The Singing Machine Company (SMDM) provides consumer karaoke products, toys, and accessories through mass merchandisers and online retailers. SMDM also has music subscription services for iOS and Android platforms, along with an online download store and streaming services.
Let’s take a look at the company’s financial performance and what has changed in its key risk factors that investors should know.
Amid the COVID-19 pandemic, SMDM capitalized on higher demand for in-home and mobile karaoke devices, which helped its Fiscal Year 2021 revenue increase 19% year-over-year to $45.8 million.
Moreover, digital marketing push, increased online sales, and reduced sales promotions resulted in the company’s gross margin improving to 26.8% from 21.2% a year ago. These favorable developments also helped SMDM post a net income of $2.2 million in Fiscal Year 2021 against a net loss of $2.9 million a year ago. (See The Singing Machine Company stock chart on TipRanks)
CEO of The Singing Machine Company Gary Atkinson said, “Our Carpool karaoke Microphone was a tremendous success, reinforcing our belief that there is strong demand for in-car singing entertainment. Further, our new integrated digital music subscription platform saw healthy adoption rates, reinforcing our belief that there is demand for subscription-based quality karaoke music content.”
Now, let’s look at what’s changed in the company’s key risk factors.
According to the new Tipranks Risk Factors tool, SMDM’s two main risk categories are Finance & Corporate and Production, each contributing 29% of the total 28 risks identified. Since March, the company has changed two key risk factors.
Under the Finance & Corporate category, SMDM acknowledges that it requires to establish and maintain proper internal controls over its financial reporting. In connection with its March 2021 financial results, the company concluded that there is a material weakness in internal control over financial reporting. This, if not remediated, may affect SMDM’s ability to timely and accurately report financial results and may further adversely affect the price of its common shares.
Under the Production category, the company highlighted that its customers generally place orders many months before the holiday season and require delivery two or three weeks before the beginning of the holiday season. Thus, SMDM bears the risk and cost of carrying inventory during this timeframe, which also reduces its cash flow. At the end of March 2021, the company had $5.5 million in inventory. Higher inventory levels may affect the company’s cash flow for operations.
The Finance & Corporate risk factor’s sector average is at 35%, compared to SMDM’s 29%. Despite the recent downtrend, shares are up 50% over the past year.
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