Genius Brands Adds Prize to Media Portfolio

Genius Brands International (GNUS) develops content with a purpose for youngsters from toddlers to tweens, providing educational moments even as the young audience is entertained.  An earlier article “Delight and Enrichment” published on December 18, 2020, pointed to a pending strategic acquisition and new ‘star studded’ relationships as pivotal in the company’s progress in the market for children’s entertainment.

Sneak Peek

One of those relationships is bearing fruit in early 2021.  Genius Brands has been working on new programming with the help athlete, actor and politician Arnold Schwarzenegger.  Arnold is the voice of a superhero and teacher in a new animated show for preschoolers called Stan Lee’s Superhero Kindergarten. The last week-end in January 2021, the company offered a sneak peek at the Captain and a band of superhero kindergarteners who pull power from school room supplies such as glue and putty.    

Even the series title has star power.  The famed comic book writer, editor and publisher Stan Lee was the main creative force behind Marvel Comics.  He co-created numerous popular fictional characters, including superheroes Spider-Man, the X-Men, Iron Man, the Hulk, the Wasp, and Captain Marvel, among others. Genius Brands expects to launch Schwarzenegger’s Captain Fantastic character in Spring 2021. 

Help from Hoops Star

Another star powered series called Shaq’s Garage will feature basketball great Shaquille O’Neal.  The animated action-adventure show features a collection of cars and trucks that, unbeknownst even to their owner Shaq, communicate with a secret language and undertake fantastic missions in the name of justice and diversity.  O’Neal will give voice to a truck named Big Diesel.  Shaq’s Garage is scheduled for release in 2022, but not to the usual platforms.  Genius Brand is reserving Shaq’s Garage for its own Kartoon Channel!, which was launched in June 2020, as a source of smart and safe entertainment with no violence or negative stereotypes.

Commanding a proprietary distribution channel should help the company capture more of the streaming revenue from its portfolio.  Participation by any third-party distribution channel varies depending upon the channel’s market reach, series popularity and exclusivity rights.  As an example, ViacomCBS commanded a considerable percentage of the revenue from Genius Brands’ Rainbow Rangers series, which aired exclusively on the premier cable channel for children, Nickelodeon.  Already reaching over 100 million U.S. television households and 300 million devices in just seven months from launch, Kartoon Channel! is well on the way to gaining a place in children’s media.             

Evergreen Portfolio

Another strategic deal is aimed at seizing even more of the value in the company’s media portfolio.  In November 2020, the company announced plans to acquire ChizComm Ltd., a marketing and media agency specializing in children’s entertainment, toy and gaming content.  As the largest purchaser of children’s media in North America, ChizComm could help transform Genius Brands into a power in the children’s media industry.  Importantly, ChizComm should be a good fit to monetize the content flowing across Kartoon Channel!

The ChizComm deal could be pivotal in fully realizing what Genius management calls the ‘evergreen nature’ of the shows in its portfolio.  As an example, Genius Brands continues to receive royalties from shows that are no longer in production such as Inspector Gadget, which of late is being run on French television.  The Chizcomm agency could help realize advertising and merchandizing revenue from the sustained interest in classic animated stories in the company’s portfolio.

Talent Pool

These successes are the product of the creative drive in the Genius Brands team.  Chief executive officer, Andy Heyward, is particularly proud of his colleagues’ accomplishments, listing to this author in a recent interview their numerous credits.  A collection of just a few logos from their past demonstrates the many successes of the producers and managers who are now creating and promoting the company’s children’s programming. 

Along the way this distinguished group has accumulated extensive knowhow in children’s media as well as numerous vital relationships within the industry.  They are now putting that ability and power to work for Genius Grands.  It will be incumbent upon Heyward to keep the group content.  It helps that the company is well fortified for the time being with the capital to support creative projects and strategic plans.    

Revenue Realism

Financial results for Genius Brands fourth quarter and year ending December 2020, are not expected until late March 2021.  Until then investors will have to rely on clues from the reports for the first nine months of 2020.  Year-over-year comparisons reveal the variability in the company’s revenue streams as life cycles of the company’s various programs play out.  Revenue is expected to smooth out as the media portfolio diversifies with new additions.  Once accomplished, the ChizComm deal should also help build the top line.  Investors also need to watch deferred revenue liabilities, which totaled $5.3 million at the end of September 2020.  Genius Brands collects advances and guarantees against future royalties, totting them up as deferred revenue until recognition criteria have been met.

Other balance sheet figures may be even more important to judge Genius Brands’ financial strength.  The company cleaned up debt balances in early 2020 with a series of common stock sales and debt-to-stock conversions.  The largest near-term liability for the company is a total of $2.6 million in participation payables owed to distribution partners.  While such payables might increase as the media portfolio expands, use of the Kartoon Channel! could help reduce payments to third-parties in the future.  

At the end of September 2020, cash totaled $50.5 million, but there are commitments against a portion of it.  Genius Brands offered $12 million for the ChizComm deal, of which $8.5 million must be paid in cash at closing.  The plump bank account could give management power to move opportunistically to make additional strategic deals.

Wrap-up

Since early November 2020, shares of Genius Brands have moved higher but appear to have missed out on some of the froth observed in the rest of the small-cap sector.  The situation leaves a modestly priced stock on the cusp of major accomplishments.  Investors can expect announcements over the next few months that should confirm management is capable of delivering on its promises to build a first-class children’s media portfolio and capture more of the revenue streams.            

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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