I purchased shares in Curiosity Stream (CURI -4.40%) last year for around $14 each. Now the stock is worth $2.40 per share -- a decline of almost 83%. But despite the carnage, Curiosity Stream's buy thesis remains intact, and the company could be poised for long-term recovery. Let's explore some reasons investors shouldn't give up.
Most growth stocks are getting punished
Different types of stocks can fall in and out of fashion. And in recent months, technology-related growth stocks (shares in companies that increase revenue and earnings faster than average) seem to be getting the short end of the stick. Investors are worried about macroeconomic challenges like rising interest rates, which could make it harder for these rapidly expanding businesses to raise the capital they need to expand.
But that doesn't mean all growth stocks are bad. And fairly valued companies could be getting caught up in the sell-off, giving investors an opportunity to bet on quality companies for cheap. Curiosity Stream may fall into this category.
Curiosity Stream's business is growing rapidly
Curiosity Stream operates a subscription-based video streaming platform focused on factual and educational content, and business is booming. First-quarter revenue skyrocketed 140% year over year to $27.3 million with most sales coming from direct-to-consumer subscription fees and program sales, which involves Curiosity Stream licensing its original content to other media companies.
Image source: Getty Images.
The company also boasts a strong balance sheet with roughly $81 million in cash and short-term investments compared to zero long-term debt.
As a growth company, Curiosity Stream will struggle with profitability until it reaches scale. In 2021, the company generated an EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of $51.9 million (including $17.8 million in the fourth quarter).
But management is taking steps to fix this issue, such as by increasing subscription prices this year. With plans starting at just $2.99 per month, the company has plenty of room to increase its average revenue per consumer (APRU).
For context, rival Netflix's U.S. plans start at $9.99 per month, so Curiosity Stream is comparatively very cheap.
The stock's valuation is too good to ignore
To be clear, Curiosity Stream is not a risk-free stock. We don't know if the price hikes will slow revenue growth, and long-term profitability is far from guaranteed. But the company's rock-bottom valuation seems to indicate an unreasonably pessimistic outlook for its future.
With a price to sales (P/S) multiple of just 1.7, Curiosity Stream is significantly cheaper than mainstream streaming companies like Netflix, which trades for 5.4 sales or Disney at 3.3 sales. And that's pretty crazy for a company that more than doubled its revenue last year.
Do I regret buying Curiosity Stream?
The short answer is yes. I've lost a lot of money on this stock, and no one likes to lose money. But the long answer is more complicated. Despite the crash, Curiosity Stream's fundamental thesis still stands, which is the reason I bought it in the first place.
Revenue growth is firing at all cylinders. And the company's unique educational content niche gives it a well-defined brand and competitive moat. The stock's rock-bottom valuation makes it even more attractive than before. That's why I'm betting on a rebound instead of jumping ship.
