CSSE: Chicken Soup for the Soul Entertainment is a Beneficiary of the Stay-At-Home Environment

By Lisa Thompson

NASDAQ:CSSE

READ THE FULL CSSE RESEARCH REPORT

Chicken Soup for the Soul Entertainment CSSE reported a strong fourth quarter aided by a delayed acquisition and increased viewership. Since businesses across the world have shut down, viewership has grown substantially at Crackle as people have more free time, but less money, making AVOD services even more attractive. Viewership on Crackle and Popcornflix increased between 20% and 25% in the past couple of weeks and new registered viewers per week have grown nearly 47% just since the week of March 15. The company continues to sell out more than 90% of its inventory and had demand outstripping supply. Prices for ads have also held steady. Despite the decline in some categories, others have grown significantly. With few and small theatrical releases even planned for the company's productions, CSSE is a beneficiary of the current environment as those have been cancelled and will go to streaming even sooner.

Q4 2019 Results

Chicken Soup for the Soul Entertainment came in with Q4 revenues and EBITDA above forecasts. Net revenues were $24.7 million versus $11.7 million a year ago, up 106%. The company is now combining Television & Short Form Production with Television and Film Distribution starting in Q1 due to their new production model of partnering with other producers to limit downside risk. In Q4 2020, there were no shows produced and shipped while last year there was $5.4 million worth. Distribution this quarter was $9.9 million versus $5.4 million, up 83% and online networks grew to $14.9 million from $1.1 million a year ago. Distribution was particularly strong this quarter as it captured both Q3 and Q4 revenues from the delayed Foresight film library acquisition. Four million dollars for presales for films acquired from the Foresight film library slipped from Q3 into Q4.

Net loss to common shareholders was a loss of $12.4 million versus earnings of $458,000 last year and a loss of $13.3 million in Q3. GAAP loss per share was $1.02 versus a profit of $0.04 a year ago and the share count remained steady. On a non-GAAP basis, taking out stock-based compensation and one-time charges, we believe the loss would be $0.95 per share versus a profit of $0.18 per share a year ago.

Fortunately the company is run on EBITDA due to its high amortization costs distorting the profitability of the enterprise. For Q4 EBITDA was positive at $5.8 million compared to $5.2 million in Q4 2019 and a negative $372,000 in Q3. We look for the company to remain EBITDA positive going forward.

2019 Year

For the year the company reported $55.4 million versus $26.9 million in 2018, up 104%. On a pro forma basis, if Crackle had been incorporated for the entire year, revenues would have been $79.1 million compared to $92.6 million in 2018. CSSE has pared back Crackle to move it to cash flow positive and eliminated most, if not all original content. On January 30, 2020, Sony closed down PlayStation Vue, a streaming service with 800,000 subscribers. Vue was available as an internet app supported by Roku, Amazon FIreTV, Apple TV, and Sony's PlayStation. Crackle provided the ads shown on that service and because of the shut down, CSSE will lose approximately $22 million in low margin revenue in its ad network in 2020. So CSSE will have to grow from a base of $57 million in 2019 revenues. The company expects that it will quickly replace those profits. Crackle has already struck new ad rep relationships with more favorable economics to replace a portion of that revenue, and may add more.

2020 Forecast

The PlayStation Vue shut down on January 30, 2020. Crackle provided ads for this streaming service, which amounted to approximately $6 million per quarter and as a result we are reducing revenue expectations for 2020. The contribution to EBITDA from these revenues was small, the company hopes to make them up as the year progresses.

The company has one film in post production called Willy's Wonderland starring Nicolas Cage. This is a horror movie about a janitor working the night shift at a condemned amusement park. The animatronic characters come to life and, of course, attack. It is directed by Kevin Lewis (The Drop, Malibu Spring Break) and is expected to be released in Q4. Nothing else was or is in production. Others are planned for later in the year when filming might be able to start. One movie, Trigger Point, is currently in preproduction and will start production when possible.

We are cutting revenues to $83 million revenues for 2020 and a loss of $27 million, which is about equal to the amount of amortization we are forecasting. The GAAP loss of is calculated at $2.23 per share. We are anticipating this yields an adjusted EBITDA of $12.1 million.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR. 

DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.