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I have been slowly accumulating shares of Genius Brands (NASDAQ: GNUS) over the last few months. I've spent hundreds of hours researching this company inside and out. Much of the research here has been contributed by the members of the Genius Brands Subreddit.
Thank you for the contributions!
In this article, I will be sharing with you a mixture of facts as well as rumors. They will be clearly labeled as such.
Now, for the legal stuff:
- I am not a financial advisor and this is not financial advice.
- I own shares of Genius Brands and AMC. (AMC becomes relevant later on)
- Genius Brands is a penny stock, so there are significant risks.
- Genius Brands did NOT sponsor me. I have never spoken to anyone at the company.
- All information in this article is as of July 18th 2021.
- Visit Genius Brands Investor Relations for the most current information.
- Check out the Genius Brands Subreddit to hear opinions from other investors and non-investors.
DISCLAIMER: Ryan Scribner, including but not limited to any guests appearing in his content, are not financial/investment advisors, brokers, or dealers. They are solely sharing their personal experience and opinions; therefore, all strategies, tips, suggestions, and recommendations shared are solely for entertainment purposes. There are financial risks associated with investing, and Ryan Scribner’s results are not typical; therefore, do not act or refrain from acting based on any information conveyed in this video, webpage, and/or external hyperlinks. For investment advice please seek the counsel of a financial/investment advisor(s); and conduct your own due diligence.
With that out of the way, let's dive in to my largest and highest conviction investment in the stock market right now.
Genius Brands is an entertainment company. The CEO Andy Heyward created countless cartoons from our childhood such as Inspector Gadget and Strawberry Shortcake.
In 2021 they launched a new show called Stan Lee's Superhero Kindergarten. Genius Brands has control of the “Stan Lee” name as well as over 100 unexploited projects as part of a joint venture with POW! Entertainment.
Terms of the deal have not been disclosed.
- Joint Venture between Genius Brands and POW! Entertainment
- Stan Lee's Superhero Kindergarten Release
Genius Brands distributes content via licensing on streaming platforms like Netflix, Nickelodeon and Amazon Prime Video. They also own and operate their own distribution platform called Kartoon Channel.
Kartoon Channel is available on Android, iOS, YouTube, most streaming platforms and on their website.
Instead of charging a subscription for the service, it is free with ads. This is a new industry referred to as “FAST Streaming.”
“FAST” Streaming = “Free Ad Supported Television” Streaming
FAST Streaming is expected to grow in popularity over the coming years. Competition in streaming is surging, which could be one of the reasons why Netflix stock has been flat for a year.
- Netflix will have no choice but to run ads
- Netflix isn't part of the reopening trade because it isn't Ad Driven
Critics of this business model say that it is not a reliable stream of revenue. However, many feel that ad rates will climb higher and higher in the coming months.
Genius Brands has also established licensing agreements with many leading toy manufacturers. Rather than solely making money off of licensing content and ad revenue, they are also monetizing the “back end.”
This means that for every piece of branded merchandise sold, Genius Brands will earn a cut.
Netflix is also following a similar approach with the launch of Netflix.Shop where you can purchase merchandise related to your favorite Netflix shows.
Despite the positive news, Genius Brands has almost no revenue to speak of.
In 2020, they earned less than $2.5 million in revenue.
This has led to high short interest on the stock. Hindenburg Research is one of the bigger short sellers, and we will be “debunking” their entire short thesis later.
Genius Brands has a phenomenal balance sheet. Right now, they are focusing on building out the content library and garnering an audience. This will hopefully translate to future revenue. We should get a glimpse of this when Q2 2021 earnings come out.
However, if you are looking for a profitable company to invest in with strong revenue, that is NOT what we have here with Genius Brands.
Revenues and Earnings will not be financial metrics now that we are focused on. We are instead focused on cash. If we use our cash smartly as we intend, then we believe revenues and earnings will follow. – Andy Heyward Annual Shareholder Letter
This is a speculative growth play.
And now, it is time for a story.
Let me take you back to 2016. At the time, I was still working my day job as a utility worker.
For context, I quit that job in 2017 and started this YouTube channel where I now have over 700,000 subscribers.
I ended up finding a stock that I really liked called “AMD” or “Advanced Micro Devices.”
Long story short, I ended up purchasing 1,000 shares at a cost basis of around $6.82 per share.
Instead of holding onto those shares for years, like I should have, I sold them shortly thereafter. I turned a profit of a few thousand dollars on a $7,000 investment.
Well, hindsight is “20-20” as they say… In 2020 AMD stock hit $99.23 per share. Had I held onto this investment, I would have had almost $100,000.
This investment has haunted me for years. I have been looking for my next “AMD” investment for years. I believe I have found it here with Genius Brands. This is my largest and highest conviction investment in over 4 years.
My Past Investments
I have made some smaller trades over the last few years. While I lost money on some, I made money on most.
- Swing Trade on EV SPACs in May 2021
- Hyliion Swing Trade in July 2020
- Boeing & JETS ETF Swing Trade in May 2020
- Blue Chip buying in March 2020
Again, I will restate that I have been wrong in the past on other trades. For example, in 2018 I began investing heavily into GE or “General Electric” stock. After bag holding this for years, I sold it for a loss in 2021.
I am not sharing this with you to “pat myself on the back” or encourage you to jump in on this investment. In fact, I would discourage that.
DO NOT BUY THIS STOCK JUST BECAUSE I DID! DO YOUR OWN RESEARCH!
Use this resource as a means for conducting further research.
Risk vs Reward
Before discussing Genius Brands in depth, I want to discuss Risk and Reward.
“Risk” is the downside potential that an investment has.
“Reward” is the upside potential that an investment has.
I am following a barbell investment strategy with my personal assets. This means that I have a mix of low and high risk assets, without much in the middle.
My lower risk assets include:
- Blue Chip dividend paying stocks
- Crowdfunded real estate
- Physical real estate (I own 2 homes with 20%+ equity)
My higher risk assets include:
- Angel investments into startups
- Speculative growth stocks (GNUS)
Genius Brands Is Risky
I have been actively investing in the stock market for over 6 years now. I have experienced many “ups and downs” over the years. This gives me a much greater risk tolerance than the average retail investor.
Any penny stock, including Genius Brands, has a high degree of speculation involved. Understand that with massive upside comes proportional downside.
Okay, that is all for the disclaimers now, moving on!
What Is Genius Brands?
Genius Brands is a children's entertainment company led by Andy Heyward, one of the most iconic individuals in the cartoon industry.
The company is involved with content development, production, marketing and licensing.
In terms of licensing, this means both licensing content to other streaming platforms as well as licensing their intellectual properties for merchandise.
Genius Brands has a core mission of creating “content with a purpose.”
This means that the content is not only entertaining, but also beneficial for the audience. For example, Warren Buffett's Secret Millionaire's Club teaches children important lessons about money.
Not only does Genius Brands license content to other streaming platforms, they also own and operate their own distribution platform called Kartoon Channel.
This is a 100% free ad supported streaming platform.
Currently, Kartoon Channel is available on Android, iOS, YouTube, kartoonchannel.com and in over 100 million US households via Comcast, Cox, DISH, Amazon Prime, Sling TV, Apple TV, Roku, Amazon Fire and more.
Key influencer partnerships for Genius Brands include:
- Stan Lee's Superhero Kindergarten starring Arnold Schwarzenegger (who is also a Genius Brands shareholder)
- Shaq's Garage (Coming Spring 2022) starring Shaquille O'Neal as well as another show called Baby Shaq (Shaquille O'Neal is also a Genius Brands shareholder)
- Warren Buffett's Secret Millionaire's Club starring Warren Buffet, Bill Gates, Jay-Z and others (which was shown at one of Warren's Annual Shareholder Meetings for Berkshire Hathaway)
- Llama Llama (Licensed IP, they do not own this) starring Jennifer Garner
- Roblox Show (Coming Soon)
Genius Brands reports revenue across four segments; Licensing & Royalties, Television & Home Entertainment, Advertising Sales and Product Sales.
1. Licensing & Royalties
This includes any revenue from licensing and royalties, as the name would suggest.
An example of this would be the show Rainbow Rangers, which is an intellectual property owned by Genius Brands. One of the ways they earn revenue is by letting others use their IP's.
Total 2020 revenue for this segment was $761,832.
2. Television & Home Entertainment
Any revenue generated from offering shows on broadcast television, video on demand or subscription video on demand falls into this category.
Total 2020 revenue for this segment was $1,464,635.
3. Advertising Sales
This includes all ad revenue generated from the Kartoon Channel. The business model here is “free ad supported television.”
Total 2020 revenue for this segment was $253,135.
4. Product Sales
Any revenue generated from product sales based off their IP's falls into this category. Unfortunately, there was almost no revenue to speak of in this segment last year.
Total 2020 revenue for this segment was $2,525.
Genius Brands seems to be following a business strategy of vertical integration. This is when one company is in charge of multiple stages of production, whereas it would ordinarily be handled by multiple companies.
For example, rather that hiring out marketing, they have in house marketing with Chizcomm.
The CEO of the company Andy Heyward breaks this down into what he calls the “3 Pillars of Value Creation.”
- Growing Portfolio of Brands
- Global Consumer Products and Distribution
- Owned Distribution Platform
Rumor/Opinion: Many people believe that Genius Brands could be an M&A (merger and acquisition) target. This would mean that a company would likely just buy them out. However, in my opinion, Andy wouldn't create a vertically integrated business if he was looking to be acquired. That is just unnecessary complication. A logical purchaser of Genius Brands would be Disney, seeing as they own most of Marvel at this point. Genius Brands has one of the last “puzzle pieces” that Disney might be interested in. In numerous episodes of Superhero Kindergarten, lawyers from Disney show up as characters. Based on the rhetoric in the show, it is my opinion that they may not have the best relationship. However, Disney has been running ads on Kartoon Channel. This has not been verified or confirmed by Genius Brands.
Who Is Andy Heyward?
Andy is what the kids call “a pretty cool cat.”
Actually, I have no idea what kids are saying these days. Either way, I like the guy.
Note: I've reached out to Andy on Instagram on numerous occasions and I have never heard back from him. I have had absolutely 0 communication with Andy. I just wanted to make this clear from a credibility standpoint.
Andy Heyward is the former CEO of DIC Entertainment, an animation production company. Fun fact; DIC Entertainment was purchased by Disney in 1996. Then, in 2000, he bought it back with the help of two venture capital firms. In 2008, DIC Entertainment was acquired by Cookie Jar Entertainment. The studio was rebranded as Cookie Jar. Now, it is called WildBrain.
Rumor/Opinion: Perhaps Andy was not happy with Disney? Could this be why they have not merged with Disney yet? Again, the rhetoric of the Disney Lawyer's in SHK could suggest that they do not have the best relationship. This has not been verified or confirmed by Genius Brands.
Andy's TV Show Portfolio
Here's a mega-list of the most popular shows that Andy Heyward was involved with:
- Shaq's Garage (Coming Spring 2022)
- Stan Lee's Superhero Kindergarten
- Thomas Edison's Secret Lab
- Stan Lee's Mighty 7
- Warren Buffett's Secret Millionaire's Club
- Strawberry Shortcake
- Trollz (TV Series)
- Inspector Gadget
- Sabrina's Secret Life
- Sailor Moon
- Sonic The Hedgehog (TV Series)
- Swamp Thing (TV Series)
- Captain Planet
- G.I. Joe (TV Series)
- Super Mario World (TV Series)
- Bill & Ted's Excellent Adventures
- The Real Ghostbusters (TV Series)
- The Wizard of Oz (TV Series)
- A.L.F. (TV Series)
- Dennis the Menace (TV Series)
- Hello Kitty's Furry Tale Theater (TV Series)
- The Adventures of Teddy Ruxpin (TV Series)
- The New Archies (TV Series)
- Care Bears (TV Series)
Andy is probably the most well known and respected individual in children's entertainment. He started his career working for Hanna-Barbera in 1975 as a writer. He worked directly under Joe Barbera. Andy wrote for shows like Scooby Doo, Yogi Bear and more.
My Position In Genius Brands Stock
I started dollar cost averaging into shares of Genius Brands in 2021.
- My total position in Genius Brands is 53,192 shares. Most of this exposure is via equity, some is through options.
- I invested a grand total of $100,928.50 into the stock and some call options.
- My cost basis on this investment is $1.90 per share.
Again, keep in mind that there is a high degree of speculation with any penny stock investment. You should not invest any more than you are willing to lose. My risk tolerance is significantly higher than the average retail investor out there.
Genius Brands Strategic Partnerships
Andy Heyward is very well connected, as he has been involved with the children's entertainment space for many decades.
Here are the most relevant partnerships to date.
Alibaba + Genius Brands
Genius Brands is partnering up with none other than Alibaba for the new animated series Superhero Kindergarten.
- Alibaba has a huge streaming service called Youku
- Genius Brands and Youku are co-producing episodes of Superhero Kindergarten in mandarin Chinese
- “Youku is one of the most innovative media platforms in the world with an unparalleled ability to integrate entertainment and commerce.” – Andy Heyward
Marvel is extremely popular in China. Stan Lee's Superhero Kindergarten should do very well on the Youku streaming app.
Roblox (Tankee) + Genius Brands
Genius Brands and Tankee have been working on a Roblox show for Kartoon Channel.
- This show will be exclusively on Kartoon Channel
- The series launched in June and will include 12 episodes from top Roblox influencers
- “Roblox has become a phenomenon that has captured the attention of children across the globe, and we are thrilled to be working with Tankee to develop and share new episodes in order to meet the growing demand from viewers.” – Jon Ollwerther
Minecraft (Tankee) + Genius Brands
In another partnership with Tankee, Genius Brands also has original Minecraft content available.
- Tankee is a destination for children ages 6 to 12 to enjoy safe gaming videos
- This aligns with Genius Brands and their overall mission of “content with a purpose”
- Genius Brands will be releasing 75 episodes of Tankee Originals, including episodes of a Minecraft series on Kartoon Channel
- “We created Tankee, the free entertainment app for kids 6-12, to give kids the videos they love from their favorite games like Minecraft while helping parents protect their kids from inappropriate content. We share in Genius Brands’ mission to give kids entertaining and age-appropriate shows in a safe environment and couldn’t be more thrilled to see Tankee’s original programming on the award-winning platform.” – Gerald Youngblood
Rumor/Opinion: YouTube Kids + Genius Brands
According to an interview with Benzinga and Andy Heyward (which I watched live) there was a rumor about a deal between Genius Brands and YouTube Kids.
This has not been verified or confirmed by Genius Brands.
- “We have historically done business with YouTube Kids and value our relationship with them.” – Andy Heyward
YouTube has been in hot water in recent years over what is and is not “children friendly content.” It would be great for them to parter with Genius Brands. Superhero Kindergarten has already gotten over 40 million views on their YouTube channel.
Nickelodeon + Genius Brands (Class Action Lawsuit)
Nickelodeon is owned by Viacom. They had a deal with Genius Brands for the show Rainbow Rangers.
- Back in 2020, Nickelodeon licensed Season 1 of Rainbow Rangers for Nick Jr
- “From the beginning, we knew we had a special and unique new series for preschoolers that delivers values-based entertainment for children around the world. Needless to say, leading broadcasters like Nickelodeon don’t make schedule changes of this magnitude without good reason, and we are thrilled that they continue support Rainbow Rangers heading into year two.” – Andy Heyward
However, Nickelodeon was not happy with this press release from Genius Brands and a few others.
There is actually a class action lawsuit about this. Investors who purchased shares between March 17th 2020 and July 5th 2020 are able to seek damages. No clue if this will go though. It does not impact me as I only started buying shares in 2021. Still, this is relevant information for you.
The lawsuit continues to allege that Genius Brands made false and misleading statements about Nickelodeon's claimed broadcast expansion of Genius Brands' Rainbow Rangers cartoon, as well as its growth potential and overall prospects as a company.
The argument here is that Genius Brands repeatedly mentioned the Nickelodeon deal in a series of press releases. That, in turn, could have impacted the share price. So, if you feel like you were misled by these press releases, you can join that class action lawsuit.
It is unclear how this will affect Genius Brands and their relationship with Nickelodeon. Recently, Genius Brands gave Season 3 of Rainbow Rangers the “green light.”
In the meantime, Season 1 of Rainbow Rangers was added to Netflix in July 2021.
They also announced a deal with Amazon Prime Video and Rainbow Rangers. Wow.
At this time, it is unclear whether or not Nickelodeon will be licensing the new season of Rainbow Rangers. However, even if they do not, Netflix and Amazon Prime are already interested in at least the first season.
Moving on now…
Stan Lee POW! Entertainment + Genius Brands
And now, for arguably the most important deal they have, let's discuss the POW! Entertainment joint venture.
- Genius Brands has established a JV with POW! Entertainment related to Stan Lee
- Through this deal, Genius Brands acquired the post-Marvel rights (name and intellectual property) of “Stan Lee”
- In addition, this deal included over 100 unexploited (unreleased) Stan Lee works
- These works will be released under the new “Stan Lee Universe”
- “the Stan Lee Universe joint venture will hold the worldwide rights to the name, physical likeness, physical signature, live-action and animated motion picture, TV, online, digital, publishing, comic book, merchandising and licensing rights to Stan Lee and his IP creations.” – Hollywood Reporter
- “It’s almost impossible to conceive that one mind created all this wealth. The spinoffs alone defy the imagination. From animated television, to toys, apparel, video games and every conceivable licensed product imaginable, Stan Lee characters populate the screens and retail shelves worldwide. There is no creator who has influenced pop culture and created more successful entertainment.” – Andy Heyward
- Terms of the deal have not been disclosed, meaning we do not know what percentage of this joint venture Genius Brands owns
- However, according to this press release, Genius Brands has control over the venture
- “Stan Left behind approximately 100 properties that he created after he left Marvel. When we looked ‘inside the box’, we felt it was like we found 100 songs written by Lennon & McCartney that nobody had ever seen before.” – Andy Heyward
This is the most exciting deal they have right now in my opinion. They now own one of the last pieces of the Marvel puzzle that Disney does not own. For reference, Disney purchased the Marvel IP's in 2009 for $4 billion.
The Stan Lee IP collection will be built from all characters and IP created by Lee outside of Marvel Entertainment, now owned by The Walt Disney Co.
Rumor/Opinion: In an interview between Genius Brands CEO Andy Heyward and Benzinga, the topic of NFTs was discussed. These are non-fungible tokens, or digital collectibles. Genius Brands is in a position where they could profit from the sale of Stan Lee related NFTs. Andy also addressed NFTs in his annual letter to shareholders. However, Andy said they are being very cautious about this. I do not expect this to materialize for a long time (years), if it even does.
Rumor/Opinion: Will Stan Lee be coming back in AI Form? Stay with me on this one. Recently, The Simpsons did a short skit related to Loki. The interesting thing here is that they asked for permission to use the likeness of Stan Lee in the skit and the answer was “no.” Stan Lee's cameos have become a classic. It is strange that they did not allow The Simpsons to use his likeness. However, they did offer them some music and other resources to use in the skit. The only insight offered from Marvel on this was a statement that said Stan Lee does not cameo now that he is deceased. Which makes sense… except for the fact that he IS cameo-ing in Superhero Kindergarten in almost every episode. Stan Lee also showed up as a cameo in Wandavision a Disney+ series. So Marvel/Genius Brands ARE allowing cameos, just not certain ones. Why? Well, in the cameo within Wandavision, Stan Lee shows up in a car with the license plate “122822” which is his date of birth. That was because the 100th anniversary of Stan Lee is December 28th 2022. Is this a clue of something big to come? That is up to you to decide. Andy did mention that Stan Lee will be returning in A.I. on his 100th birthday under a project called EXCELSIOR 2022.
Chizcomm + Genius Brands
- This is the LARGEST kids marketing and media buying agency in North America
- Chizcomm manages the media and marketing efforts for over 30 leading toy companies
- 33% of all dollars spent on kids television are attributed to Chizcomm
- Through Chizcomm, they now have important connections with Viacom, Warner Media and Disney
- For reference, Viacom owns Nickelodeon and Warner Media owns Cartoon Network
Back to the topic of vertical integration, this ties right in. Rather than relying on a separate marketing agency, Genius Brands now has in house marketing services for their shows. Beyond that, they can leverage existing relationships that Chizcomm has to benefit Genius Brands.
Stan Lee's Superhero Kindergarten
This show that Genius Brands produced has been a blowout success. Arnold Schwarzenegger (who is also a GNUS shareholder) stars in this.
- The show premiered on April 23rd on YouTube and the Kartoon Channel app
- Since the premier, the show has been viewed over 40 million times on YouTube
- Viewership and other metrics on the Kartoon Channel app are largely undisclosed, but we will get more information in the Q2 earnings report which will show us data for April-June 2021
- “Over 40 million views in just a few short months is an incredible achievement, and I am so honored by this reception. I want to thank the entire team for the fantastic work. I know Stan Lee himself would be so proud. We have 15 more episodes left in our first season, so this is just the beginning! Be sure to tune in, only on Kartoon Channel, “That’s Kartoon Channel! with a ‘K!’” – Arnold Schwarzennegger
- According to this press release, 11 episodes have been released so far with 15 more coming this year
- New episodes go live on most Friday's (sometimes they skip or do a re-run on holiday weekends)
- In the press release, they credit Superhero Kindergarten with bringing in a greater than 900% increase in unique users to the Kartoon Channel ecosystem
- It is unclear whether or not they are referring to the YouTube channel itself or the app/website
It's hard to put into words how massive this is for Genius Brands and adoption of the Kartoon Channel app. In each episode on YouTube, they include mentions of the free Kartoon Channel app. So every one of those viewers has at least been made aware of the app. The question is, how many downloaded it?
Also, kudos to Andy or someone on his team for this GENIUS idea (pun intended). They actually took some of the episodes of Superhero Kindergarten and ran them as ads on YouTube. The funny thing is, most kids did not realize that it was an ad and they watched the whole thing! Parents actually took to social media to share their confusion with these ads.
To me, this makes a lot of sense. I know YouTube quite well. If people engage with the content, it will continue to be recommended to them. I think this is exactly what they were going for here.
I'd like to talk specifically now about the viewership over on YouTube. This data is courtesy of SocialBlade.
I've actually been tracking the viewership in a separate spreadsheet.
Here are my findings…
- March 2021: 134,402 Views
- April 2021: 3,974,347 Views
- May 2021: 21,130,794 Views
- June 2021: 12,592,656 Views
- Last 30 Days (As of 6/18/21): 16,798,000 Views
The growth of viewership on this YouTube channel is unreal. To go from 100,000 views to 20,000,000 views in 2 months is monumental. Beyond that, viewership over the last 30 days is higher than the total for June, indicating that viewership should remain strong.
Less than half of the episodes have been released to date!
Rumor/Opinion: I went ahead and did a rough estimate for the ad revenue in June 2021. According to my research, kids channels earn a CPM (rate per 1k views) of around $3. Based on checking multiple videos, it appears the entire Kartoon Channel on YouTube is monetized. Based on the June numbers, at a $3 CPM it is possible that they earned around $63,000 just from ad revenue. Again, this is an assumption based on my knowledge of YouTube. This has not been verified or confirmed by Genius Brands.
In this section, I will be including an ongoing list of all media appearances related to the show.
- Arnold discussing Superhero Kindergarten on the Jimmy Kimmel Show
- Arnold on The Kelly Clarkson Show discussing SHK
This is the name of the distribution platform for the content that Genius Brands own. It is basically available everywhere for free right now.
- In the iOS store, Kartoon Channel has a rating of 4.9 stars across over 7,300 reviews
- In the Google Play store, Kartoon Channel has a rating of 4.7 stars across over 900 reviews
- Kartoon Channel is available on the following platforms: Roku, Amazon Fire TV, Apple TV, YouTube, TikTok
- The streaming platform is also available on the following VOD platforms: Dish, Sling, Comcast Xfinity, Amazon Prime Video, COX and Xumo
- Genius Brands shows are now available on the following streaming platforms via licensing deals: Nickelodeon, Amazon Prime Video, Netflix, Dooya, Tubi
- According to their site, Kartoon Channel is coming soon to: Redbox, PLEX, IMDbTV and SelectTV
Technical Stock Analysis
I actually started off my “career” in the stock market as a swing trader. This is where you study chart patterns in order to identify short term opportunities within the market. While my strategy has shifted towards a more long term approach, I still rely on some technical analysis to identify entry points.
Here's the daily candlestick chart for Genius Brands as of July 18th 2021.
- Genius Brands has breached the 200 Day SMA 4 times in recent history (red line)
- In March 2021 it dipped to ~$1.55 before running to ~$3 a gain of 93.5%
- In late April 2021 it dipped to ~$1.45 before running to ~$1.90 a gain of 31%
- In mid May 2021 it dipped to ~$1.35 before running to ~$2.30 a gain of 70.3%
- In mid July 2021 it dipped below the 200 Day SMA again and appears to have bottomed out at ~$1.50
- In the past, each time GNUS crosses the 200 Day SMA it begins a new uptrend
Here's the weekly candlestick chart on Genius Brands as of July 18th 2021.
- The weekly chart goes back to May 2019
- In this chart, it appears we are forming a “pennant”
- A similar chart appeared with other high short interest stocks such as AMC
- Based on the longer term trend, it would appear this is a bullish pennant
GNUS + AMC Stock Correlation
Having studied the chart on Genius Brands for months now, I have noticed that Genius Brands is heavily correlated with AMC stock. The only real common link between these stocks is the high degree of short interest.
Just to be clear… this chart alone DOES NOT MEAN THE STOCK WILL GO UP!
Don't be an idiot.
Citadel “Hedge Position” In GNUS
In a recent video on my channel, I was digging into the data on Fintel.
What I found out is that Citadel, one of the biggest hedge funds shorting AMC, has a large position in Genius Brands.
According to Fintel, Citadel Advisors LLC owns over 1,600,000 shares of Genius Brands. They also own around 700,000 Put and Call options on the stock.
Rumor/Opinion: Is Citadel using this position in GNUS as well as positions in other stocks like BLNK, CLOV and GOGO as a hedge against AMC skyrocketing? In theory, if one high short interest stock squeezes, won't the rest? If this is the case, it would make sense for Citadel to own shares as a hedge. Time will tell. However, Citadel also owns over 700,000 Put options on Genius Brands. This could be an indication that they expect the price to go down. They have around 700,000 Call options as well. This has not been verified or confirmed by Genius Brands or Citadel.
Fundamental Stock Analysis
Where I spend the greatest deal of my time when conducting research on stocks is reading over financial statements. This all falls under the category of fundamental analysis.
Remember how Andy Heyward is close friends with Warren Buffett? Well, I think his buddy may have given him some advice on how to manage a company.
- When analyzing the financials, you look at three core documents; balance sheet, income statement and cash flow statement
- The income and cash flow statements have little to no value, that is because this company has almost no revenue to speak of
- Total revenue for 2020 was less than $2.5m
- As mentioned earlier, Genius Brands is focusing on building out the business, not generating revenue right now
- However, if you look at the balance sheet, there are some very positive metrics
- Genius Brands has a remarkably large cash pile with almost no debt to speak of
I have been a fan of “cash cow” businesses for a long time. In the past, I have owned stocks like Facebook, Amazon and Google that have massive cash piles and done quite well with them. I still own Apple and Microsoft, two massive companies with mega cash.
One of the biggest risks associated with penny stocks is the minimal or non-existent revenue. While that is a concern here with Genius Brands, the cash and debt situation alleviate that for me. They are in a position where they can invest heavily into the business, original content and licensing content for Kartoon Channel.
Almost every week, new shows are added to Kartoon Channel. The most recent addition was 50+ episodes of original Yu-Gi-Oh!
Balance Sheet: $100M+ Cash Cow
All of this information is from the Genius Brands Q1 2021 Earnings Report.
- Cash & Cash Equivalents: $143,612,749
- Total Assets: $205,792,963
- Long Term Debt: $3,543,845 OR $0
- Total Debt: $30,111,146
In fact, Genius Brands technically has $0 in long term debt. The only item listed is “deferred revenue.” This is the advance payment for products or services to be delivered in the future. In this case, the bulk of this is a $3.37m remaining balance owed to them from Sony. For accounting purposes, this goes under long term debt.
So the reality here is that Genius Brands is sitting on a mountain of cash with no long term debt. For every $1 that Genius Brands has in debt, they have about $4.76 cash in the bank (as of Q1 2021 Earnings).
Genius Brands Short Interest
It is also worth mentioning that Genius Brands has a high degree of short interest. You can view this here on Fintel.
According to Fintel, as of July 18th 2021 Genius Brands had 35.75% short interest.
According to High Short Interest, a site that aggregates heavily shorted stocks, this would make GNUS the 2nd most shorted stock right now… why isn't it listed though?
To tell you the truth, I have no idea. Over on Yahoo Finance, the Short % of float as of July 18th is 17.34%?
If anyone knows the difference between the Fintel data and the Yahoo finance data, please email me.
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Stocks with high short interest are often very volatile and are well known for making explosive upside moves (known as a short squeeze). Stock traders will often flock to such stocks for no reason other than the fact that they have a high short interest and the price can potentially move up very quickly as traders with open short positions move to cover.
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Back in 2020, Hindenburg Research came out with a short thesis on GNUS after publicly shorting the stock. You can read it here.
I would encourage everyone who owns Genius Brands to read the report. I find it comical because almost every argument they had against the stock ended up being baseless.
That begs the question… why are they still shorting the stock?
- In 2020 shares of Genius Brands soared more than 20x on a series of press releases from Andy Heyward
- These press releases outlined plans for the Kartoon Channel app as well as the release of Stan Lee's Superhero Kindergarten
- Solely looking at the revenue multiple, seeing as Genius Brands has made almost nothing, they felt the stock was tremendously overvalued
- They shorted the stock with the thesis that it would soon return to $1.50 per share
- As of writing this article, the stock is still trading around this price level over a year later
- Hindenburg Research believed that Rainbow Rangers would not be renewed on Nickelodeon and that the show would be cancelled
- They also pointed out that Genius Brands does not own the intellectual property for the show Llama Llama, they license it
Overall, these were the three arguments that Hindenburg research had against Genius Brands when they began shorting them in 2020.
I'd like to update you on how things panned out.
1. Llama Llama isn't owned by Genius Brands
This argument here was totally valid. Genius Brands does not own the intellectual property of Llama Llama. Based on 2020 revenue, the economic benefit to licensing this show is clearly negligible.
However, since then, Genius Brands has had massive success with Rainbow Rangers and Superhero Kindergarten, both shows where they actually own the IP.
Not to mention, there are numerous shows in the pipeline with big potential that will be owned by them, such as Shaq's Garage and Baby Shaq.
2. Rainbow Rangers has an uncertain future
Oh how this did not age well…
The whole argument here was that Nickelodeon was not happy with the show Rainbow Rangers.
Hindenburg research actually had someone checking the programming schedule and they found out that the show was only airing in the middle of the night. Based on this, they felt the future of the show was uncertain.
Since then, Netflix picked up Season 1 of Rainbow Rangers and Amazon Prime Video added it to their roster.
The show was not canceled. It was just given the green light for Season 3. However, it is still unclear whether or not Nickelodeon will renew.
Still, I feel this entire argument is now invalidated based on the fact that Netflix and Amazon are now interested in the show.
3. Superhero Kindergarten has been in discussions for a decade
I actually do feel a little bad for the shorts here. Andy did have a long history of “blowing smoke.”
That's the whole premise behind short selling. You find a scenario where an individual is inflating the value of a stock with no underlying fundamentals to back it up.
So, these short sellers thought that Andy was once again just blowing smoke with the slated release of SHK. However, the show did come out on April 23rd 2021.
As mentioned earlier, it has already amassed over 40m views on YouTube.
Based on the hundreds of hours of research that I have done, I have not found a concrete reason to short sell (or continue short selling) Genius Brands.
My plan is to hold most of these shares for years to come. I may take some profits at $3 to rebalance.
As mentioned earlier, allow this article to be a resource for further research. This should not be an “end all be all” article. Get other opinions from different sources.
I would highly recommend joining the Genius Brands Subreddit to talk with investors including myself. Feel free to mention this article!
Lastly, feel free to bookmark this and check back often as I will be adding to this over time.