Genius Brands (NASDAQ:GNUS) explosive top-line growth in its second-quarter earnings report wasn’t enough to convince investors of the entertainment stock’s long-term prospects, and its shares have been falling this week as a result.
The Genius Brands’ (NASDAQ:GNUS) stock price was down 14.7% as of 2:45 p.m. ET, per data provided by S&P Global Market Intelligence.
What’s the Reason for Stock Gain for Genius Brands?
The second-quarter financial report for small-cap entertainment company Genius Brands (NASDAQ:GNUS), which owns a variety of children’s entertainment intellectual property, showed massive expansion.
The Genius Brands (NASDAQ:GNUS) has recently acquired Wow! and Ameba and made a strategic investment in YFE, which has contributed to an increase in revenue of 843%, reaching $22.1 million. The key driver of this revenue increase was the company’s acquisition of Wow!, which brought in $64 million in sales in the prior year. As a result of the agreement, Genius Brands will be producing the top-rated children’s show CocoMelon, and the hit shows Barbie’s Dreamhouse and Madagascar : A Little Wild.
It’s unclear what caused Genius Brands’ initial surge on the earnings report to dwindle for the rest of the trading session. Strong revenue growth was reported, but the study also highlighted the stock’s many flaws, such as significant losses, a high rate of cash burn, and increasing share dilution.
During the quarter, the company lost $8.6 million in operating income, and by the end of the year’s first half, it had lost $20.1 million in free cash flow.
Genius Brands (NASDAQ:GNUS) paid $53 million total for the Wow! transaction, of which $37 million was in cold hard cash. Despite having over $100 million in cash and equivalents, the corporation is also arranging a $61 million margin loan that might be called if it exhausts its marketable securities.
What’s Next?
During the early stages of the pandemic, Genius Brands’ (NASDAQ:GNUS) stock price skyrocketed in hopes that the company would fulfil CEO Andy Heyward’s vision of becoming a dominant force in the children’s entertainment industry. Partnerships with famous people like Arnold Schwarzenegger and Shaquille O’Neal haven’t resulted in any of those.
However, investors should remember that Wow! was only acquired by Genius for $53 million, which is responsible for the vast majority of Genius’ revenue. With a market size of $262.6 mln at that price, there is still a case to be made that Genius stock is expensive.
Featured Image: Megapixl © Melis82
Author Shariq Khan 
