Genius Brands’ (NASDAQ: GNUS) Q2 earnings are generating significant noise on Wall Street. Some investors agree with the management and are proclaiming the results were impressive. At the same time, bearish investors are exposing the flaws in the financial reports, in particular dilution issues. The polarising entertainment company is down 80% in the past two months, which adds weight to the bearish argument. Nonetheless, will we break down GNUS’s Q2 earnings and everything you need to know before investing.
Table of contents 1. Objective deconstruction of Genius Brands' earnings 2. What you need to know before investing
Genius Brand’s earnings were they strong or weak?
Investors have mixed feelings about GNUS’s Q2 earnings. On the positive side, Genius saw cash and cash equivalents surge from $305,121 to 54,382,775 million. An increase in cash is excellent as Genius can expand its business and ultimately increase revenue. Additionally, Genius’ revenue grew by 20% Year on Year (YOY). Revenue growth is a point for the bulls as it indicates Genius’ product lines are becoming more profitable.
However, pleasing financials stops with revenue and cash growth. The most startling financial was Genius’ net loss. Because GNUS’ net loss went from -1,715,512 million to -383,258,002 million (YOY). However, the management stresses how the net loss results from the re-evaluation of option and warrant prices and is thus a non-cash related event. Also, Genius is still unprofitable. Unprofitable companies like Genius often resort to diluting shareholders to raise more cash to fund business expansion. Genius Brands’ weighted average shares outstanding increased from 10,447,475 million to 78,503,414 million (YOY). Initially, investors might not find GNUS’s dilution palatable. However, the additional cash saw Genius eliminate corporate debt and hold an impressive $52 million in cash and cash equivalents.
Everything you need to know before investing in Genius Brands
Before I begin, I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research
Despite the positive developments, Genius is suffering from a severe bearish decline. However, for the past few weeks the bears and bulls have been in a stalemate as GNUS traded sideways. The GNUS option chain confirms this trend as August put and call options are relatively equal.
However, September and October options are indicating a slight bullish undertone for the future. Furthermore, the 80% sell-off in the past few months may suggest that the selling spree might be coming to an end, also known as capitulation. In which only GNUS buyers are left to drive up the price. Considering 1.35 million insider shares were sold last quarter in comparison to the zero sold so far this quarter means we could see the bottom soon (opinion not advice). However, just because the sentiment is changing does not mean you should jump in. Because Genius’ share price growth is driven by perception and not fundamentals.
Overall, the Q2 earnings show signs of long-term growth but short-term contraction. Ultimately supporting a long-term investment and undermining a swing trade in Genius. Hence the divide on Wall Street.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.