In early June, kids entertainment company Genius Brands (NASDAQ:GNUS) went viral because the company was supposedly trying to build the Netflix (NASDAQ:NFLX) for kids. Seemingly overnight, GNUS stock went from $1 to $12.
I said stay away from Genius Brands, on the idea that while creating the Netflix for kids is a noble idea, Genius Brands doesn’t have the expertise or resources to be the company to pull it off. A month later, I reiterated the bear thesis on GNUS stock, saying that in a best-case scenario, the stock isn’t worth much more than a buck.
And so here we are. Genius Brands stock has, indeed, made a full round trip from $12, back to $1.
What now?
It may be time to ease up on the bearishness. If you’re short, now may be a good time to cover. But it’s certainly not the time to buy this stock. Rather, this is a name you should continue to avoid for the foreseeable future, even at $1.
Genius Brands Is Not the Netflix for Kids
About two months ago, thanks to the Covid-19 pandemic disrupting its core television business, Genius Brands decided to make a dramatic pivot into streaming TV and tried to leverage its portfolio of kids-focused media to create Kartoon Channel, which was supposed to turn into the Netflix for kids.
Great idea. One day, there will be a media platform out there that aggregates all kids-focused media into a single, free ad-supported streaming TV channel.
But that media platform won’t be Kartoon Channel.
Genius Brands just doesn’t have the expertise, talent, content or resources to dominate in this space. After all, it’s most-watched shows – Rainbow Rangers and Llama Llama – aren’t exactly household names, and are instead relatively obscure in the kids media landscape. The company is also competing with the likes of Netflix, Disney (NYSE:DIS) and Amazon (NASDAQ:AMZN), who collectively spend $3 billion on making kids content every year.
Genius Brands, on the other hand, had about $54 million on its balance sheet last quarter. That’s a sizable chunk, sure. But nothing compared to $3 billion.
So, while a Netflix for kids will come to fruition over the next few years, Kartoon Channel won’t be it. The numbers speak to this reality. Kartoon Channel launched in late June. Two months later, only tens of thousands of viewers have signed up.
That’s nothing in this space, where Disney+ is attracting millions of new subs each week.
This trend of slow growth for Kartoon Channel won’t reverse course. Instead, it will persist, and Kartoon Channel will forever remain a niche, ad-supported streaming channel with minimal reach.
Worth $1 At Most
Yes, Genius Brands isn’t exclusively a streaming platform. The company does make money from selling toys, too, and did land a big contract to sell Rainbow Rangers toys at Walmart (NYSE:WMT) and Amazon recently.
But that’s a small business.
Year-to-date, product sales for Genius Brands measure less than $2,000.
So, while Genius Brands is more than Kartoon Channel, it also isn’t. The entire long-term bull thesis on GNUS stock hinges on Kartoon Channel becoming a big success.
If Kartoon Channel doesn’t become a big success and instead forever remains niche, the bull thesis for GNUS stock falls apart.
Indeed, my numbers indicate that in such a scenario, GNUS stock is worth less than a buck.
Some of you may be saying: “Well, GNUS stock is at a buck now. So, time to buy?”
No.
The growth narrative here is riddled with execution risks, and that $1 valuation for GNUS stock assumes Kartoon Channel is still around in 10 years and has millions of subscribers. Neither of those things are guaranteed.
So, there’s really no need to jump into GNUS stock here. Instead, investors should continue to stay away.
Bottom Line on GNUS Stock
Genius Brands is just another pump-and-dump penny stock that’s in the “dump” phase.
Stay away – today, tomorrow and for the foreseeable future.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm.