverse split in 2016, the figure at Mar. 30 of this year was 900 million.

The Case for GNUS Stock

That’s a staggering amount of dilution.

To be fair, it has strengthened Genius Brands’ balance sheet. The company has $140 million in cash at the moment, according to a recent business update.

But that cash still leaves a valuation on the operating business of about $400 million. Again, that’s a business that generated $2.5 million in revenue last year.

Meanwhile, Genius Brands plans to spend its newfound cash to develop its assets and to make acquisitions. But how much faith can investors really have?

The company has had at best middling success with developing shows it has so far. Personally, I’m skeptical Shaq’s Garage is going to change that.

And on the acquisition front, Genius made a big deal of picking up ChizComm, a supposed “leading” agency which cost about $12 million — still immaterial against the broader valuation.

At a certain point, the story management tells isn’t enough. Chief executive officer Andy Heyward has been in charge since the merger (and led A Squared before that), yet Genius Brands has accomplished little under his watch.

Believing that will suddenly change seems foolish. Yet that’s precisely what is required to buy GNUS stock, even below $2.

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

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