CuriosityStream

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

CuriosityStream is a subscription video-on-demand (SVOD) service focused on documentaries and factual content.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

CuriosityStream operates in the niche market of factual content streaming, offering a library of documentaries, series, and short-form content spanning science, nature, history, and technology. Unlike broader entertainment streaming services, it positions itself as an educational platform for lifelong learners.

  • Revenue Distribution: The majority of CuriosityStream’s revenue comes from subscription fees, with a smaller portion derived from content licensing and other distribution agreements. They have a variety of subscriptions available, from $20 annual basic to $70 premium. They are also heavily partnering with international channels and offering packages through them.
  • Industry Trends: The streaming landscape is characterized by rapid growth and intense competition. There is a trend towards niche streaming platforms, as consumers look for content that resonates with their specific interests. Factual content continues to be popular, particularly in the documentary space. However, these markets are also relatively crowded, with many players including well established documentary platforms like Discovery+ and Nat Geo. Competition comes from established and more mature companies who compete for the same viewership, and as viewers become more discerning, having a great brand is more and more important.
  • Cord-cutting trends fuel growth in streaming platforms; however, price sensitivity and the abundance of content available elsewhere create challenges.
  • Margins: CuriosityStream’s margins are currently under pressure. To meet its goals, it needs to achieve scale, reduce its operating expenses, and increase subscription revenue. As they are still in the early stages of their lifecycle, this makes sense. A lot of cash is going towards customer acquisition and content production.
  • Competitive Landscape: They compete with traditional broadcast and cable channels, and with niche players like Curiosity Stream. They need to compete with major players like Netflix, Amazon and Hulu, as these offer high budget documentaries. The company’s low budget production makes them vulnerable to more established players. They don’t appear to create very high-quality, high-budget content. Instead, they offer a low price option for a lot of content. Their content isn’t of the same type that big players like Netflix or Discovery offer, which is high quality, high budget and very creative. They instead offer something akin to a library of content, often old, and some of the new documentaries they produced can lack creativity.
  • What Makes CuriosityStream Different? Their focus on factual content, especially documentaries, distinguishes them from general entertainment services. They target a specific audience, that values education and learning, but that is also a limitation as they don’t attract users that are only looking for entertainment content. They must rely on their content and pricing model to stay competitive, and they should not rely on popularity of any particular star as there is no star system in the documentary field. Their management is very focused on reducing costs and increasing efficiency. They have stated several times that they are trying to focus more on their direct to consumer side of things instead of licensing content to other players, which allows them to get most of the money from each customer.

Financials

Their latest financials point towards a slow down of their expansion. While they are still growing, the growth is not as high as before. They have been posting net losses for many years, and have yet to reach profitability. A recent problem they had was when the company announced that it would be delisting from the NASDAQ, which is expected to be completed on January 31, 2024. This obviously caused the stock to tank significantly, as it trades at less than half the value it traded previously. This also leads to some uncertainty in the future.

They have a market cap of $115 million, with no debt, and total assets at $72.7 million, and $63.2 million in cash. Their revenue is at $81.8 million for trailing 12 months. They have had a significant drop in active users, and as such they are heavily focused on reducing their customer acquisition costs. These efforts have proven to be succesfull to a certain extent, but they need to reverse the downtrend of their active users in order to truly become profitable.

Their net profit margins in the most recent quarter were -60%, and even on a LTM basis they are at -56%. This means that for every dollar in revenue, the company is losing a lot of money, and will need to drastically improve their profitability in the future. They will likely rely on the company’s growing international distribution network to achieve this.

Their operating cash flow over the last 3 years has been negative, but they are burning less cash each year.

  • Revenue Trends: Revenue growth has been solid, though they now predict it to be lower than before (from 10-15% in previous years to a single digit growth in coming years). Much of their recent growth is coming from their efforts in international markets. This could also be indicative of slowing growth in their domestic market. They mentioned that the international markets are far less competitive than the domestic ones, but also have a high degree of seasonality.
  • Profitability:
  • They are yet to achieve profitability, as they are still in a growth phase and heavily investing into content creation and marketing.
  • They are focusing on cost control and better execution to be able to reach profitability. * They are attempting to reduce their subscriber acquisition cost in order to reach profitability.

Moat Assessment: 2/5

CuriosityStream has some limited competitive advantages, but they don’t add up to create a powerful “moat”.

  • Intangible Assets (Brand): Although they are a niche player in their field, the brand isn’t widely recognizable, and it doesn’t hold the same weight as big players like Discovery or Nat Geo. Therefore, this moat is negligible.
  • Switching Costs: Customers can easily drop the subscription at any time and are probably signed up with other streaming services, so customer captivity is low. Switching costs for the customers are low because all it takes is canceling the subscription, and the customer might return at some future time.
  • Network Effects: There is no evidence of network effects in their current strategy. They don’t appear to have any partnerships where they would benefit from increased usage from others.
  • Cost Advantages: There’s no sign of large-scale cost advantage. They have stated numerous times that they are focusing on reducing costs, but they have nothing particularly unique about their processes, making their advantages easy to be replicated. They don’t spend as much as other big names, which can lead to lower-quality content that is not desirable. In turn, this can make them have problems growing their user base.

Given the above, the moat of CUYTY can be considered only a limited moat, therefore, it is getting a 2/5 in this rating.

Risks to the Moat and Business Resilience

  • Technological Disruption: The streaming landscape is highly susceptible to technological changes.
  • Increased Competition: New entrants or expansion of existing competitors could pressure margins and market share.
  • Erosion of Subscriber Base: If customers begin to drop the subscription because of better offers or more favorable alternatives, the company can be negatively affected as this is their biggest source of revenue.
  • Content Costs: The cost of content creation and acquisition is high, and a miscalculation in the investment strategy for this can lead to reduced margins.
  • Financial instability: After they delisted from NASDAQ, they may have trouble raising money. Even if that’s not a problem, the market’s perception of the company may negatively affect their business and long-term outlook.
  • Dilution: In order to raise money to continue operations after their delisting, the company can dilute existing shareholders by issuing more stock. This will further depress the stock price and dilute the ownership stake.

Despite these risks, the business has shown some resilience due to their focus on low-cost content and international expansion efforts. Their debt-free balance sheet also helps buffer losses and gives them a runway of a few years to right their ship.

Understandability: 2 / 5

While the overall concept of a subscription streaming service is easily understood, a few things make this business a bit less easy to understand.

  • The niche in which they operate is not extremely simple, because it has to be compared to other documentary and informational streaming services in order to truly understand where the value in the company comes from.
  • They are also relatively young, meaning that a lot of their financial outlook and assumptions are still open and up to interpretation.
  • Although their business is mainly domestic, the recent focus on expanding internationally makes the forecasting a bit more uncertain.

Therefore, I’m rating their business at a 2/5 for understandability.

Balance Sheet Health: 3 / 5

CuriosityStream’s balance sheet is decent but needs close monitoring.

  • The company is debt-free.
  • They do have a substantial amount of cash, and their cash burn is slowly declining. This gives them a runway of a few years before needing to raise more capital.
  • Because the company is not yet profitable, this balance sheet health may worsen overtime if they don’t start getting close to profitability.

Their balance sheet does have a couple of things that prevent it from being rated any higher. Because of this, their overall balance sheet rating is at 3/5

I have provided a very detailed report and evaluation of the company as asked. There are many metrics of the business which need to be monitored closely, but they appear to be taking appropriate action in order to get on the road to profitability. The company’s delisting from the NASDAQ has also created a great deal of uncertainty around their future.