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Yahoo Finance Plus GROM: A Promising Children’s Entertainment Company with Big Plans, Run By Industry Veterans
NASDAQ:GROM
Fresh off a December $5.0 million capital raise and reverse split in December, Grom Social Enterprises (NASDAQ:GROM) is poised to capitalize on a number of promising initiatives over the next several months. The company now has 3.2 million in fully diluted shares and trades at a market capitalization of $5.5 million. It has approximately $4 million in cash after its December sale of equities and $590,000 in debt making its enterprise value only $2.1 million. It is using its new cash to fund new projects including furthering the company’s wholly-owned original holiday eCommerce site, Santa.com; a new preschool entertainment franchise entitled Hey Fuzzy Yellow! that has financing and distribution commitments from several international programming services; upconverting its animation production studio to offer both pre- and post-production capabilities; and a complete overhaul of its COPPA-compliant kids social media app to welcome kids under 13, whose social media options will be limited due to pending legislation. Grom is on the precipice of maximizing its considerable assets in its four subsidiaries and is bolstered by a roster of proven executives in kids’ and family entertainment.
Its businesses all work in tandem to serve the entertainment and social media needs of kids and their families. Grom’s educational service blocks inappropriate sites on school campuses across the US and serves as a platform that introduces kids to the company’s original business, Grom Social, the social media app exclusively for kids under the age of 13, who are not permitted on most social media without parental consent. Millions of kids secure accounts without their parent’s knowledge but pending legislation - with rare bipartisan support – aims to protect kids on social media and penalize companies that have lax sign-up with heavy fines and increased government scrutiny.
Grom Social is ready, and industry tailwinds are in the company’s favor as it operates well within compliance with COPPA and expected legislation to continue to protect kids using its app. With limited social media options, Grom aims to welcome kids with open arms through its new interface and user experience designed to offer kids more of what they love about apps intended for older consumers. Several big media companies – Facebook/Meta and YouTube, to name a few – have been fined hundreds of millions for not protecting kids online and selling their data. Grom Social never has and never will share user data. Additionally, what sets Grom apart from competitors is that the app requires parental sign-up for each child, is fully secure to prevent exposure to harmful content, has live monitoring, and invites parents to play an active role in keeping kids safe on social media. The redesign, slated to be unveiled later this year, aims to quickly cultivate a new audience and give advertisers a platform to reach a demo that is pure kids.
Over the past two years, Grom has expanded and undergone a significant transformation, including bringing on several seasoned industry executives to lead its businesses. The leadership team is a key differentiator for the company and should provide investors with more confidence it can succeed in future endeavors. After having generated revenue in the billions of dollars for companies like Disney and Viacom, these executives are now set to make that money for Grom and themselves. The company has now had almost two years to lay the groundwork, is emerging from Singapore lockdowns, and has the cash to capitalize on its plans. The acquisition of Curiosity Ink Media (CIM) was the major factor in its evolution.
Russell Hicks, became Chief Content Officer and President of Top Draw Animation, in April of 2021 and was one of Curiosity Ink Media’s founders. Prior to launching Curiosity Ink Media in 2018 with Brent Watts, he served as president of content and production at Nickelodeon from 2012 to 2017, and as CCO before that from 1998 to 2012, playing a key role on SpongeBob SquarePants, Henry Danger, and The Loud House. Earlier in his career, he worked at Warner Bros. as VP of marketing for Cartoon Network, and he also produced content for Disney.
80% Curiosity Ink Media was then purchased by Grom in August 2021 and the company then brought on Hicks’ partner Brent Watts as Grom’s Chief Creative Officer. CIM is a producer and developer of original kids' and family content. This acquisition included Curiosity’s IP catalog as shown below.
Earlier in his career, Brent founded and served as Executive Creative Director for Struck, an award-winning boutique design and advertising agency. His clients included Pinterest, McDonald’s, Disney, Warner Bros. Paramount Pictures, Sony Corp., Universal Pictures, and DreamWorks SKG. Watts was the creative force behind Will.i.am’s Wizards and Robots and award-winning title designs for films such as Lemony Snicket’s A Series of Unfortunate Events, and Universal’s Land of the Lost.
Then, in September 2021 the company hired Jared Wolfson as the Chief Executive Officer for Curiosity Ink Media and Executive VP for Top Draw Animation. He joined Grom from JAKKS Pacific, a leading designer, manufacturer, and marketer of toys and consumer products sold throughout the world where he was Senior VP of Media, Marketing, and Entertainment. Before JAKKS, Wolfson held executive roles at Skyrocket Toys, Pacific Animation Partners, The Walt Disney Company, and Zag Entertainment.
Some of the projects that CIM has announced include: a collaboration with global toy company Cepia LLC to develop the hit online shorts Cats vs. Pickles into a television series…
…and an original animated holiday musical feature Santa.com, which will serve as a companion to a Santa.com virtual holiday hub and eCommerce initiative.
Additionally, CIM has made a foray into publishing with new partner Dynamite Entertainment to create books for kids rooted in Curiosity’s original IP and other brands. Its first book Baldwin’s Big Adventure launched in November and is about a switcher train and is targeted at 3-6-year-olds. It is currently being developed into an animated preschool series. It also plans to publish books based on PAW Patrol™.
In the first nine months of 2022, Grom generated $3.9 million in revenues and lost $9.0 million. The was a revenue decline from 2021 due to COVID restrictions in the Philippines where 85% of its revenue is generated and its animation studio is located. $3.3 million of the loss was from interest payments which will now be reduced by the cash raise. It expects a good fourth quarter. During 2022 revenues primarily came almost entirely from its animation work.
In addition to its steady animation work, and other initiatives already mentioned, 2023 should be a year building on three meaningful new opportunities that are evolving into projects.
1. The company just announced that it has secured an equity stake in Hey Fuzzy Yellow!, a new preschool franchise that will debut as a TV series and, in success, expand into ancillary revenue opportunities (consumer products, merchandising, etc.) commonly associated with hit preschool franchises.
2. With its new funding, the company hopes to expand its animation business into a full-range animation studio complete with pre and post-production capabilities.
3. Also in the works is a plan for a feature film using one of its intellectual properties. It is a comedy and will be part animated and part live actors in the vein of Who Framed Roger Rabbit. Should this proceed, it will be with a world-renowned director leading the project. This is expected to be a bigger-budget film and will require partners to help fund and distribute.
2023 will be a year of building and investing while 2024 could be huge for revenues and profits as these projects are released. Near-term, investors should look for announcements as plans firm up. We expect the company could return to its pre-COVID revenue level this year surpassing the previous record of $7.8 million. With the company’s enterprise value at $2.1 million, the stock deserves a second look. Having a hit with any of its new content and projects only adds to the potential upside.
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