Genius Brands International (NASDAQ: GNUS) stock has climbed on Wednesday after investors were impressed with the children’s entertainment company’s second quarter revenue growth.
But are the headline-grabbing revenue figures enough to make GNUS stock a buy?
What is Genius Brands International?
California-based Genius Brands International is a content and brand management company which creates and licenses multimedia content for toddlers to tweens worldwide.
The company’s shows include Rainbow Rangers, Llama Llama, SpacePop and Thomas Edison’s Secret Lab. It also develops animated series, such as Superhero Kindergarten and Baby Genius. In addition, the company acts as a licensing agent for Llama Llama.
Genius Brands serves various customers and partners, including broadcasters, consumer products licensees, manufacturers, wholesalers, and retailers.
Founded back in 2006, the company was formerly known as Pacific Entertainment Corporation and changed its name to Genius Brands International in October 2011.
How Does Genius Brands International Make Money?
The company’s revenue is split into four different categories. These are Production Services, Content Distribution, Licensing and Royalties, and Media Advisory and Advertising Services.
The company has its own distribution channel in the form of Kartoon Channel!, as well as a wide range of consumer product licenses. It also earns revenue by licensing out its owned properties.
For example, the most recent quarter saw the company sign a deal with Marvel and the Walt Disney Company (NYSE: DIS) allowing them to use Stan Lee’s likeness in their films and television programmes over the next two decades. The deal is expected to generate recurring revenue across the entire period.
GNUS Stock Financials
Genius Brands International's second quarter earnings showed it achieved revenue growth of 843% to a record $21.2m for the three months ended 30 June 2022, compared to the same period last year.
This explosive revenue increase comes after the business acquired WOW!, which was snapped up by Genius Brands in April 2022, and Ameba, which was acquired in January of 2022.
However, higher operating expenses, which grew from $9.9m to $30.7m, meant that the business still booked a net loss of $12.5m for the period. This equates to a loss per share of $0.04, compared with $0.02 in the same period one year prior.
Additionally, the stock has a price to sales ratio of 32.91, way above CISMarket’s average for the entertainment and movie industry of 2.32, indicating that the stock may not be efficiently using investors’ money.
GNUS Growth Potential
Genius Brands boasts that its flagship channel is available in over 100 million homes as a video on demand service, as well as over 220 million mobile devices and garners more than 3 million monthly impressions.
Additionally, the business has partnered with high-profile media partners such as Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), Nickelodeon and more to bring its programmes to people across the US, Europe, Mexico, Latin America, China and more.
Combined, these factors mean the company has a large global footprint and a significant global audience. However, there are some significant risks to backing the company.
GNUS Investment Risks
First, it’s key to note that Genius Brands is running at a loss, with the company’s high expenses showing no sign of peeling back. The rapid growth in revenue seen in the company’s most recent quarter could be a sign the business is approaching profitability, but it could also be a one off following the Stan Lee licensing deal.
The company’s success is also highly linked to consumer spending, which is currently under pressure due to cost of living concerns. Netflix has already announced a drop in subscriber numbers, indicating that less people are willing to pay for streaming services as they try to compensate for higher bills and food costs.
This could reduce Genius Brands’ reach and influence, having a knock-on effect to the popularity of the products associated with its programmes, such as toys.
Is GNUS Stock a Good Investment?
Genius Brands undoubtedly has some exciting properties and some attractive assets. The joint ownership of rights to Stan Lee and some of his associated intellectual properties sounds like a very lucrative opportunity.
However, Genius has not divulged details of how much revenue its deal with Disney and Marvel for Stan Lee’s image will bring to the company, potentially indicating that the amount might be disappointing to investors.
Genius has had success with its programming though, with its Rainbow Rangers show performing well on streaming services such as Netflix and Amazon Prime. The company is optimistic that this will lead to success in its efforts to retail toys and other products related to its programmes.
The problem is that operating expenses are continuing to overshadow the company’s enormous revenue growth, leaving it further from profitability than at the same stage last year.
The company has exciting potential through its strong properties and well-performing shows, but its management needs to turn this potential into actual returns for investors. Revenue growth is currently outpacing expenses, so this might come sooner rather than later, but at the moment Genius still looks like a speculative investment.
Additionally, it is worth noting that, as a penny stock, Genius Brands is more prone to volatility than many other investments and thus carries an elevated degree of risk. You should consider your personal tolerance for risk before deciding to invest.
