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Why Genius Brands Stock Popped and Then Dropped Today

By Jeremy Bowman - Updated Mar 31, 2021 at 4:50PM

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A letter from the CEO initially lifted investor spirits, but the gains didn't last long.

What happened

Shares of Genius Brands (GNUS -4.97%) surged in early trading Wednesday morning after CEO Andy Heyward released his annual shareholder letter before the market opened. But after that initial pop, the stock continued its slide from yesterday as investors didn't seem to get any new information about the company or its prospects.

After gaining as much as 12.1% early in today's session, shares of the children's entertainment company finished the day down 6.3%.

A still from Superhero Kindergarten

A still from Superhero Kindergarten. Image source: Genius Brands.

So what

In the shareholder letter, Heyward made a similar argument for the company that he has in the past, saying Genius Brands was building out tentpole franchises, including Rainbow Rangers; Superhero Kindergarten, starring Arnold Schwarzenegger; Shaq's Garage, starring Shaquille O'Neal; and the Kartoon Channel, which it launched last July.

Heyward told investors that the important number to watch at this point in the company's evolution was cash, as it spends to build out the company, investing in intellectual property and distribution. But the letter was thin on any meaningful numbers showing the current performance of the business. For example, at the Kartoon Channel, management said that hours watched were up 52% and unique users jumped 134%, but it was unclear what the time frame was for those metrics, and they are likely growing off a small base.

Investors may also be getting impatient awaiting the company's fourth-quarter results and its 10-K filing, which is normally due within 60 days of the end of the fiscal year. Genius Brands may be small enough that that Securities and Exchange Commission rule doesn't apply to it, however. 

Last year, the company released its 10-K on April 1. If that's the case this year, Heyward's letter may serve as a way of distracting from another round of disappointing financial results.

Now what

Heyward has an impressive pedigree in children's entertainment as a co-creator of Inspector Gadget and a producer on several other hit shows. But he has been CEO of Genius Brands for more than seven years with little to show for it in terms of meaningful sales as the company generated just $1.2 million in revenue in the first three quarters of 2020.

That's likely to change soon as Superhero Kindergarten is set to launch in April and its acquisition of ChizComm/Beacon Media gives it a strong position in the children's media ad market, but it's easy to see why shareholders are growing impatient.

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