2023-04-04 15:18:25 ET
Summary
- Q4 Revenue came in at just $14.5 million, well below Q4-21.
- The company is dramatically cutting costs in marketing and content in 2023.
- Updated pricing is clearly an attempt to drive subscribers to the higher-priced bundle offering.
- $55 million in cash. No debt. $73 million market cap. It's a speculative bet that benefits from a secular streaming trend.
- I added to my position.
In late January, I started my initial coverage of CuriosityStream ( CURI ). At the time, I noted the balance sheet positioning and the low-cost price point of the product to the consumer. Last week, we received the company's Q4 performance and to say revenue declined would probably be an understatement. In this article, I'll provide my reaction to the recent earnings and provide a brief update to my position.
Q4 Performance And Guidance
While the company did guide for lower revenue on the Q3 call, the 47% year over year bloodletting from $27.3 million down to $14.5 million in Q4-22 was quite a bit worse than I expected. Cost of revenue did come down by 43% as well from $23.1 million in Q4-21 to $13.1 million in Q4-22.
Operating Income (Seeking Alpha)
Though the sequential decline in operating income looks bad going from minus $4.4 million in Q3 to minus $15.4 million in the last quarter, the operating income story did improve slightly from negative $52.5 million in 2021 to negative $51.7 million in 2022. With $55 million in cash remaining, this is looks like a make or break year for CuriosityStream if we assume the company won't go to market looking for additional capital.
Q4 was something of a "reset quarter" where the company essentially punted on poor margin licensing agreements that weren't economical to continue. The total revenue performance was rough to say the least, but there was actually growth in direct to consumer revenue both on a year over year and a sequential quarter basis:
Revenue Breakout (CuriosityStream)
At 38% of total 2022 revenue, CuriosityStream's direct to consumer revenues are now the top revenue segment for the company. It's clear from the company's guidance on the call that cost reduction is a major goal for CuriosityStream going forward. CFO Peter Westley highlighted several areas where those cost reductions will take place this year:
- content amortization is guided to decline from $39 million last year to between $25 million to $30 million this year
- advertising and marketing spend will move down from $41 million last year to between $20 million to $25 million this year
- content expense is getting slashed from $42 million last year to between $10 million to $15 million this year
On the marketing spend, the company is leaning hard on a performance-based strategy where they intend to use influencers on platforms like YouTube to drive customer acquisition through affiliate deals. Additionally, they cite less than $1 million in committed marketing for the year. But the biggest takeaway from the call may have been the announced price increase of the company's flagship SVOD service.
Product Pricing Change
The core platform of the company is the CuriosityStream DTC service. When I last covered this stock, the monthly consumer price of that service was $2.99 per month or $19.99 per year. Those prices are being increased dramatically by percentage to $4.99 per month or $39.99 annually.
It's important to mention that CuriosityStream the company also owns additional brands beyond just CuriosityStream the platform. The company also offers Tastemade, Topic, Somm TV, DaVinci Kids, Nebula, and One Day University as stand-alone services. The consumer can get access to everything the company has to offer through what CuriosityStream calls the "Smart Bundle." The Smart Bundle is $9.99 per month or $69.99 per year.
The company seems to be clearly incentivizing users to buy the Smart Bundle rather than the CuriosityStream stand-alone DTC platform. In my view, this is a bit of a gamble, but it's one that could actually pay off through more Smart Bundle conversions. They certainly did their homework before making the price change decision On the conference call, CEO Clint Stinchcomb made note that the company did a large amount of research exploring the best pricing to bring to the market:
On the pricing front, we recently completed an extensive three-month pricing test with over 3 million interactions. We expect the changes we made to our standard tier subscription pricing on March 27th will create a tailwind to revenue growth later this year and beyond.
At a separate point during the call, he also mentioned that the company is seeing opportunity in the market regarding ways to put some of the cash on the balance sheet to work:
Nearly everything is on sale today. By that, I mean certain acquisition advertising inventory, certain influencer marketing services, technical products and services, and even non-core assets of other companies. We are aggressively taking advantage of these discounts, which may result in more cash out over a short period of time, but which we would trade for improvement in our longer term performance.
Between the move to more performance-based marketing and apparent opportunities at more favorable ad rates, CuriosityStream should be able to drive users into the funnel without breaking the bank.
Summary
I jumped at the opportunity to buy more CURI at $1.22 on Friday. This was a 33% increase in my share count and my average is now $1.48. I think it's pretty clear the company is incentivizing both new and current customers to buy the bundle. In my view, this is a competitive offer to the consumer that could meaningfully drive growth this year. Especially considering the broader streaming market has seen pricing increases elsewhere the smart bundle is still inexpensive by comparison.
CuriosityStream is quite obviously not profitable as it is currently constructed. But management has guided significant cost reductions for 2023 and appears to be very selective in how it puts the remaining $55 million in cash that it has to work. This is a very speculative bet, in my opinion. But with that cash pile, no debt, and a $73 million market cap, it's a speculative bet that I like more than others.
For further details see:
CuriosityStream: The Q4 'Reset' Is A Gamble On Pricing