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Genius Brands Isn't as Smart as It Thinks It Is

By Rick Munarriz – Jul 7, 2020 at 12:17PM

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A small media company takes a hard fall after an "exciting" development that isn't very exciting.

When you take on the role of being your own hype machine, no one should be surprised when reality falls short of the promise. Shares of Genius Brands (GNUS 0.46%) plummeted 25% on Monday and opened another 17% lower on Tuesday after failing to wow investors with a new content announcement that it had been touting since late last week. 

The slide undoes the stock's 54% surge on Thursday (the final trading day of last week) that came after Genius scheduled a conference call for Monday morning this week to discuss what it pitched as an "exciting business development." It turned out to be "business development," but the market is arguing that the choice of "exciting" as an adjective wasn't exactly warranted.  

A bored woman on a chain with a remote control looking for something to watch.

Image source: Getty Images.

Taking a Stan

Genius Brands is creating a joint venture with Stan Lee's POW! Entertainment to create Stan Lee Universe, a platform that will try to cash in on over 100 unexploited properties created by Lee's company long after he had moved on from the development umbrella of Disney's (DIS 1.46%) Marvel. Lee was great, and there's no denying the legendary status of the now deceased comic book creator. The problem here is that investors (or perhaps in Genius Brands' case, its speculators) were holding out for more.

Genius, a small animated-media company, had already partnered with Lee's company for Stan Lee's Superhero Kindergarten, an action-adventure cartoon series for kids ages 4 to 7 to promote health and fitness. Even with Arnold Schwarzenegger as the voice talent of the series, it's fair to say that you've probably never heard about it since last year's launch. This isn't a series featuring a pint-sized Spider-Man, Black Widow, or Captain America doing crunches and learning to brush their teeth as they work through rudimentary math problems. Disney's Marvel owns the Lee characters that you know.

Lee's name is valuable, of course, but do you think that POW! Entertainment would turn to Genius Brands (a small player with less than $6 million in revenue last year) if it could've partnered with an actual media giant to provide the exposure and deep pockets a series needs to stand out these days?

Genius Brands isn't worthless. It already has properties in place with popular kid-facing media platforms. But at the end of the day, there's a reason Disney and other established media stocks aren't the ones at the helm of this joint venture. Genius talks a good game with its glowing press releases, but for now it's one of the countless media upstarts out there still angling for its first hit property.  

A thin float and buzzy announcements may have drawn in young speculators chasing low-priced stocks, but that's not the way the market or Hollywood works. It was easy to see that the announcement wouldn't live up to the pre-announcement. It doesn't take a genius (or a Genius) to figure that one out.

Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends 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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