It Might Be Time to Start Buying Shares of TV Streaming Upstart CuriosityStream

If you were looking at just the stock price, you probably wouldn't guess that CuriosityStream (CURI 11.65%) just provided an excellent fourth-quarter 2020 update. Shares of the TV streaming upstart are down nearly 40% from all-time highs as of this writing.

Granted, there was no shortage of over-optimism after the company's IPO closing (via SPAC) last autumn. But after the sell-off and the company issuing stellar 2021 guidance, I'm interested in dipping my toe in the water here.

The streaming party won't end with the pandemic

First, let's consider what CuriosityStream has accomplished to date. The TV streaming industry got really crowded in the last year, and many services are doing just fine because consumers flocked to binge-worthy subscription services during COVID-19 lockdowns. But CuriosityStream -- launched in 2015 by Discovery Channel founder and former Discovery (DISCA) (DISCK) chairman John Hendricks -- is a differentiated offering. While its peer Discovery has increasingly gone into left field with reality TV shows, CuriosityStream is fully committed to factual documentary entertainment.  

Image source: Getty Images.

Its strong positioning in a streaming TV world was demonstrated with a reported 50% increase in subscriber count at the end of 2020 to about 15 million worldwide. The company also makes money on its slate of content -- specifically via brand partners and sponsors.

For example, management said a financial services company partnered with CuriosityStream to develop programming about the promise of blockchain technology, and a health and wellness company on a connected fitness documentary. It isn't advertising dollars per se (more like product placement and brand awareness marketing), but it's a unique angle for CuriosityStream to boost revenue. After all, the service can be had for a mere $20 a year.

As a result, CuriosityStream had a pretty epic 2020.

Data source: CuriosityStream.  

The company doesn't think the streaming party will end with the pandemic, either. Initial outlook for 2021 is for revenue of "at least $71 million," representing another 80% year-over-year increase. In recent weeks, internet service providers have indicated as much too. Mobile provider Verizon (VZ 0.90%) said traffic on major streaming services remains up some 21% year over year, and respondents to its survey say TV streaming will remain an important part of their lives.

With work-from-home now mainstream, that bodes well for at-home entertainment upstarts like CuriosityStream as more people spend more time in front of a screen.  

Too much premium for TV?

There is risk here. This is a tiny company and it's not yet profitable. At the end of 2020, it had only $42.4 million in cash, equivalents, and restricted cash on the books. If EBITDA losses continue at the pace they did last year, that's only about 12 months or so of liquidity. The company did address this issue with a secondary offering of stock in February with gross proceeds totaling just shy of $101 million. That buys CuriosityStream a few years of flexibility as it tries to rapidly add subscribers.  

After the pullback in the last month, the stock trades for just over 10 times expected 2021 sales. Historically, that's still premium pricing, especially for a company swimming in red ink. By today's standard, though, it isn't unusual to see high-flying growth stocks going for well over 20 times sales. And there's incredible promise here. CuriosityStream's gross profit margin on services rendered was 61% last year -- in line with highly profitable software outfits.  

It might be time to start nibbling on this TV streaming upstart. I plan on starting slow (my typical initial purchase worth less than 0.5% of my total portfolio, and make further buys over time), but this tiny entertainment stock has potential in the years to come.