Kartoon Studios (NYSE-Amer: TOON) might operate under the radar for many, but certainly not for everyone—analysts included. Among them is an analyst from Dawson James, a reputable Wall Street firm that can hold investors’ attention. Essential to the TOON investment proposition is his coverage of TOON is decidedly bullish. In fact, his research led to him modeling for TOON stock to reach $10.00 by the end of this year. This price target, published in December 2022, represents an approximate 599% increase over Friday’s closing price of $1.43. Demonstrating the hallmarks of a well-founded analyst report, he offered a foundation supporting his bullish perspective.
That includes recognizing escalating revenues, notable acquisitions, and strategic partnerships with esteemed studios and renowned actors. In no uncertain terms, all three are value drivers. As important, work done expedites Kartoon Studio’s mission to expand its global programming and business footprint, highlighted by an impressive asset portfolio targeting several demographics and genres. Popular programs, among many others, include brands such as Stan Lee, Shaq’s Garage, and others featuring prominent personalities. The value proposition is further supported.
Contributing is TOON’s international expansion going over in a big way. In fact, the acquisition of Wow Unlimited and Ameba TV content, coupled with strategic collaborations with Toho Studios and Powerkids Entertainment, is accelerating growth and market penetration in key regions such as Japan, India, and South Asia. There’s even more to appreciate. TOON’s global distribution is enjoying significant programming traction, propelled by its parent company, Genius Networks. All of that is worthy of more value. But so is something else. TOON’s parts do more than support an investment proposition; it shows TOON’s aspirations of becoming a global programming powerhouse could happen faster than many think.
TOON Growth Is Tangible
That goal isn’t overly optimistic, considering TOON is on pace to deliver a revenue run rate above $50 million. Last week, TOON reported revenue of $11.0 million and $25.2 million for the three and six months that ended June 30, 2023. Keep in mind that growth in the comparative six months accrued despite an industry slowdown resulting from the ongoing strike by the Writers Guild of America (WGA) and Screen Actors Guild (SAG). Moreover, conditions were challenged by the streaming services retooling their models, which reduced spending across the entire entertainment industry during the period.
The good news is that the worst, at least for TOON, is likely behind them. Kartoon Studios nor its subsidiaries are signatories of WGA or SAG. More importantly, the company noted that program orders have begun to pick back up, with expected greenlighted content from its subsidiary Mainframe Studios’ diverse customer base, including Mattel, Disney (NYSE: DIS), Netflix (NASDAQ: NFLX), Hulu, Spin Master, and others. Contributing toward an expected robust back half of 2023 is a balance sheet having, as of June 30, 2023, current assets of $91.6 million, working capital of $14.4 million, and total stockholders’ equity of $87.5 million.
And keep in mind that its assets, acquisitions, and partnerships are the type that can continue to accrue value. TOON’s expansive digital portfolio already generates an average of over 1 billion monthly views. That number, strike period aside, has been growing rapidly. Genius Networks’ subscription increases have had momentum since Q4/2022, evidenced by conversions from trial to payer-based service increasing double-digit percentages over comparative quarters. A factor also contributing to growing viewership is The Kartoon Channel! ‘s expanding market reach from availability on iOS, Android, Amazon Prime (NASDAQ: AMZN) Video, Apple TV (NASDAQ: AAPL), Roku NasdaqGM: ROKU), and Comcast (NasdaqGS: CMCSA). In particular, that channel has consistently been noted as the top customer-reviewed children’s streaming app on the Apple App Store, with high ratings resulting from its entertaining content variety.
Adding to the current content is a listing of new.
TOON Delivers More Entertaining Content
New program assets are expected to keep the revenue curve steepening. That includes a documentary tribute to the iconic life of Stan Lee that premiered at the Tribeca Film Festival and is now available on Disney+. The company also debuted its animated series “Stan Lee’s Superhero Kindergarten,” hosted by Arnold Schwarzenegger. It contains valuable life lessons and captivating adventures. There’s more supporting the value proposition.
TOON is leveraging the value inherent to its extraordinarily popular Bee and PuppyCat program through comprehensive licensing and merchandise. Those initiatives are expected to drive revenues in 2H/2023, expedited from marketing and industry muscle from its partnership with Toho Studios. Widely popular and fast-growing Pluto TV is also contributing to TOON expansions. It features Shaq’s Garage, a series of twenty-six 11-minute episodes enhanced by companions, collaborations, and corresponding social marketing campaigns.
Despite the ongoing market disruption, getting back on the accelerating revenue track will be through its WOW Unlimited and Ameba TV acquisitions. Those two assets can expedite market penetrating the lucrative children’s entertainment segment, with Candian-media WOW Unlimited and its subsidiary Frederator Networks promoting animated hits, including Adventure Time and The Fairly Odd Parents.
Ameba TV is another solid value driver capable of generating substantial revenues. Its pioneering children’s streaming service and networking with Amazon Prime Video Channel is doing its part to expand Kartoon’s content library. Remember, any deal that increases content creation capabilities and expands distribution reach, enabling Kartoon Studios to capture a larger share of the children’s entertainment, is a significant win. TOON has many. This one benefits from association with Amazon assets, a working partnership that can expeditiously turn ambition into revenues from its financial ability to monetize program development opportunities more quickly and capitalize on the increasing demand for engaging and educational content.
TOON Is Seizing The Value From Premium Grade Partnerships
If one were to take a pencil and draw TOON’s development, stopping only at acquisitions to put an A, it would show quite a few letters A’s. Those letters, powerful in this example, are doing more than fueling company growth; they never get tired of doing so. Each one enables Kartoon Studios to build on its acquisition value, leverage its expanded capabilities, and efficiently monetize them from a management team that understands the intricacies of the entertainment and programming sector. Better described, the TOON team are experts in their craft, able to transform sometimes underperforming assets into media hits.
And here’s something to consider. While Shaq’s Garage and its Stan Lee tributes are the most focused on assets when appraising TOON, significantly more content and IP support, better said, justify appreciably higher share prices. Those properties check the boxes as educational and entertaining, two red-hot programming areas. Its “Rainbow Rangers” series, available on the Kartoon Channel! and Netflix, colorfully animates environmental messages and has gained worldwide appreciation. Another engaging series is Kartoon’s “Llama Llama,” based on the books by Anna Dewdney and voiced by actress Jennifer Garner. The combination of star power and heartwarming, family-friendly content defines a space where TOON can dominate. These strategic collaborations highlight its commitment to delivering high-quality, captivating content that resonates with viewers of all ages.
One of the most exciting projects at Kartoon Studios is its merchandising of consumer products for its popular Netflix series “Bee and PuppyCat,” produced by subsidiary Frederator Networks. These products are aimed at tween, teen, and young adult audiences. Interestingly, the show has gained a substantial social media following, leading to a spinoff series called “Bee and PuppyCat: Lazy in Space.” The retail product launch started with Hot Topic offering an exclusive Bee and PuppyCat apparel line. Further licensing collaborations are in the works, including Sony’s soundtrack release, BOOM! Studios’ comic adaptation and Trends International’s production of posters and stickers. Kartoon Studios intends to squeeze even more value from this program. Plans are expanding its brand merchandising to include stationery, publishing, home goods, gaming, and more.
All are responding to the demand for Bee and PuppyCat products, exposing that TOON’s program assets can have broad and unpredictable reach. While true, the better news is that TOON has the team and resources to capitalize. That leads to the next best word- monetize.
Kartoon Is Well-Positioned For A 2H/2023 Surge
That’s precisely what TOON is doing- monetizing assets. And they are doing it as often as possible with as many brands as possible. With that intent, investors expecting anything but near and long-term growth for Kartoon Studios may need to do more due diligence. They can start by reading the bullish analyst outlook, then track revenue growth (with strike abated), recognize the value inherent to acquisitions and partnerships, and factor the value from its formidable IP portfolio. Totaling that leads to an answer showing TOON has the fundamentals to further expand its global programming reach.
That’s happening now, meaning that the TOON of tomorrow should be more valuable than TOON today. Not just from programming, either. Value must be given to its industry relationships, including with Toho Studios in Japan and Powerkids Entertainment across South Asia. Those deals can profoundly create excitement around brands and expand their marketing capabilities, both program and merchandise. And at home, all is well, too.
Family-friendly content like the Stan Lee brand, Shaq’s Garage, and educational adventures should keep the revenue-generating presses active for the remainder of this year. For a strike-free market in 2024, they may need to get a bigger press. By then, many of TOON’s separate value drivers will be moving in sync, leveraging a greater ability to become bigger faster by adding more content, increasing the value of the ones they have, and seizing programming deals in play from TOON having the types of content that are surging in popularity.
Many believe the industry strike is allowing an opportunity for investors to purchase TOON shares at discounted prices. That presumption is warranted by even a cursory overview of the entirety of TOON. But taking a closer look at the valuation disconnect, supporting another premise is also exposed: current TOON share prices are too attractive to ignore.
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