CuriosityStream: What Investors Need to Know

In this episode of Industry Focus: Consumer Goods, host Emily Flippen is joined by Motley Fool analyst Asit Sharma to talk about CuriosityStream (CURI -2.78%), one of the newest video-on-demand subscription services to hit the public markets. It is the newest, but it is the best? Find out more about this unique play on subscription streaming.

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This video was recorded on February 16, 2021.

Emily Flippen: Welcome to Industry Focus. Today is Tuesday, February 16th, and I'm your host, Emily Flippen. Today, I am joined by Motley Fool analyst Asit Sharma. Asit, [laughs] did I get your new title correct?

Asit Sharma: You did, Emily, I have made a Foolish leap. As yet, I don't know if that's going to be with a capital F [laughs] or a lowercase f.

Flippen: Hopefully, a capital F.

Sharma: [laughs] I made the leap. Hopefully, yes, from writer and editor, podcaster, guest on Live, to being an analyst on the investing team. I'm really thrilled because of all the many things it means for me, personally, it also means that I have more access to you and other great analysts without feeling guilty like, "Maybe I'm bothering them. I'd like some time to throw some ideas around, now that's going to be part of my job." We were chatting last week, Emily, and we put some time on your calendar and talk shop. That, to me, is the most thrilling thing about this new position.

Flippen: I'm so excited to officially have you on the team. For the record, you or anybody reaching out is never a bother, it's always so much fun, especially to talk stock with people I work closely with. But when you say you're an analyst who is doing stock research for our services, I don't know the boundaries here, but can you tell us what you're working on?

Sharma: Yes. I am going to be working with the Discovery team. This is, unfortunately, but fortunately for the future, it's not the team that you work on, or you spend, I guess, 90%, [laughs] 95% of your energy in which is an extreme opportunity. But I'll be working on a number of different services that we have, subscription services. We'll be starting out with just a couple, just helping out. Then, as we expand offerings, I will probably plug into some more of those. That's what I'm up to for now. I am going to be reporting to Ron Gross, the wonderful analyst. I can already tell he's a super manager. I'll have more to share as we go along, but I'm going to need some time for the dust [laughs] to settle. Right now, it's like a cafeteria style thing, I'm going to sample different services and we'll take it from there.

Flippen: Let the record show your first official day, I believe. Although you've been at the Fool for a very long time, your first official day as an analyst was on Friday which makes today, Tuesday the 16th, only your second day of full-time work. So I really appreciate you taking your time. I'm sure you're really busy, but you're still going out of your way to join us here on Industry Focus. I appreciate that, and I know our listeners appreciate that as well.

Sharma: Absolutely. This is one place that I want to be week-in, week-out, as you know. For me, it was nothing but making sure I can join and I said, "Yes." [laughs]

Flippen: The company that we're going to talk about today is actually one, speaking of your work on Discovery, is a business that you've looked at as part of your research on that team, have dug into much more deeply than myself, and it's one that I, excused upon, am extremely curious about. That's a recent company that went public via a SPAC, CuriosityStream. I have to admit, before you messaged me, I had actually never heard of this business before. As we're taping here live on Motley Fool Live, I'm curious for our live audience, head into Slido and tell us if you've ever heard of CuriosityStream. I'm really interested to see how popular this service is, simply just because I had never heard of it. But Asit, what can you tell us about CuriosityStream?

Sharma: Curiosity stream, Emily, is a company that works in streaming video-on-demand. This is something that we, I think, take for granted in this day and age because for most of us, that's almost all the we watch, streaming services in one form or another, maybe from YouTube, where you're watching a show, even my PBS Masterpiece Theatre [laughs] mystery show that I watch on Sundays is streamed content. However, this company has a different take on it, which we'll get into in a moment. But before we tell you exactly what that take is, I'd like to talk a little bit about the founder. You did a great job last week, taking us through the narrative of the company that we were looking at. So, I'm going to try to do something similar. I might drone on for two or three minutes, but I'll try to stop and then we'll take stock.

This company was created by John Hendricks and he is the founder of the Discovery Channel. Understanding how this gentleman took a really small idea and created a media empire over a period of years, I think, is critical to understanding the potential of CuriosityStream, which we're looking at today. Hendricks founded the precursor to the Discovery Channel in 1982. He was a young graduate of the University of Alabama. That was called the Cable Educational Network. With a name like that, how can you lose, Emily? [laughs] The network's goal was to produce documentary and educational programming on television. He went out and I assume that John Hendricks was pretty well-connected because he raised $5 million, which was a decent chunk of money back in the early '80s. He launched, a few years later, the Discovery Channel with that $5 million. This was a really small and fledgling channel that was beset by different challenges. First, they could only rely on licensed content. That seems like an advantage, because the licensed content has a bigger profit margin than content that you create, original programming. It almost seems strange today to me in the age of Netflix, 35 years later, that you would only operate on initial licensed content, but that's what they did.

This had a few problems with it because first, they had like a revenue concentration with certain customers. They only had a small group of subscribers to begin with, 165,000 subscribers. In no time, they found themselves owing $1 million to the BBC with almost nothing in the bank. I think they had $5,000 in the bank. John Hendricks scrambled around and he was able to convince a number of cable companies, including Cox Cable and Newhouse Broadcasting, which if you remember, the cable age, these were big names back in the day. He encouraged them to invest in the company and they took the bait and really capitalized the company. Finances settled, and from there, the Discovery Channel started to mushroom. In 1986, it was up to seven million subscribers, then they added overseas programming. They added live programming. Their subscriptions reached 30 million in 1986. Remember, this was back before you could advertise [laugh] things on the Internet. There was no Internet. You can understand the power of original fact-based content programming. People had a hunger for it at that time. In 1991, they acquired the Learning Channel for $31 million. To date, Discovery Communications, which is still around, publicly traded, is a media empire. They generate revenues of roughly $10 billion and have a market capitalization of $24 billion. Hendricks stayed on as CEO of Discovery Communications until 2014. In 2015, he launched CuriosityStream, the company we're talking about today, and he's invested about $140 million of his own money in the five to six years since that time.

Flippen: So just a little bit.

Sharma: Yeah, just a little bit of chump change he had [laugh] lying around after running the Discovery empire for so many years. Probably like me, he probably went to the kitchen drawer, because a [...] is there, some change, and had about $140 million lying around, put it in this idea. [laugh] I think one key takeaway here, as I come to the end of the story, Hendricks grew this really small company, I described it as a fledgling company, into this media giant while watching two really big transitions occur in the entertainment landscape. He watched traditional TV, got a cable, and he participated in that. He watched cable become victim to cord-cutting and the transition to streaming. He witnessed all of that along the way. You have someone who's extremely experienced, has proven himself in the space of really deciding, I want to start over again, but just do streaming content. Finally, the company went public just a couple of weeks ago on February 3rd, via what we were talking about, a SPAC, special purpose acquisition company merger. It's trading, as you mentioned, Emily, under the symbol CURI, it priced at $13.50. Well, when I last looked, and I'm saying [laugh] this because with SPACs, they all seem to be going up. Maybe it's higher, $19.75 this morning. Hendricks retains a 44% ownership in the company and he is going to remain as Executive Chairman while industry veteran, Clint Stinchcomb, is now a CEO.

Flippen: I think it's so interesting that I had genuinely never heard of this business before. I'm already seeing comments come in saying, "Like Curiosity Box?" It's not Curiosity Box. It's its own streaming service and CuriosityStream in general, I think, the name encompasses the type of audience that they're going for. But when I first started to research this business, I have to admit, everything I was looking at, I was comparing to Netflix or Hulu or even Disney+. But in reality, CuriosityStream and Hendricks took a really unique approach with bringing this company to the market. Now, clearly going public via a SPAC after the crazy great year that was 2020, at least for streaming companies, is definitely a favorable timing on their part, but the business itself is actually really interesting. Besides just being an on-demand streaming service, which is that Netflix-esque business model, they actually have four other revenue streams, which actually makes it a really diversified business at the same time. Getting some of the Netflix upside with some of the optionality that you're accustomed to seeing and businesses have different models.

Sharma: Yeah, absolutely. It's interesting, because I was talking with one of my kids about this and he pointed out that they don't have a lot of branding, but he was familiar with this company. I can't believe I came on this podcast [laugh] and I've forgotten this. But next week, guys, I promise, he mentioned a YouTube channel that is fairly fact-based, science-based that does a lot of things that's owned by CuriosityStream. Maybe it could be a generational thing. Emily, I always put you in the generational box of being younger than me, but maybe some people even younger than [laugh] you know about this. I'll be honest now until I researched this company. I had not heard of it. I had not come across it in any other type of media.

As often happens, there's so many sources where you hear stock ideas. I believe our colleague, Auri Hughes, was tweeting this morning about all the different places you can look, 13-F filings, you can do stock screens, trading ideas with other people, and he mentioned Twitter. I first saw this symbol come across my Twitter feed and I decided to look into it. Yeah, this is under the radar. That's my take. Now, maybe some of you in the comments will say, "No, I've been following this company forever. I'm so [laugh] glad it's going public."

How they present this content, they've got six major categories: science, history, technology, nature, society, and lifestyle. It's interesting to me that they've got a content library that's rather newish. In other words, they have about 3,100 titles. Most of these are high-definition, HD, and 4,000K quality titles. This is an edge in the marketplace. They're not the only people that are producing this content, but most of the competition comes from the names you mentioned, Emily. Netflix has some documentaries, and of course, Disney has also some fact-based content. But because they've got a newer catalog, that is a little bit of an edge. Not a competitive moat, but an edge they've got over some competitors.

Flippen: I just want to say Asit, that comment you made about there being people younger, more cutting-edge than myself, normally, I would just roll with it, but that hits my heart a little bit deeper today, because I learned over the weekend that my favorite emoji, the laughing, crying face emoji, apparently is only used ironically by young people now to make fun of the elders, such as myself, the millennials, I'm 26 years old, goodness gracious, but I'm now officially out of the loop on what's cool and trendy. I'm not surprised at all that I'm behind the curve on CuriosityStream.

Sharma: I have heard that as well. I think that emoji that you're used to using a lot also means like roll on the floor laughing if I'm not mistaken?

Flippen: Yeah, same one.

Sharma: But that is apparently also the wrong taken. I also learned that from younger people. I've been quietly laughing at you when you put those emojis. You don't even know what emoji you're using. [laugh] I'm kidding.

Flippen: I've been playing conversations back of my head where I've had with people who are younger than myself thinking, what was the implied emoji use that was going to subtext of my emoji conversation? [laugh]

Sharma: Completely different than you thought you're conveying.

Flippen: [laugh] Well, that tangent aside, CuriosityStream, it's definitely interesting. But what I think is most interesting is not just that it appeals to young people, but that it appeals to every one of all ages. You mentioned they have those different segments of videos. It goes after people who are looking for lifestyle as well as educational content, which has contributed to really diversifying who they can sell this product to, so individuals, people who are interested, curious, I should say, about different aspects of the world. These are the people who can subscribe for that pretty relatively cheap, $3 a month fee to get access to CuriosityStream, or they can get through one of CuriosityStream's partners. YouTube TV, for instance, is a partner of CuriosityStream. If they're a subscriber to that, they can get CuriosityStream content, but also things like corporate partnerships. I could see The Fool at some point down the road subscribing, getting bulk subscriptions for CuriosityStream, to provide employees the opportunity to just learn about things that they otherwise wouldn't have. Those are the things that can be done with educational content, that can't be done with the next bad drama that Netflix puts out, for instance.

Sharma: Yeah, for sure. It's almost quirky that things that you can do with this type of, we'll call it factual SVOD, factual streaming video on-demand. One thing that caught my eye, so in their corporate partnerships which you were just talking about, they are selling bulk subscriptions to big organizations. They are targeting the $20 billion that the Fortune 500 spends alone annually on corporate social responsibility programming. There's $20 billion being spent to educate employees, I guess, on how you can be a responsible corporate citizen. This market is really, really huge. That's the thing that told me that, well, there's a wide net to cast here. It's bigger than I thought. I thought all the money was in the Turkish dramas and comedy series that I applaud. [laugh] I thought that's where the real money is, and it probably is, but there is good money here. There is a good total addressable market. We will get to what this company is shooting for in just a few years as we work through this.

Flippen: Let's roll over to their financials, because I want to talk about the competition. But I think it's good to get out in front of a big question which is, well, CuriosityStream is obviously a very small player in a very big space. When you talk about the addressable market, it's worth noting that they're not super penetrated into the addressable market now, which is an opportunity, but also a risk when you consider just how many streaming on-demand services are available out there, even for the cases of corporations or partnerships. But when you look at the financial performance of CuriosityStream, what speaks to you here?

Sharma: The first thing that really catches my eye is that they have a really fast revenue growth rate. I think from the notes that we put together, that's maybe the first thing that caught your eye as well. They have been growing at a pace that called doubling over the last five years since they were founded and they're projecting that they're going to grow at this monster compounded annual growth rate that's almost 70% a year for the next few years. This is one of the things that I'm looking for more and more with consumer goods type companies. I spent so many years studying the companies that hardly grow, and I'm still a big fan for certain investors of Coca-Cola. I think everyone should own some Coca-Cola. But in this space, in the consumer goods space, to really compete with all the capital that's out there for technology companies, you have to be infused with a lot of technology and you have to have really fast growth rates to do well. That caught my eye.

They have 13 million subscribers. They do have a bit of a churn rate, 2.6%, which is actually not that bad. Those things caught my eye and I'm always stuck on gross margins for every type of company I look at, just because it's so easy to understand the company when you take its gross profit margin, that is revenue minus cost of sales, and then compare it to like companies in the same industry. This company has a 62% gross margin. Why this is so important is because the cost to produce this type of content is a fraction. I think the fraction is something like an eighth or tenth of the cost that it takes to produce a drama or a movie for Netflix, or Disney. When you've got that cost advantage, you can really parlay that over a period of years. Now, they're not going to do that anytime soon, because they're spending a lot on marketing and advertising. But their gross margin is about 20%-23% higher than Netflix's gross margin. That gives you some more potential there, if you like this company, that there's an eventual path within 10-15 years after they say, we're through the biggest phase of our growth to start really turning out those cash flows. I'll pause here and ask you, Emily, what leap data you're looking at in the financials?

Flippen: The gross margin, I think it's a great point to make, but that subscriber number was really interesting to me. Despite the fact that this is a business that is producing net losses, and I don't just mean in the GAAP profitable sense, but just operating cash flow negative. The company's burning a lot of money. I'm actually not super turned off of it, because with only 13 million subscribers, this is a business that should be spending a ton of money to grow its brand name. I, as somebody who's been stuck at home for almost a year now with a need for entertainment, hadn't even heard of this direct-to-consumer offering. They need to build awareness, get people interested in its content. That's going to be two parts, not just marketing, but developing shows, developing things that get a lot of organic traction gets shared by people on social media. It's smart of them to be spending a lot of money, both on content development, content partnerships, getting content from other networks to put on their platform, as well as just more aggressively marketing.

But when you look at the 13 million subscriber base, that's not all just independent people, you and I who have gone out of our way to subscribe, in fact, that's not the majority of those subscribers. The majority actually come from their partners and affiliates. People who subscribe to some, say, Cable Bundle or a YouTube TV for instance, I'm struggling to think of another example, but essentially the streaming platforms at aggregate eyes, CuriosityStream sells to them to offer their TV shows on their platform. A lot of these CuriosityStream subscribers aren't explicitly looking for CuriosityStream content. It's going to be important for them to build that brand awareness, make people seek out that type of educational content to really remind partners and affiliates that, hey, this is valuable stuff that people love to watch.

Sharma: I love that point, Emily, because you've brought up our theme point [laughs] for this year, which is brand. Why had we never heard of this company before now? Obviously, they've got this great path with all the corporate partnerships, and they do this with everyone from, I mentioned Fortune 500 companies, to libraries, colleges, and they also have programs sales that they're selling packages. Not necessarily subscription packages, but original content that's produced to buyers like Amazon Prime, HBO, Apple TV, even Bilibili and ByteDance, to Chinese companies that you're familiar with. They have to get that brand name out there because the bundle path is really great for the short-term. I think it's the easiest and fastest way to get subscriptions. But to hit the optimal growth, I think you have a great point when you indicate that, look, you've got to have a lot more of the direct-to-consumer outreach.

I wanted to point out in relation to that, their cash burn is, as you'd expect, very directed. Through the first three quarters of the 2020 year the company lost $43 million on $18 million in revenue. Its advertising and marketing expense alone was $41 million. That was 2019 numbers. Through the first two quarters of this year that statistic I was looking for, they have $28 million in revenue. You can see that growth between $28 million versus $18 million in all of last year. That growth is accelerating and they're keeping that advertising and marketing spend proportional to produce the same loss numbers. They've lost $23 million in the first three quarters of 2020, and the advertising and marketing spend is $29 million. We can see the pattern here. The question is, are they allocating that money in the best place to do two things at once to drive up the program sales, the corporate partnerships, those things which have lifted the company so far, but also into that world of getting their name out in front of consumers like yourself and myself?

Flippen: This will be my biggest question for CuriosityStream, having five different lines that could drive revenue, what is your focus going to be? Because as you mentioned, this is a business that projects each of those five segments to have equal revenue potential. When you're looking at spending money to build out different business lines you really want to make sure that you're doing it in the smartest, most effective way possible, and not spreading yourself too thin. Part of the reason why Disney+ and Netflix, I think have been so successful, is because they knew exactly who their audience was. For Disney+, it was really easy for Disney to come out and say, we know the type of person that is going to be interested in these subscription offerings, and we know where to reach them, how to target them.

What I think is interesting and curious, I should say, about CuriosityStream is on the direct-to-consumer side, the target individuals, you would think that would be a pretty niche, but easy to target audience. I wouldn't say CuriosityStream has the addressable market for individual direct subscriptions through what Disney+ or Netflix does, but for people who are actively consuming educational content, whether that be on other streaming sites or in places like YouTube, those are the type of people who would be interested in spending at a relatively low fee, $3 a month to get access to unique and produced shows that target those interests. It's curious to me that they seemed to not be super obvious as to what that target marketing is, and I would worry a little bit that, well, I think it's smart for them to go after partnerships, that they're almost shooting their brand in the foot by partnering themselves with too many other middleman players who get the direct subscribers without letting CuriosityStream buildup any brand reputation.

Sharma: I think that's a really good risk to point out. This is something that has already been demonstrated in the marketplace. If you want original content, there's no brand that's bigger than Netflix. In a short amount of time, Disney+ is almost equal to their brand power, because they ride on Disney name. But this could be a lost opportunity. They have a waterfall chart. A waterfall chart shows you the path from one set of numbers to another. They've got an interesting waterfall chart in their prospective, they're offering perspectives, which shows the path to$400 million in revenue. Remember, I said that the company did $18 million all of last year. They're on top for something close to $40 million in 2020. We're going to have those numbers as soon when they first report their first quarterly earnings. They want to grow basically tenfold over the next five years. They're doing it with that fast compounded annual growth rate I mentioned.

This is a company in the waterfall chart that shows you we're getting there through bundled subscriptions primarily, and then as time goes on, these other four revenue streams, including the direct-to-consumer, are going to grow. Their first footsteps still isn't that bundled space. What you're pointing out, I think is that enthusiasm has a shelf life. The time-to-market has a shelf life, the ability to get your brand out before your competition, that has a shelf life as well. I like that you're bringing up this risk and it's something that hopefully we'll be able to hear management talk about in coming quarterly calls. Hopefully some smart analysts will ask about this.

Flippen: One other thing to note before I move on from their financial performance that stuck out to me was, because of the business model that they've taken, which is largely partnership-based, while they have no debt on their balance sheet, they do have a lot of essentially performance obligations. They have these long-term contracts, which provide some sense of recurring, predictable revenue with their partners, while at the same time obligating them to create certain content and have this series of deliverables over the life of CuriosityStream's contract. That's something that is unique. Netflix could stop producing TV shows, they'd probably lose a lot of subscribers. But Netflix is under no obligation to give me another season of The Real Housewives of ___. But CuriosityStream on the other hand, based on the way they have their revenue setup they owe their partners certain content, which is something just to keep your eye on if you're investing in this company. What does their obligation look like? Because it can give you a sense about what their cash burn is going to be just in terms of content production.

Sharma: Absolutely. If you're someone who is a financial maven and you're used to looking at how Netflix accounts for its revenue, this is going to be completely different. Revenue recognition, when and how they recognize the revenue, is different to what they call these massively recurring [laughs] revenue streams. I think that's the phrase they use, massively recurring revenue. Yeah, it's both a liability, because you put it on your books as a liability, and it's a great asset that they have. I think that where the proof is going to be in the pudding is we've got this veteran who's not the CEO. Remember, John Hendricks founded the company but he stepped aside, he's Chairman, but he's been able to pick a really crack team of industry veterans to execute.

The proof for this company will be that they deliver on this type of promise that we've got these revenues, we're going to produce this awesome content, and we're only going to grow our brand strength among the corporate world and educational world by continuing to push this content out, and a lot of it is evergreen. If you buy their argument, this is a super strength of the company. Now, I think we should be skeptical of that, and I'm glad you brought it up, because you only know this after a period of years. If you're investing in CuriosityStream, you're in it for the long haul, to evaluate the business proposition, but whether that financial model is truly that much better than Netflix, at the end of the day, if they don't perform Emily and they get not a great reputation then they lose some of this recurring business, they're back to square one and don't look that much different than their fictive drama based peers. I don't mean to imply that Netflix is a drama queen of Disney either, [laughs] I'm referring to a type of content they produce.

Flippen: Well, with that in mind, let's maybe move onto what we think some of the biggest risks are here with this business. I'll start because I want to take the easy one first, [laughs] which is in my opinion, competition in the space. Everyone knows that streaming is really competitive and I'll be the first one to admit that I think CuriosityStream has something unique about it that isn't going to be replicated, in my opinion, at places like Netflix. I don't see Netflix creating a curated list of history and science. They might have some one-off shows, maybe some shows that they've acquired. But I think CuriosityStream probably wins long-term in terms of developing that content.

What makes me nervous is a few different things. The first one is that Disney+ has National Geographic, I believe. That to me maybe scratches that itch for a lot of current Disney+ subscribers. If you're interested in that content and you have a family, you probably already paid for Disney+, so why add another bundle on top of it to get more of similar content that you may get as part of National Geographic? Now, not to say that it's always going to be shared, but that does scratch maybe some of the itch. Also, Discovery itself has its own streaming platform, they call it Discovery+, which is obviously the most creative name that they could have come up with. [laughs] But Discovery+ has things like HGTV and TLC, the Food Network, as well as just the Discovery Network and Animal Planet. These sorts of things, I think, maybe spread out some of the demand a little bit more, so it's not all being directed straight at CuriosityStream.

Then lastly, my thoughts about competition, is when I consume this content, I think for educational content, I'm accustomed to not paying for it. I hate to say that out loud, but I go on sites like YouTube and there's a lot of great, really wonderful educational content there that you can consume on an ad basis for free. The content that would need to be put out by things like CuriosityStream, in my opinion, would need to be really, really compelling. TV shows that get people to want to subscribe the way that Stranger Things did for Netflix or The Mandalorian did for Disney+. I'm not sure if CuriosityStream has a show, a series, a movie, anything that really makes me, as a person who's interested in this content, want to pull out my wallet and give them my credit card information. For those reasons, I think the biggest risk is probably competition. As a result, I think it's really smart for them to spend more money in developing those partner and affiliate subscribers and corporate partnerships, things that are going to make CuriosityStream a part of a bundled service as opposed to just going direct to consumer.

Sharma: It's so interesting, Emily, maybe that lack of upfront investment on the brand is strategic, because you've talked us through the fact that they're not really hammering in on extending their brand with customers, and you've also walked us through this idea that there's so much competition out there. When you said free, it really resonated with me, because there's so many free things that I've watched on YouTube and other services. I've never considered paying for this type of content. Maybe they understand that that might not be the best money spent upfront, because who could they convince? I mean, I'm sure there are a lot of people and I did want to mention that they are thinking globally. They've got about 20% of their sales, I think, that comes from international sales. Now, 50% of that is direct to consumer. Maybe outside the U.S., where the space isn't so crowded, they have the opportunity to build a new brand, but it is crowded here.

Why would someone, even for $2.99 a month -- remember, because they have that lower cost structure, that's one reason they're able to offer content at this price point. This is something to watch as you study this company quarter after quarter. Where exactly is the revenue coming from? Five equal-weighted revenue streams or nearly equal-weighted. I'll just list them again. Emily, you had put these in our notes: direct subscribers, partner affiliate subscribers, corporate partnerships, sponsorships and advertising -- which we hardly touched on, but it's a good business for them -- and program sales. Out of these, one of these will probably emerge as the true cash cow in a few years. My bet is it's going to be bundling [laughs] subscriptions for a while. Yeah, this was a great walkthrough. I don't know if that was the easiest risk to talk about, that's actually probably the most top-of-mind risk and a hard one to do, so great job.

The only one that I have to add to that is that I've got a little bit of a valuation concern already. I'm seeing this with a lot of companies that are either IPOs or have come to market via a SPAC. This is a SPAC-ky name. SPAC-ky name means to me, I probably look at a price chart and it's gone up. I mention the stock is up 50% since February the 3rd. I checked this morning, CuriosityStream, their market cap is $945 million. If you take their estimated sales for this year, $39.5 million. That's 24X market cap to revenue ratio, roughly equivalent to price to sales ratio, which so many of us are used to talking about. 24X price to sales. There's some Software-as-a-Service company [laughs] out there that I wouldn't pay 24X for. I did once and got burned.

Now, having said that, we have to balance it out. They have this really tremendous projected growth rate, right? So if they deliver on what they're putting out for 2021, that $71 million of revenue, and understanding that the losses that they're running are purposeful losses, I'm comfortable with looking at that ratio, that still becomes a ratio of 13 times their forward to 2021 topline. Still expensive, but maybe over years, if they can execute this year, you could see that path to substantial revenue and some net income at some point and some better cash flow, and would be willing to pay up a multiple for that, because they have this niche. But it's a risk. I mean, I, as much as I like this company already, hate the idea of buying it versus where it's trading already. I don't know how we get comfortable with that in this world. If you have some advice you can give to everyone on this, I think I'm not the only person who is worried about this. You see a new company you like, [laughs] you look at its financials, you look at its business plan, you look at its mission, its management, all that good stuff. It's got a competitive moat. You're ready to hit click. Your mouse cursor is hovering on that green block on your computer. Then you think, wait a minute, let me just check what it's selling for, what its price to sales ratio is or price to earnings ratios. Then you get a shock. What's your advice for us in this context?

Flippen: Well, as a true millennial here my advice is to not look at it. That's oftentimes what I do. I think I'm a product of the environment in which I'm investing in, which is to say, if I did that for, I'd probably say 90% of the companies in my portfolio, I maybe would have never bought them. I also just try to remind myself that, if I think a business is a really good business, typically, fighting over ratios, right, it doesn't do you well in the long run. So Shopify is a great example. I added it to my portfolio after it had already be gone up something like 200% or 300% and many people thought you missed the boat on it at price to sales ratio was extremely aggressive, still is, but has been a stellar performer and one of the handful of companies in my portfolio that I could see being a $1 trillion business one day, which is amazing. So I think it's important to keep that context.

I try to hold my nose a little bit when I see opportunities that I think have massive markets in front of them. In the case of CuriosityStream, I see a massive market, but I don't see an extremely clear path toward it. I think that's what makes me the most concerned here, not just the competition, because I do think there is a niche audience there for CuriosityStream, but maybe a lack of focus and what management really wants to do and that worries me. So this is the type of business that personally I put on my watchlist, and I'm so interested to listen to management talk for the next few quarters, tune in to those earnings calls, read the transcripts if you can't join live and try to understand what they see as a strategic direction.

A big red flag to me is if they come out the first quarter and, I think they already had a quarter, I didn't get the chance to read through it, but they come out the first quarter and say, here's what we want to do, this is our direction and then you're waiting three, four quarters down the line, and it seems like that direction is changing. Maybe there's a good reason for it, but what that says to me is that management didn't have a clear strategy from the get-go. Actually, most of my worst investments have been situations just like that. So, now one of the things that I look for is when I have questions about strategy, give it a few quarters, try to figure out if management is all in. Another good example of a team that is all in that I waited on was actually Zillow. I wasn't a big believer in their initial strategy to get into iBuying. I gave it a good three, four quarters before I bought in. I could see that Rich Barton was dedicated to Zillow's strategy of iBuying. I could see a strategic focus in that team, and whether or not it succeeds is still unknown, but I could at least tell that that was there. So I apologize, that was a little bit of a rant. To answer your question shortly, I don't really look at it.

Sharma: Yeah, that's awesome. That was really illuminating actually on many fronts. I think where I land on this is, for me, it's extremely interesting, so it's definitely on my watchlist. I'm hoping that management is really good about breaking out the different segments in some detail, and I've seen it both ways. You have a promising company that wants to keep things a little close to the vest, so they disclose the minimum and how they break out the revenue streams. But since CuriosityStream has made such a bold assertion that, yeah, we're $20 million, $18 million today or let's call it $40 million at the end of 2020. We're going to be $400 million in five years and we're going to get to it by almost equal weight growing these five revenue streams. The CEO is the person who actually gets the latitude to make the decision of what reportable segments are given in the SEC presentations. Sometimes you get wonderful breakouts and supplemental materials and sometimes you get the bare minimum. Despite, in investor presentations, they will tell you, oh, we're doing great in all these areas.

What will be meaningful to me is in these first few quarters, is to hear management talk about those revenue streams. You have a great point Emily, if it's like here's what we want to do and then they're waiting then they really didn't have a solid plan. I suspect, and this is just my suspicion, we'll have to see it prove out, that with the experience that John Hendricks had building a company like this, he is making sure that what they put in that prospectus is executable -- that's not a word, but can be executed upon, because I think expectations are raised with his involvement. Not necessarily hands-on involvement, but the fact that he's got 44% out of the company. So, extremely interesting, for sure a watch list stock for me, and I will be eagerly waiting to hear how they do in the next several quarters.

Flippen: I completely agree with you, and to your point, the management team, at least for this company, doesn't seem to be the type to trip at the finish line or at the starting line, I should say, having recently gone public. So, I can't wait to watch where this goes. But Asit, as always, thank you so much for joining and I know you have a busy week, two weeks, month, future in front of you, so I appreciate you coming on today.

Sharma: Thank you so much, Emily, and this was a blast as always.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions, you can always shoot us an email at [email protected]. As always, people on the show may own companies discussed, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for his work behind the screen today, For Asit Sharma, I'm Emily Flippen, thanks for listening and Fool on.