AI Licensing And Translation Will Expand International Markets

Key Takeaways

• Licensing agreements for AI applications and content rights focus on sustainable growth through diverse revenue streams.
  
• Cost rationalization ensures strong cash flow, supporting growth and improved margins.
  
• Dependency on non-recurring licensing deals and a saturated streaming market creates revenue volatility, while cost-cutting for cash flow may not be sustainable.

Catalysts

Operates as a factual content streaming service and media company.

• CuriosityStream's aggregation of content rights, including significant licensing agreements with both traditional media and technology partners for use in AI product development, is poised to drive substantial future revenue growth. This focus on monetizable content through emerging technology applications is a forward-looking strategy likely to increase recurring and variable revenue streams.
  
• The company's strategic cost rationalization, which has led to significantly lower annual operational costs relative to recurring subscription revenue, ensures strong free cash flow generation. This financial strategy supports bottom-line growth and positions the company to maintain or improve net margins.
  
• Advancements in AI-driven translation technologies are reducing localization costs, which will allow CuriosityStream to expand its reach into more international markets and languages. This expansion is expected to increase subscriber base and revenue, particularly in factual content programming that performs well internationally.
  
• The rollout of new global currency options is anticipated to enhance subscriber acquisition and revenue in diverse markets, taking advantage of the company's existing large subscriber base distributed across 176 countries. This strategic move is likely to contribute to top-line revenue growth.
  
• Enhanced talent density, characterized by increased productivity and faster execution, is expected to drive innovation and operational efficiency, contributing to potential earnings growth by optimizing resource utilization and facilitating rapid adaptation to market changes.

CuriosityStream Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CuriosityStream's revenue will grow by 11.1% annually over the next 3 years.
• Analysts are not forecasting that CuriosityStream will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate CuriosityStream's profit margin will increase from -25.3% to the average US Entertainment industry of 9.9% in 3 years.
• If CuriosityStream's profit margin were to converge on the industry average, you could expect earnings to reach $7.0 million (and earnings per share of $0.1) by about April 2028, up from $-12.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.5x on those 2028 earnings, up from -13.0x today. This future PE is greater than the current PE for the US Entertainment industry at 24.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

CuriosityStream Future Earnings Per Share Growth

Risks

• High dependency on large, non-recurring licensing deals with technology partners for AI training. The inconsistency and potential non-recurrence of such deals could create volatility in variable revenue, impacting overall financial stability.
  
• The competitive landscape of streaming services is saturating, making it challenging to continually grow the subscriber base, which could negatively affect recurring revenue from subscriptions.
  
• Despite reported improvements, revenue was essentially flat year-over-year when excluding noncash transactions, suggesting limited organic revenue growth, which could impact future earnings expectations.
  
• Heavy reliance on cost-cutting measures and enhanced operational efficiency to achieve cash flow improvements might not be sustainable long-term, possibly affecting net margins if cost savings are depleted.
  
• Global macroeconomic uncertainties and increased competition could dampen subscriber growth and ad revenues, undermining anticipated top-line growth and potentially squeezing net margins further.

Valuation

• The analysts have a consensus price target of $2.95 for CuriosityStream based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $70.2 million, earnings will come to $7.0 million, and it would be trading on a PE ratio of 37.5x, assuming you use a discount rate of 8.2%.
• Given the current share price of $2.91, the analyst price target of $2.95 is 1.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.