Shares of Genius Brands International (NASDAQ:GNUS) plummeted on Tuesday, continuing their brutal downward slide in recent days. As of 2:35 p.m. EDT, Genius Brands' stock was down more than 17%.
It's been a wild ride for Genius Brands' investors in 2020. By June 3, the children's entertainment company's stock price had soared a staggering 2,800%. Since that time, however, shares have shed nearly half their value.
Genius Brands has become a battleground stock. Bulls point to the upcoming launch of the company's new free, ad-supported digital service, the Kartoon Channel!, which is scheduled to go live on June 15. They highlight Genius Brands' toy deal with Mattel for its Rainbow Rangers series, which is slated to be in Walmart stores by August. And they note that Genius Brands recently brought on some top-tier talent in Margaret Loesch -- the former founding president and CEO of Fox Kids Networks Worldwide who will serve as Executive Chairman of Kartoon Channel! -- and David Neuman, the former president of Walt Disney Television, who will serve as chief creative officer.
However, bears, such as Hindenburg Research, note that Genius Brands recently raised capital at levels far below its current price, and they argue that shares are now trading at unjustified levels based on the company's current sales and mounting losses in recent years. The bears also point to recent insider selling -- and that millions more shares from financing rounds are set to become free to trade in the coming weeks, which could put further pressure on Genius Brands' stock price.
The bears have been in the driver's seat in recent days, and that's a trend that could continue in the days ahead. Genius Brand's sales and (lack of) profits do not support its stock's current valuation. Moreover, there can be no assurances that its new Kartoon Channel! will be a success. While a free, ad-supported model could have potential, there are plenty of low- and no-cost options that kids and parents can choose from, including Netflix ($8.99 per month), Disney+ ($6.99), Prime Video -- which is included in Amazon Prime memberships -- and YouTube, which is free. It won't be easy for Genius Brands to wrestle away viewers from those heavyweights -- and many bulls may be overestimating its odds of long-term success.