Two years ago I wrote about Genius Brands International (OTCQB:GNUS) in an article called Follow the smart money into Genius Brands. The company has made a tremendous amount of progress in those 2 years and seems on the verge of gaining the recognition it deserves in the investment community. On May 16th the company released this shareholder letter along with the Q1 report. While revenues did increase a modest 20% it is the catalysts coming in the next month that could significantly increase the company's market cap.
Short Term Catalysts
So what makes June such a pivotal month? As noted in the shareholder letter the Las Vegas licensing show starts on June 21 st. This annual event is the licensing industries largest yearly event and attended by over 15,000 people and almost 500 exhibitors. What three items make this year's event so important? First, the company reported they already have over 100 meetings scheduled during the three day event. Imagine the possibilities with all the new properties they have had under development over the last two years. Secondly, at the show they will be doing a launch of 2 brand new properties that will go along with 5 of their other key properties (Baby Genius, Thomas Edison's Secret Lab, Secret Millionaires Club, Stan Lee Comics, and SpacePOP). Finally, they have promised prior to the June 21 st show there will be the launch of three brand new contents programs that promise to have excellent merchandising and licensing ties.
While the Licensing Show is going to showcase all the current and new brands the company has it is the June 6th launch of its new series called SpacePOP on June 6 th that could launch the stock price into the stratosphere. SpacePOP is aimed directly at the girl tween market which is a multi-billion dollar industry. SpacePOP is an animated musical series that has been called a combination of Spice Girls meets Star Wars. It has incredible ties to apparel, beauty products, games, music and so much more. The part I am most excited about is that they plan to use tween bloggers to help promote the brands. The valuation of this property alone could be well over $100M in annual revenues within a few years and worth many times the company's current small market cap.
CEO increasing His Ownership in Company
While there will be many near term explosive catalysts coming in June there also has been some recent news that has seemed to be ignored. CEO Andy Heyward recently converted some company debt to shares right around today's current stock price. There is never a more bullish sign for a company then an executive buying shares. In this case he really put his money where his mouth is by converting $410,000 into shares at $1.72/share. This also increased his insider position to over 30% of the company. Not only is it easy to see how much he believes in the company but he has a huge incentive to grow it into a huge player in the industry. Keep in mind with $6M in cash, no debt and being cash flow positive he could have easily been paid in cash and he took shares.
What could be another interesting short term influence is the short position in the company. Over the last few months the short position has grown over 75% and is now 255K shares. While this is not a huge number, given that the float is so small at less than 5 million shares according to Yahoo finance, and share trading average volume at only 27K/day this could cause an explosive rally by itself. If someone really has to cover quickly it will cause the stock price to zoom upward. It will provide the perfect example of why you never short low float/low volume stocks.
Another long term area that is vital with any small stock is the team being put in place to execute the game plan. CEO is Andy Heyward is pretty much is whose/who in the space. He even has his own wiki page. In recent months there have been 2 key announcements on personnel that have virtually gone unnoticed with respect to the stock price. The first hire announced on March 28th was Debra Pierson. As noted in the press release she was a former VP of sales at Kabillion and accomplished the following:
" As VP Sales and Marketing for Kabillion (February 2007-December 2012), Pierson helped launch the Kabillion Kids VOD channel-- now available in over 60 million homes through all major cable providers -- on Comcast, Time Warner and Charter."
The second recent news was the expansion of Stone Newman's role within the company. He is now responsible for worldwide marketing of the ever growing IP catalog. Looking at what he accomplished in a prior job gives a pretty good indication of what he is capable of.
"Among the firm's many achievements was the branded licensing program for Celessence Technologies, which Newman led from obscurity to more than $50MM in retail sales through 20 licensees in just three years."
The significance of either of these two events cannot be understated. Genius Brands new kids channel is now in all 21 million Comcast households and the company is aiming towards having the Kid Genius Channel in 60 million US TV households by year end. The real important takeaway is these are people who have already accomplished exactly what Genius Brands needs to do. They know what to do without any learning curve and they have all the contacts to succeed now. Not only can they grow these brands quickly, but also create exponential revenue growth on what will be extremely high margin items. I estimate the Kids Genius channel alone could well be worth over $100M which once again is many times the current stocks market cap.
Every stock has its risks that need to be weighed against the possible stock appreciation reward. Genius Brands is no different. While they do not have any of the typical risks you see with small caps along the lines of needing cash, dilution or having to looking for financing every quarter they are very illiquid in trading. The volume has been low and it makes it hard to purchase or sell shares without impacting the stock price. The shorts can control the share price to a large extent. The company has not found a way to bring shareholders to the table. I would hope the company will figure out how to tell this impressive growth story going forward but right now the stock is very hard to buy or sell in any quantity of shares.
Over the years I have seen many stocks like this that I call boutique stocks. By that I really mean they are unique in products and services and virtually unknown in the space. These stocks cover a wide range of products and services and the one item they have in common is that they had the ingredients for explosive stock moves. One of them, JAKKs Pacific (NASDAQ:JAKK), moved from 5 to 25 in the space of a quarter because it was suddenly discovered by the investment community. In my opinion the same type of movement is possible here. It may not be all the June catalysts that start the next big run but the future years are going to be very bright for the company and for the shareholders.
Disclosure: I am/we are long GNUS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.