CuriosityStream Inc. (CURI) was launched by John Hendricks, who is the founder of the Discovery Channel and the former Chairman of Discovery Communications.
CuriosityStream is a media company that specializes in providing premium video programming across a wide array 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 bullish on the stock.
CuriosityStream’s Competitive Advantage
In my view, CuriosityStream’s competitive advantage lies in the company focusing on a very niche content category that is generally underserved. As you know, there are multiple streaming services out there, with competition surging lately among the industry giants. However, none of the popular platforms have a comprehensive documentary-oriented, “food-for-hungry-brains” content library.
CuriosityStream’s award-winning video content library includes thousands of non-fiction episodes, including more than 1,000 original, commissioned, or co-produced documentaries. Simultaneously, in line with the credibility-building 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 that regard, CuriosityStream has a clear edge in this niche, as no other platform currently serves this niche audience with such high-quality content.
Robust Growth Prospects
CuriosityStream’s Q4 results made for an excellent wrap to Fiscal 2021’s 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.
Fiscal 2021 revenues came in at $71.3 million, an increase of 80% year-over-year. In fact, Q4 revenue grew by a much more substantial 140.1%, as early subscribers who had previously subscribed through discounted plans renewed under the current, elevated-priced plans.
What I really appreciate about CuriosityStream’s subscriber base is that it is of high quality, which matches the notion that its niche audience cannot find similar high-grade content anywhere else, as I previously mentioned. Specifically, in the company’s Q4 earnings call, President & CEO Clint Stinchcomb mentioned that CuriosityStream is “maintaining an industry-leading low churn rate.”
While he didn’t share the exact number, he later mentioned that the churn rate remains in the low-single digits. This matches last year’s churn rate of 2.6%, which indicates robust subscriber retention.
This is quite important, as CuriosityStream plans to further increase prices through 2022, so a low churn rate will be fundamental to ensure that any loss in subscribers will be minimal.
Note that CuriosityStream offers annual plans starting at $20/annum and monthly plans starting at $2.99/month. Thus, even if the company’s most popular annual pricing plan were to rise to $30 per year, it would still represent fantastic value relative to the cost of most SVoD services out there.
For the first half of Fiscal 2022, management forecasts revenues to land between $36 million and $40 million, suggesting 50% year-over-year growth at the midpoint. In my view, this is a rather conservative outlook as the current trajectory of subscriber growth combined with the possibility of a price hike should relatively easily exceed this number.
Further, the company has multiple other growth catalysts ahead, which could meaningfully contribute to top-line growth. For instance, the company’s recent investment in Nebula (the world’s largest creator-owned streaming and technology platform) could accelerate subscriber growth.
Is the Stock Oversold?
Despite CuriosityStream recording positive developments continuously, its stock has been on a downward trend since February of last year, with no signs of a potential reversal in sentiment.
In my view, investors’ main concern likely lies in the fact that the company remains unprofitable. In Fiscal 2021, the company reported a net loss of around $37.6 million. However, the loss was due to continuous investments in content, which is essential for the company to grow its catalog over time.
As its subscriber base scales and price hikes kick in, net margins should eventually turn positive. In fact, CuriosityStream’s profitability prospects are quite brighter than that of its industry peers, as the company features rather rich margins.
For context, the company ended last year with its gross margins standing at 48.5%, while Netflix’s (NFLX) gross margins stood at 41.6%. This is due to documentaries having considerably lower production costs than, say, a sci-fi TV series.
In any case, even if we assume that CuriosityStream was to achieve low double-digit net margins in the medium-term, shares appear very cheap from a P/S standpoint.
Wall Street analysts expect the company to deliver Fiscal 2022 revenues of $98.3 million. I find this number quite unrealistic, as it implies year-over-year growth of 38%. This, in turn, suggests massive deceleration in the second half of the year relative to the 50% growth management forecasts for the first six months of 2022.
However, even if we assume that this will be the case, it would suggest CURI shares are currently trading at a forward P/S of just ~1.3. This is an extremely attractive multiple even if growth were to materially slow down in the medium-term and net margins were to remain below 15% to even 10%.
Wall Street’s Take
Turning to Wall Street, CuriosityStream has a Moderate Buy consensus rating based on four Buys, one Hold, and one Sell rating assigned in the past three months. At $5.71, the average CuriosityStream price target implies 135.5% upside potential.
The Takeaway
CuriosityStream is a truly unique company. While its niche content catalog may not appeal to audiences as wide as its industry peers’ audiences, the company certainly has a place in the market, already counting millions of subscribers.
Since the company became public, management has repeatedly achieved its growth targets. Yet, the market clearly can’t find enough reasons to love the stock. It’s true that CuriosityStream shares lack any catalysts to propel them higher other than the company reaching passive bottom-line levels.
However, once it does, investors will likely realize just how cheap this name is, leading to tremendous short-term gains. Overall, I see CuriosityStream as a speculative but promising play in the SVoD space, with the potential upside likely outweighing the risks.
Discover new investment ideas with data you can trust.
Read full Disclaimer & Disclosure
