CuriosityStream: Let It Ride With This Streaming Stock (CURI)

Year-to-date, CuriosityStream (NASDAQ:CURI) has continued to be an example of “why micro-caps can be so lucrative,” as Seeking Alpha contributor Courage and Conviction Investing put it earlier this year when describing the stock’s initial 2024 breakout in price. Yet after surging further over the past six months, the question now with CURI stock is whether further gains lie ahead.

The answer? Not so fast! Even after this more than epic run-up in price, it’s not as if shares in this streaming service and media company have become egregiously expensive. Based on traditional valuation metrics, CURI is no longer “deep value,” but there could be a path to further upside.

While some near-term challenges could emerge, leading to a new round of volatility, the bull case can still be made for CuriosityStream shares, as I’ll explain below.

CURI Stock: From ‘deSPACed’ to ‘Whacked’ to ‘Comeback’

Since its debut nearly four years ago, CuriosityStream has gone through three distinct stages. First, the “deSPACing” stage. As Courage and Conviction Investing, along with other analysts and commentators, have discussed in prior coverage, this once privately-held company went public through a special purpose acquisition company (“SPAC”) merger in late 2020, during the height of “SPAC mania.”

After experiencing a significant surge in price, as SPAC stocks remained hot among market participants, CURI stock, but once the SPAC bubble burst, shares entered what could be best described as the “whacked” stage. As fundamentals came back into focus, and macro factors like rising interest rates called into question the “growth at any price” valuations speculative growth plays were once fetching, CURI tumbled from as much as $21.97 per share in early 2021, to low single-digit prices by early 2022.

From there, the “whacked” stage continued. Further deterioration in operating performance gave investors even more reason to de-rate CuriosityStream shares. By the time the dust started to settle in early 2024, shares were trading for as low as 45 cents per share, or nearly 98% below their high-water mark.

However, thanks to a spate of positive surprises unveiled in the company’s Q4 2023 earnings release, including an upbeat outlook and the initiation of a cash dividend program, CURI entered its “comeback” era, most recently seen with the stock’s latest run-up in price over the past month.

Recent Results and the Late Summer Run-Up

On Aug. 13, CuriosityStream released fiscal results for the quarter ending June 30, 2024. For the quarter, the self-described “global factual entertainment company” reported a 12.1% drop in revenue compared to the prior year’s quarter. However, this is largely due to CuriosityStream pivoting away from licensing its content to third-party platforms, to focus mainly on the operation of its own subscription-based streaming platform.

With this pivot has come a continued improvement in profitability. Last quarter, gross profits increased 52% year-over-year. Net losses also improved, with quarterly net losses of $2 million representing a deep narrowing compared to the $9.6 million in losses reported during Q2 2023.

Adjusted free cash flow of $2.9 million also represented a significant upward swing compared to Q2 2023, when the company reported a total cash burn of $10.6 million.

Compared to sell-side forecasts, revenue came in largely within expectations, with net losses representing a slight beat compared to analyst consensus. In addition to these improved operating results, CuriosityStream made other announcements that the market has responded to positively in the month or so since earnings.

These included plans to initiate a $4 million share repurchase program, plus the declaration of another 2.5 cents quarterly dividend. At first, $4 million may sound like small potatoes, but compared to CURI’s $105.38 million market cap, this represents a moderate amount of share repurchase activity.

By continuing the dividend, CURI continues to sport a fairly high forward annual dividend yield of 5.18%. That said, while the latest results and updates were solid, I wouldn’t call CURI’s latest surge a “post-earnings rally.” Instead, a different factor has been at play.

Interest Rates are Driving the Latest Breakout, but That’s Not a Major Problem

All eyes are on the likely forthcoming interest rate cuts from the Federal Reserve. Ahead of this event, interest-rate sensitive stocks like REITs and utilities have steadily climbed higher over the past month.

The same thing has clearly played out among other stocks with higher-than-average yields. CURI stock is no exception. While perhaps an unexpected positive for existing investors, admittedly there may be the risk of some short-term volatility. After bidding up high-yield stocks ahead of a rate cut, it’s possible that names in this category will sell off, if the Fed lowers rates this week as expected.

For a smaller, less liquid stock, the volatility could be greater than with more widely-held REITs, utilities, and dividend aristocrats. Still, while interest rates, not fundamentals have been driving CURI higher, and this could hurt in the short-run, again I reiterate that the long-term bull case has not gone away.

Although CURI stock is no longer the clear-cut bargain it once was, it’s not as if the valuation has hit “priced for perfection” status just yet.

Valuation and Possible Paths Higher

At current prices, CuriosityStream stock has a market cap of $105.4 million. Subtract $39.5 million in cash, and add back $4.5 million in debt, and the company has an enterprise value of around $70.4 million.

Compared to potential EBITDA going forward, this valuation may at first appear reasonable. CuriosityStream’s trailing twelve-month EBITDA is around $5 million, but with the company’s EBITDA coming in at around $2.2 million last quarter, it’s very possible that the company has now reached a point where it’s generating annualized EBITDA of double that of the trailing twelve-month period.

In turn, this suggests that the company trades at an EV/EBITDA ratio of around 7x. The median EBITDA multiple for other stocks in CURI’s sector is around 10.5x. Other streaming pure plays, ranging from “Mag 7” component Netflix (NFLX), all the way down to fellow micro-cap Gaia (GAIA), trade at far higher EBITDA multiples than CURI.

Hence, there may be a path for further upside, even before new catalysts potentially emerge. Using our $10 million annualized EBITDA figure, I estimate that the company’s operating business is worth around $105 million. Add back in the cash, subtract the debt, and we get a valuation of around $140 million.

That’s not all. Per CuriosityStream’s latest quarterly filing, the company also holds stakes in two ventures, which are valued using the equity method. These are its 32% interest in a German streaming venture (Spiegel TV Geschichte und Wissen GmbH & Co. KG), along with a 12% stake in streaming platform Nebula. Previously, CuriosityStream marketed a special where it bundled its own service with Nebula, but last year this was discontinued.

CURI originally paid $3.3 million for its stake in Spiegel and $6 million for its Nebula stake. After equity method write-downs, these positions are on the books at $267,000 and $4.17 million, respectively. Although book value for such assets can be deceiving, in this case using them to estimate their market value may be appropriate, particularly for the Nebula stake.

In terms of valuing Nebula, it’s tough to find recent, dependable information. Most of what you find is information related to the funding round CuriosityStream participated in, as well as a documentary (produced by a major Nebula content creator) that implies that Nebula is worth $150 million.

Still, while you may want to follow the lead of one Medium contributor, and take the documentary with a grain of salt, it’s plausible that Nebula, still seemingly thriving despite the end of its bundling deal with CuriosityStream, may be willing to buy out its former partner, at a price that’s at least the current book value of the position.

Adding this $4.17 million to our valuation gets us to around $144.2 million, or around $2.64 per share. Yes, implied upside of around 36.8%, when compared to this stock’s recent performance, isn’t all that exciting. However, taking into account the following paths to additional upside, a move back to even higher prices could be well within reach.

1. CuriosityStream’s Strategic Pivot Proves Effective

While not certain, one reason why investors could be hesitant to value CURI on par with other streaming companies, may have to do with concerns that, with its big cost-cutting push, the company is merely trying to milk its existing content library.

Presumably, in time, it may prove difficult to monetize a library that is not being as constantly replenished as before with new programming. However, with the focus on factual programming, CuriosityStream’s library may be more evergreen than you think. Not only that, the company is actively figuring out ways to further maximize its library assets, by reaching new markets.

For instance, earlier this year, CURI entered a partnership with Spanish-language media company Estrella, to launch several free ad-supported streaming TV (FAST) networks, which feature existing CuriosityStream content in Spanish.

If the strategic pivot proves effective, and the company manages to drive modest but steady revenue growth, this could lead to CURI stock rising, due to both improved results, as well as a market re-rating due to diminishing concerns about the long-term value of its existing content.

2. Dividend Growth Fuels Further Share Price Growth

This may be an even easier path to the upside for CURI. At the present payout levels, CURI’s dividend represents an annual outflow of around $5.6 million. Given the above-mentioned EBITDA figure, plus the nearly $3 million in free cash flow generated last quarter, there’s room for CuriosityStream to get even more aggressive with its dividend policy.

Couple this with a return to a lower interest rate environment, plus the potential for further improvement to results thanks to the strategy shift, and it’s well within the realm of possibility that CURI could materially raise its quarterly dividend (say, by 50% or more), with shares rising in tandem with the increase.

3. CuriosityStream Pursues Strategic Alternatives

Another possible catalyst for CURI stock is the potential for this to pursue strategic alternatives, as either the acquirer or the target. Although the company has already earmarked some of its war chest for stock buybacks, there’s plenty still there that could be used to make strategic acquisitions.

Furthermore, by both using this cash, as well as utilizing debt, CURI may be able to pull off a fairly large purchase that has the potential for needle-moving cost and growth synergies. Here are some examples of possible acquisition targets/merger partners:

• Cineverse (CNVS): Formerly known as Cinedigm, Cineverse is another small, albeit unprofitable, operator of FAST streaming channels.
• Gaia: Mentioned earlier, this company may be best known for its library of yoga-related content, but it has moved into documentary programming as well in recent years.
• Thunderbird Entertainment (OTCQX:THBRF): A Canada-based producer of scripted, factual, and animated programming.

As an acquisition target itself, CURI could fetch a hefty premium, recent strong performance notwithstanding. Beyond the potential for the company in its current form to justify a valuation nearing $3 per share, a strategic buyer may be willing to pay up, again given potential cost and growth synergies.

Who are some possible buyers of CURI? Some of the larger yet still “non-major” entertainment companies, like AMC Entertainment (AMC), Lions Gate (LGF.A) come to mind. For these possible suitors, acquiring CURI could give them a content library, plus a turnkey platform to add to their streaming portfolios.

Bottom Line on CURI

As the Wall Street cliche goes, the “easy money” has already been made with CURI stock. Turbulence may be on the horizon, due to the role excitement about lower interest rates has played on price performance.

Investors could once again bid CURI lower, if subsequent results fail to impress or signal that aggressive cost-cutting is affecting the popularity of its streaming platforms.

Even so, if you’ve held onto a position since its lows, it’s not necessarily time to cash out. There are many ways that the comeback could continue to play out, resulting in an additional high double-digit move higher for shares.

For those who have yet to enter a position, there’s no need to think that you are chasing a winner, just as it’s reaching a topping-out moment. Besides there still be good value with the stock at current prices, if volatility arrives in the weeks/months ahead, you may be able to scoop up a position at lower prices.