Please ensure Javascript is enabled for purposes of website accessibility

Genius Brands Fights the Hype Machine It Started

By Rick Munarriz – Aug 21, 2020 at 11:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A small media company attacks its attackers. If you live by the hype, you die by the hype.

With its stock price plummeting and class action lawsuits mounting, Genius Brands (GNUS -0.15%) is starting to fight back. The creator of animated content for children issued a press release on Friday, calling out the recent wave of litigation as a distraction that will force it to dedicate time and resources to the legal fisticuffs instead of focusing on growing its business. 

"The lawsuit is meritless and we will vigorously defend ourselves against this hollow accusation," Genius Brands responds in Friday morning's press release. 

Naturally, Genius Brands is right to defend its honor. One wouldn't expect anything less. However, with the stock plummeting after a brief spike in early June, it's going to be a long and challenging road back for one of Wall Street's more volatile investments in recent months.

A man holding up an open suitcase with dollar bills flying out.

Image source: Getty Images.

Animated response

Many of the class action investigations are accusing the company of securities fraud or other unlawful business practices, largely stemming from overhyping its position in the industry and the significance of announced developments. 

Even Genius Brands' Friday press release defending itself seems to be contributing to the misrepresentation. It concludes by calling itself a "leading global kids media company" in its company description, a stretch for a company that hasn't generated more than $6 million in annual revenue since 2012 -- and with its top-line results declining through the first half of this year relative to the same six months a year earlier.

Genius Brands talks a big game, but it's a small player -- at least for now. It has captured the imagination of investors on Robinhood, making it one of the 100 most widely owned stocks on the trading platform despite its thin financial results and uninspiring past. While it has had some minor hits along the way, including Rainbow Rangers, there's no reason to believe that the recent launch of Kartoon Channel! and its partnership with Stan Lee's POW! Entertainment will deliver material results in a very crowded market. Fears of Genius Brands flooding the market with more float after its initial June surge didn't help. Building up a major upcoming announcement in early July that failed to live up to expectations was another pressure point with investors. 

"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," I argued last month. Genius Brands is now attracting the wrong kind of attention to its hype machine.

The good news here is that class action lawsuits are rarely fatal. Genius Brands has time to develop into the "leading" media stock it bills itself as these days. It just needs to tone down the hype before more speculators cosplaying as investors get hurt.  

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Genius Brands International Stock Quote
Genius Brands International
GNUS
$0.75 (-0.15%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.