Every year I put out a speculative stock to watch for the members over at Alpha Wolf Trading and sometimes more than one. They have included names like EKSO, RMBL, TUSK, HEAR, all of which provided us with some pretty nice returns and a couple of them are still in play. I have decided on this years pick to share with everyone and it is GNUS.
Genius Brands is a global media company that develops, produces, markets, licenses and distributes children's entertainment properties. What makes them different and compelling from the rest is their mission to deliver "content with a purpose". They have had a few relatively mild successes with titles like award-winning toddler brand Baby Genius; adventure comedy children's series Thomas Edison's Secret Lab, and Warren Buffett's Secret Millionaires Club, created with and starring iconic investor Warren Buffett. However, none of these properties have hit blockbuster status and for that reason they have not made any money. This could all be about to change as they have not one but two properties that could be on the cusp of providing significant revenues and royalties.
Before I go into the details on GNUS I wanted to share with you my experience in Marvel Enterprises. I grew up on Marvel comic books and I loved them. When I saw that Marvel had just come out of bankruptcy many years ago and there were rumors of a Spiderman movie and I started buying the stock at a buck. I built my position over a period of time buying more at 3 and 5 and 10. All the while Marvel kept producing one box office hit after another. The famous Jim Cramer would get calls on Marvel for his lightning round and he would consistently hit the sell, sell, sell, button with it being his contention that Marvel was going to run out of blockbuster characters to do films with. Just after that they came out with Iron Man one of their lesser known characters and they smashed the estimates with a huge hit. I knew I was onto a winner early with Marvel when the first Spiderman movie came out and I walked into a Walmart and all I could see down the cereal isle was Spidermans face.. there were lunchboxes and clothes, toys and all this Spiderman stuff everywhere throughout Walmart and it hit me. Marvel was going to be raking in a ton of what I like to call "mailbox money"! They just sat back and let the royalty checks come rolling in, then took them out of the mail box and cashed them in. It was a pretty sweet business model. It was such a good model that Disney wound up buying them for 55 dollars a share. Jim Cramer thought it was a brilliant move by Disney. What was funny to me was that he didn't like the stock when it was 3 5 or 15 but loved it when Disney bought it for 55.
I am not suggesting that GNUS will have the same type of success as Marvel but what I can say is they have two compelling properties Llama Llama on Netflix which was just picked up for its second season and Rainbow Rangers which just launched on Nick Jr. in November.
Andy Heyward the CEO of GNUS has been creating cartoon hits for most of his life and is an Emmy ward winning creator of children's entertainment. He has been involved in and created some huge hits over the years with titles like "Scooby Doo, Flintstones, Jetsons, Smurfs, Yogi Bear 1982, he co-created Inspector Gadget and during the following years he has produced over 5,000 episodes of award-winning children’s programs, most of which shows and brands are household names, including Inspector Gadget, The Real Ghostbusters, Alvin and the Chipmunks, G.I. Joe, Hello Kitty, Sonic the Hedgehog, Super Mario Bros, Sabrina the Teenage Witch, Strawberry Shortcake, Care Bears, Captain Planet, Teddy Ruxpin, Sailor Moon, Madeline, Where on Earth is Carmen Sandiego, Liberty's Kids"
That is a pretty astounding resume of some significant hits that I am sure everyone recognizes.
Netflix has renewed LLAMA LLAMA for a 2nd season, starring Jennifer Garner, and Genius Brands International has begun producing the episodes, as well as two half-hour holiday specials for delivery late in 2019.
"The consumer product licensing program for Llama Llama is now under full activation with numerous companies now coming to us for product licenses, as the success of not just the Llama Llama books, but also the animated series on Netflix has been noted. The attached release* speaks to new licensees in Christmas goods and party supplies, coming alongside toys, figures, playsets and plush, branded coloring and activity books, animatronic plush toys, belts, and a full line with Kids Preferred of developmental infantile toys and plush. New products will roll out later this year and throughout 2019."
Source Genius Investors Page
|Genius Brands International's (Nasdaq: GNUS) new animated preschool series, Rainbow Rangers, was the #1 Nielsen ranked kid’s series of 19 series on Nick Jr., by its third week on the air.|
" Boasting a unique and highly-accomplished team of creators from the animated motion picture world, Rainbow Rangers’ creative development and production team includes Rob Minkoff (Disney’s The Lion King director), Shane Morris (Disney’s Frozen co-writer), Tim Mansfield and New York Times Bestselling author and Emmy-nominated writer Elise Allen (Dinosaur Train, Lion Guard, Barbie specials) who is serving as head writer and co-creator. "
Rainbow Rangers is only in the third week of its launch but it is having a very impressive debut as it has taken the title of #1 in the Nielsen ratings beating out some significant competition. This could lead to more licensing deals which are already very impressive. Licensing deals lead to royalties and royalties lead to profits for GNUS.
"Beginning for back-to-school 2019 (July/August), Genius Brands will launch the U.S. retail program for Rainbow Rangers with products debuting across all categories of kid’s consumer products. Master toy partner, Mattel, will premiere a range of toys, including collectible dolls, traditional fashion dolls, role-play items, and a playset. Additional licensing partners include MacMillan Publishing’s Imprint (master publishing), Bentex (master apparel), Gershwin Entertainment (live touring show), A.M.E. (sleepwear), Berkshire Fashions (cold weather and accessories), BioWorld (bags, backpacks), Ceaco (puzzles), Disguise (Halloween costumes), Handcraft Manufacturing (packaged underwear), H.E.R. Accessories (jewelry and hair accessories), Jay Franco (bedding and bath), Dynacraft (bicycles), Kid Galaxy (bubble toys), Kiddieland (foot-to-floor ride-ons), Planet Sox (hosiery), KIDdesigns (youth electronics line), Cra-Z-Art (craft and activity kits), Esquire Footwear (sneakers, shoes and other footwear), Kittrich (school supplies and paper goods), and Basic Fun! (novelty toy line)."
Source GNUS Investor Page
GNUS also has international licensing opportunities that will open up for more distribution if Rainbow Rangers continues its impressive results. They are already in discussions with several international distributors and continue to receive new inquiries. I anticipate new agreements will likely be announced in the near future.
"Genius Brands' is significantly expanding its digital footprint with new channel launches across multiple platforms. Kid Genius Cartoon Channel is currently available in approximately 60 million households via Comcast's Infinity on Demand, as well as OTT platforms, including Amazon Fire, Roku and Apple TV. In addition, the Company launched in 2017 Kids Genius Plus!exclusively on Amazon with a line-up of enriching and entertaining content for toddlers to tweens available to 80+ million Amazon Prime subscribers. Further to the above distribution footprint, the company recently premiered the Baby Genius channel on Comcast's Xfinity on Demand platform, reaching over 20 million households in the U.S. with programming, including The Adventures of Paddington Bear, Rainbow Valley Fire Department, Baby Prodigy, Igloo-Gloo, Pirates Adventures in Art, So! Smart and Todd World."
Source Investors overview page
GNUS also has a few properties that are yet to be revealed and are connected to the great and sure to be sorely missed Stan Lee who recently passed. Stan Lee was the mastermind behind nearly the entire Marvel Universe of characters and plays himself in one of the GNUS properties where he has already prerecorded the voice-overs for those episodes. It is my belief that these could become extremely valuable and sought after properties. I cannot wait to see what they are.
In the past GNUS has relied on capital raises to fund its ongoing operations which has been dilutive to shareholders. The market cap is roughly 21 million and they are burning through around 7 million a year with around 5 million in cash and limited cash flow. This could be about to change. I truly believe that 2019-2020 are likely going to be trasnformative years for GNUS regardless of what the economy or the stock market does. GNUS is entering a growth period and it should start to reflect in revenues and eventually profits from advertising and a significant increase in royalty related revenue as consumer products hit the shelves for both Llama Llama and Rainbow Rangers near the 3rd quarter of 2019 and into 2020. The stock price may not move until those revenues start hitting but I like to build my positions when others are still on the sidelines waiting to see what happens.
"I have always said that it takes 3 - 4 years to develop, produce, license, and bring a kid’s brand to the marketplace. Mindful of that, we began work on Rainbow Rangers almost 4 years ago. Notwithstanding, it is rare that so many pieces of the puzzle fall into place so perfectly. As we prepare to deliver the series to Nickelodeon for its November 5 launch, I feel like we are on the eve of the Normandy Invasion. Indeed, we have already begun story development for the anticipated second season!"
Source Andy Heyward CEO Shareholder Letter
I could not find a statement from Andy in one of his letters to shareholders but to paraphrase it said something like this. "As he watched the volatility of the markets it reminded him that cartoons and quality content remain constant. Blockbusters will withstand the tests of time and eventually the ones that recognize those hits early will be richly rewarded." Andy has bought a good chunk of shares on the open market roughly a dollar higher than the recent share price. I started building my position there as well and have continued to build on that position at these current levels and lower. Some of the Alpha Wolf members have also built positions in the name.
A long term chart of GNUS does not paint a very appealing picture for the stock as it has been in a downtrend for years. It could be testing potential price support in the 2 area as you can see from the weekly chart below. If we do enter and stay in a bear market for the overall stock indexes I believe stocks like GNUS will fair far better than the large cap momentum names that have extremely high valuations with large institutional owners trying to liquidate their positions. A stock like GNUS doesn't have those large institutional holders and it has some potentially significant catalysts on the horizon in the near term.
GNUS only has roughly 8 million shares in the float and it trades extremely thin so trying to build any size with one purchase would be difficult to do without driving up the share price. I believe the risk will eventually be rewarded and when the stock reacts to any significant news it will be difficult to get in without feeling like you are chasing. Hopefully the shorts will pile into the name without knowing the full story giving us some fuel for a monster run. HEAR had this type of move after doing a reverse split and if you saw the run that stock had this year you would understand why I like to be in these low floaters with compelling stories early. These types of stocks are risky investments and require patience but if they hit they can be extremely profitable.
I truly believe this is a "MARVELOUS" Opportunity and you do not have to be a "GENIUS" to see it.
See what I did there?? I know .. I crack myself up.
Disclosure: I am/we are long GNUS HEAR RMBL.
Additional disclosure: I may be looking to add to my position and have no plans to sell any shares over the next 72 hours. I am not receiving any compensation for writing this article and have no business relationship with the company. These views are my own and should be taken as such. Always do your own due diligence before making any investment decisions.