CuriosityStream (CURI) was established by John Hendricks, the founder of the Discovery Channel and former Chairman of Discovery Communications (DISCA). The company strives to deliver premium video content across the principal genres of factual entertainment, including science, history, society, nature, lifestyle, and technology.
CuriosityStream’s award-winning content library comprises more than 3,100 non-fiction episodes, including over 1,000 original short-form, mid-form, and long-form duration documentaries, amounting to an approximate original production value north of $1 billion.
The company has been expanding a high-value service for those with a fondness for this particular sub-genre, with no other service offering such a creamy catalog for this particular target group genre. I am bullish on CURI stock. (See Analysts’ Top Stocks on TipRanks)
Stock Performance Is Unaligned with the Business Performance
CuriosityStream’s revenues have achieved a CAGR north of 100% over the past two years. With 85% of its subscribers choosing annual subscriptions, it is quite probable that CURI will sustain a significantly lower churn rate versus its competitors.
This appears to be already the case, with CURI featuring a monthly churn rate of just 2.5%. This compares with 2.6%, 4.5%, 4.9%, 6.6%, and 12.7% for Netflix, Disney+, Hulu, HBO Max, and Apple TV+, respectively.
The average American subscriber watches 3.4 services. For each one, they pay an average of $8.53 per month. If one is a fan of documentaries and “food for hungry brains,” CuriosityStream is a solid choice.
Further, with most of its subs having paid $20 for the annual subscription, we believe the company has very strong prospects in terms of growing its ARPU (average revenue per user) along with its sub count.
Another thing to take note of is that only half of CURI’s revenues are sourced from its subs. The company makes the rest of its money by offering its content to be bundled with other video-on-demand providers or live TV providers. If one watches CURI’s content through another network, CURI receives a part of the subscription fee that the network charges its own subscribers. Finally, the company makes money by directly licensing its original content.
We can derive two important characteristics as a result. Firstly, CURI’s subscriptions are highly predictable due to its annual plans. The company reported Q3 revenue growth of 114%, while revenue visibility landed at 100%, with $71 million committed through the end of the year.
Secondly, due to its partnerships and licensing deals, the company is likely to realize considerably higher margins than its competitors, which mostly keep their content tight to their services.
One of the risks one could raise would be shareholders getting diluted significantly if the company attempts to raise more cash through an ATM (at-the-market) share sale or directly issuing additional equity at the stock’s current, rather depressed levels, to sustain its growth. However, CURI has a solid cash position of ~$80.8 million.
Further, CURI enjoys industry-leading gross margins (documentaries are cheaper to produce). This makes it increasingly likely for the company to see a positive bottom-line real soon, consequently, juicy net margins in the medium-to-long run. For context, CURI’s gross margins stood at 72.5% at the end of the quarter versus Netflix’s 43.8%.
CuriosityStream has ongoing growth, prospects to be more profitable than its industry peers (NFLX, for instance), and initiatives that could further bolster its expansion plans (investment in Nebula, the world’s largest Creator-Owned streaming platform). For these reasons, I believe the stock’s forward price-to-sales ratio of 2.8x based on 2022 estimates is quite unjustifiable. Hence, I am bullish on the stock.
Wall Street’s Take
Turning to Wall Street, CuriosityStream has a Moderate Buy consensus rating, based on four Buys, one Hold, and one Sell assigned in the past three months. At $14.83, the average CuriosityStream price target implies 128.2% upside potential.
Disclosure: On the date of publication, Nikolaos Sismanis had a beneficial long position in the shares of CuriosityStream through stock ownership.
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