2023-06-20 04:59:42 ET
Summary
- CuriosityStream's sales multiple is at a 35% discount to its peer group median.
- The company is focused on cutting advertising expenses, reducing content spend, and increasing subscription prices to increase profitability.
- An improved cash flow position on the back of its cost reduction plan combined with a recovery in market sentiment could lead to its stock price moving up.
CuriosityStream ( CURI ) is currently trading at a 0.78x multiple to its trailing-12-month revenue. This is around 35% lower than its peer group median of 1.2x and stands in stark contrast to its average multiple through 2021 just after it went public on the Nasdaq through a combination with a special purpose acquisition company. The bull case is clear; millions of subscribers as of the end of its fiscal 2023 first quarter driving broadly recurring revenue of $12.4 million . CuriosityStream is also pushing global subscriber expansion through its distribution partners including Amazon Prime Video ( AMZN ). The company floated India, Australia, and the Netherlands as new geographical markets for indirect expansion during its first-quarter earnings call.
The collapse over the last 12 months has been sustained with the commons down 39% to build on what's been a sustained decline since the company started trading in late 2020. However, the pendulum has swung too far the other way, and bears who form the 4.6% short interest face some risks here. Firstly, the broader macro context which for so long has been defined by ten consecutive rate hikes up until June is gradually see the market appetite for loss-making companies improve. A material amount of deSPACs have been placed in this risk-off bracket with their current operations entirely antithetical to the dominant market zeitgeist of fear since 2021. The June interest rate pause is positive because if it precludes further pauses and an eventual cut then Silver Spring, Maryland-based CuriosityStream would face a healthier macro backdrop that would help sentiment and its multiple to recover.
A Disruption Of Revenue
A year ago during the earnings call for its fiscal 2022 first quarter, CuriosityStream stated that it had positive operating cash flow in view from the first quarter of 2023. This would come against a $50 million minimum balance in cash, restricted cash, and investments. Both these figures are in and the company scored 0%. Operational cash flow for the first quarter was negative at $6.3 million , down around 49% year-over-year from $12.3 million. Cash and equivalents including restricted cash were $49.2 million as of the end of the quarter, just shy of the company's $50 million minimum balance target. The company managed to cut its adjusted EBITDA loss by 63% year-over-year to $6.4 million from $17.5 million. This also fell by $7.2 million sequentially from the fourth quarter.
CuriosityStream Fiscal 2023 First Quarter Form 10-Q
This was as the company's net loss of $0.15 per share fell 50% from it's year-ago comp against heavy efforts to slim its operating footprint. Advertising and marketing expenses saw the most dramatic decline to $3.12 million from $14.77 million in the year-ago comp. The company's general and administrative expenses also fell by around $2.45 million from its year-ago quarter. However, whilst CuriosityStream underperformed on its target, the quarterly was positive in that it confirmed that management is focused on and has followed through with cutting back on expenses. This is one of the most critical factors in a stock market that has been defined by the rising specter of Chapter 11 filings as highly levered companies hit a wall of interest expenses.
New Pricing Kicks In
CuriosityStream's cash runway against its current burn rate stands at around 8 quarters. The company also has very little debt on its balance sheet with just $4.6 million of total debt as of the end of the first quarter. Profitability is improving from lows against a balance sheet that's able to support at least two years of operations without any outside capital needed. CuriosityStream is banking on price increases to make up for the shortfall in subscribers. Its standard monthly subscription plan was increased from $2.99 to $4.99 with the annual plan hiked from $19.99 to $39.99, albeit with a promotional offer currently running that gives 25% off.
This has helped arrest a decline in gross profit margins which surged to 27.34% during the first quarter from 9.43% in the fourth quarter. However, it was still below the year-ago figure by around 543 basis points. Bulls now face a few more quarters of continued gross profit margin stability with the company guiding for second-quarter revenue to be between $13 - $15 million, a decline of around 32.7% versus the year-ago period at the top end. Critically, CuriosityStream likely stands to benefit from improved market sentiment as it sells its cost reduction plan to the market and rushes to enhance its cash flow position.
Risks To Potential Recovery
The potential recovery is partially built on the headline rate of inflation continuing to fall. Bears would of course highlight the CME FedWatch Tool as currently pricing in a 74.4% chance that the July FOMC meeting sees rates hiked 25 basis points to 5.25% to 5.50%. This would invert progress on market appetite for the risk-off companies and would keep CuriosityStream's multiple under pressure. Further, the company is spending less on content and this aggregated with reduced spend on marketing could form headwinds to subscriber expansion. The first quarter cash spend on content was $4.9 million , down 75% year-over-year as the company prioritized positive free cash flows at the expense of revenue growth.
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CuriosityStream Could Be About To Stream Its Recovery