CuriosityStream Inc. (CURI) was started by John Hendricks, founder of the Discovery Channel and former president of Discovery Communications.
CuriosityStream is a media company specializing in providing premium video programming across a wide range of factual entertainment categories, such as science, history, lifestyle, technology, society and nature. The company distributes its content through its own SVoD (subscription video on demand) platform and bundled content licenses for third-party SVoD and other linear offerings.
I remain optimistic about the title.
CuriosityStream’s Competitive Advantage
In my opinion, CuriosityStream’s competitive advantage is that the company focuses on a very niche content category that is typically underserved. As you know, there are several streaming services with the competition increasing recently among industry giants. However, none of the popular platforms has a comprehensive documentary-focused content library and “food for hungry brains”.
CuriosityStream’s award-winning library of video content includes thousands of non-fiction episodes, including over 1,000 original, commissioned or co-produced documentaries. Simultaneously, in keeping with the credibility attached to producing factual content, CuriosityStream’s programs are hosted by scientists and experts in each field like Stephen Hawking, Sir David Attenborough and Patrick Aryee, among others.
In this regard, CuriosityStream has a clear advantage in this niche, as no other platform is currently serving this niche audience with such quality content.
Robust growth prospects
CuriosityStream’s fourth quarter results provided an excellent summary of fiscal 2021 performance. The company more than doubled its content library last year while growing its subscriber base by more than 50% to 23 million unique subscribers.
Revenue for fiscal 2021 was $71.3 million, an 80% year-over-year increase. In fact, fourth quarter revenue grew a much more substantial 140.1% as early subscribers who had previously subscribed through discounted plans were renewed under current high-priced plans.
What I really like about CuriosityStream’s subscriber base is that it’s high quality, which fits with the idea that its niche audience can’t find similar high-quality content elsewhere, as I mentioned before. Specifically, during the company’s fourth quarter earnings call, Chairman and CEO Clint Stinchcomb mentioned that CuriosityStream “maintains industry-leading low churn.”
Although he didn’t share the exact number, he later mentioned that the churn remains in the low numbers. This matches last year’s churn rate of 2.6%, indicating strong subscriber retention.
This is quite significant, as CuriosityStream plans to increase prices further through 2022, so low churn will be fundamental to ensuring any loss of subscribers is minimal.
Note that CuriosityStream offers annual plans starting at $20/year and monthly plans starting at $2.99/month. So even if the company’s most popular annual pricing plan were to drop to $30 per year, it would still represent fantastic value compared to the cost of most SVoD services available.
For the first half of fiscal 2022, management expects revenue to be between $36 million and $40 million, suggesting 50% year-over-year growth at the midpoint. In my opinion, this is a rather cautious outlook, as the current trajectory of subscriber growth combined with the possibility of higher prices should relatively easily exceed this figure.
In addition, the company has several other growth catalysts, which could contribute significantly to revenue growth. For example, the company’s recent investment in Nebula (the world’s largest creator-owned streaming and tech platform) could accelerate subscriber growth.
Is the stock oversold?
Although CuriosityStream has seen continuous positive developments, its stock has been on a downward trend since February last year, with no signs of a potential reversal in sentiment.
In my opinion, the main concern of investors is probably that the company remains unprofitable. In fiscal 2021, the company reported a net loss of approximately $37.6 million. However, the loss was due to continued investment in content, which is essential for the company to grow its catalog over time.
As its subscriber base grows and price increases take effect, net margins should eventually turn positive. In fact, CuriosityStream’s profitability outlook is much better than that of its industry peers, as the company has rather rich margins.
For context, the company ended last year with gross margins of 48.5%, while Netflix’s (NFLX) gross margins were 41.6%. This is because documentaries have considerably lower production costs than, say, a science fiction TV series.
In any case, even if we assume that CuriosityStream should achieve low double-digit net margins in the medium term, the shares look very cheap from a P/S perspective.
Wall Street analysts expect the company to generate $98.3 million in fiscal 2022 revenue. ‘other. This, in turn, suggests a massive deceleration in the second half of the year from management’s forecast of 50% growth for the first six months of 2022.
However, even if we assume this will be the case, it would suggest that CURI shares are currently trading at a forward P/S of just ~1.3. This is an extremely attractive multiple even if growth slowed significantly in the medium term and net margins remained below 15% or even 10%.
The Taking of Wall Street
As far as Wall Street is concerned, CuriosityStream has a moderate buy consensus rating based on four buy ratings, one hold and one sell rating assigned over the past three months. At $5.71, CuriosityStream’s average price target implies 135.5% upside potential.
CuriosityStream is a truly unique company. While its catalog of niche content may not appeal to as wide an audience as its industry peers, the company certainly has a place in the market, already boasting millions of subscribers.
Since the company went public, management has repeatedly achieved its growth targets. Still, the market clearly isn’t finding enough reason to like the stock. It is true that CuriosityStream shares have no catalyst to propel them higher, other than the company reaching passive earnings levels.
However, once it does, investors will likely realize how cheap this name is, leading to huge short-term gains. Overall, I see CuriosityStream as a speculative but promising play in the SVoD space, with potential upside that probably outweighs the risks.
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