GAIA (NASDAQ: GAIA) has been around for a while. Founded by Jirka Rysavy in 1988, the company aims to serve the “conscious consumer” (its own words).
For some context, the company launched its streaming service in 2012 to distribute its content (previously distributed through the traditional methods at the time) more efficiently. Streaming has become the norm these days, and in 2016, GAIA divested all of its non-streaming assets and concentrated exclusively on growing its streaming video service.
What differentiates GAIA from the rest of its well-known steaming peers is its unique, interesting, and arguably controversial focus on what the company itself describes as “conscious media” for the “conscious consumer.”
The company’s content catalog exclusively targets this area and does not seek (at least to my understanding) to capture market share in the mainstream video-on-demand market comprising the established movies and TV shows that services such as Netflix, Disney+, HBO, and others focus on.
One can find anything from fringe theories to conspiracy theories, alternative medicine, aliens, and so on. It’s all there for about $12/month. However, be careful, as this is the company’s blessing and, simultaneously, a curse.
On the one hand, this is a competitive advantage for GAIA, as no other sober streaming company is allocating capital and catalog space to produce content on content such as the lost Atlantis or extraterrestrial beings.
Hence, the company has captured a niche audience that is interested in such themes, which can only be accessed through GAIA’s service. Consequently, the company has managed to grow its subscriptions quite successfully.
On the other hand, one that will research the company will quickly discover that the stock can hardly be marked to investors. GAIA’s controversial content catalog, which may include non-factual content, makes investors rather reluctant in terms of allocating capital to the stock.
Consequently, while GAIA has been growing revenues rather consistently, the stock’s valuation multiple remains at a depressed territory.
In my view, GAIA is steeply undervalued, and for this reason, I am bullish on the stock based on its short-term upside potential.
Valuation Story Vs. Growth Story
GAIA’s successful expansion can be illustrated in its member count’s growth. In Q3, the company numbered 790,500 members, 13.7% higher year-over-year. Hence, revenues grew by 17% to $20.4 million.
Revenues may look insignificant versus the streaming giants. Still, GAIA is growing, and sadly, this growth is not reflected in its underlying valuation. The stock is currently trading at a forward P/S of just 1.9 despite enjoying EBITDA margins north of 20%. For context, Netflix (NASDAQ: NFLX) is trading at a forward P/S of 8.2.
Investors need to be wary of the company’s quirky offering, which may keep investors away from stock, translating in a depressed valuation in perpetuity.
The lack of dividend payments also reduces investors’ margin of safety, which could be another reason the stock’s valuation struggles to expand.
Wall Street’s Take
Turning to Wall Street, Gaia has a Strong Buy consensus rating, based on three Buys assigned in the past three months. At $17.33, GAIA’s price target implies 96.5% upside potential.
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Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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