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Why Genius Brands Stock Skyrocketed Today

By Jeremy Bowman – Jul 2, 2020 at 4:06PM

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Shares of the children's entertainment company rose in anticipation of a surprise announcement Monday.

What happened

Shares of Genius Brands (GNUS 3.46%) were soaring today after the company said this morning that it would hold a conference call on Monday morning "to discuss an exciting business development." It was unclear what that was referring to, but the news sparked plenty of speculation on Twitter and a subsequent run-up in the stock.

After jumping as much as 71% in afternoon trading, the stock was up 46% as of 2:38 p.m. EDT.

Several cartoon characters from Superhero Kindergarten in front of a school bus.

The Superhero Kindergarten show. Image source: Genius Brands.

So what

The maker of children's video entertainment has become a darling of day traders on Robinhood and elsewhere during the pandemic, as the at-home entertainment provider is seen a beneficiary from the crisis. The stock has rallied in recent weeks as the company has launched its own channel -- The Kartoon Channel -- and formed a strategic partnership with Arnold Schwarzenegger, who became an investor in the company and will also lend his voice to a character in Superhero Kindergarten.

The stock rallied from just $0.25 a share in April to nearly $12 a share in early June and has since pulled back to around $3 a share. 

Some speculated on Twitter that the company may announce a partnership with a larger entertainment company like Disney or Netflix, or that it will release better-than-expected subscription numbers from The Kartoon Channel. Critics also accused CEO Andy Heyward of pumping the stock.

Now what 

At this point, an investment in Genius Brands is clearly not for the faint of heart. There's little track record for investors to go on as the company had an operating loss of $6.5 million last year on just $5.9 million in revenue. Its results for the first quarter were even worse as its revenue is highly volatile, depending on programming sales to broadcasters like Netflix.

The success of The Kartoon Channel could justify another run-up in the stock price, but Genius Brands is currently valued on a purely speculative basis, trading at more than 100 times last year's sales. Long-term investors are better off skipping this one.

Jeremy Bowman owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Netflix, Twitter, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Genius Brands International, Inc. Stock Quote
Genius Brands International, Inc.
$0.63 (3.46%) $0.02
Netflix, Inc. Stock Quote
Netflix, Inc.
$245.20 (9.29%) $20.84
The Walt Disney Company Stock Quote
The Walt Disney Company
$99.40 (3.70%) $3.55
Twitter, Inc. Stock Quote
Twitter, Inc.
$43.25 (2.76%) $1.16

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