# WildBrain (WILD). Growth opportunities in children's entertainment



## Nhakt (Jun 5, 2020)

With the recent uptrend in children's entertainment, I have been searching for a Canadian company to invest in and I have found one.

The company is called *WildBrain*. You will recognize their IPs instantly: Peanuts, Inspector Gadet, Strawberry Shortcake to name a few.

WildBrain boasts the world's largest library of children's content at 13, 000 half hour segments.They generate revenue from 3 streams:
1. Producing and distributing shows both to television and streaming services (Netflix, Amazon, AppleTV+)
2. Ad-supported video on demand through WildBrain Spark (Youtube channel with over billion monthly views)
3. Royalties from consumer products based on their IPs (Through strategic partnerships, most notable being Mattel)

Demand for children's entertainment has been growing since the worldwide lock downs as you can imagine. Further, as so many employers move to a permanent "work from home" model, parents will be moving away from daycares and pre-school as they are extremely expensive and will be less needed. This creates a tailwind for WildBrain in the mid to long term.

During the Covid 19 pandemic the company has taken steps to slim down by transitioning to a smaller employee base and move to a work from home model. Even in light of this, 95% of production is on track. This has the benefit of streamlining the company, while lowering operating costs.

The biggest factor in WildBrain is management. In August 2019, *Eric Ellenbogen* became CEO. Since then he has been aggressively paying down debt and diverting capital to the highest growth areas of the business. A short summary of his background: He has 30 years in the industry. You'd know him for starting Classic Media which was acquired by DreamWorks. Ellenbogen has relationships in the industry which have and will continue to benefit the company in two ways:
1. Allow the company to leverage its massive library of children's entertainment to serve this increasing content demand on subscription based streaming platforms.
2. Ensure new content (for example Snoopy in Space on AppleTV+) is distributed effectively.

I encourage any discussion and would be more than happy to field questions regarding the children's entertainment industry.


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## Raggedy Dandy (Mar 12, 2020)

> Further, as so many employers move to a permanent "work from home" model, parents will be moving away from daycares and pre-school as they are extremely expensive and will be less needed.


As someone with a child and both my wife and I working "full time", I can say with some authority that the premise of this statement is categorically false. In a two-income family, it is mentally and physically exhausting having children around while you are trying to work. Simply dropping them in front of a screen for the day while you try to concentrate and complete deliverables, carry out calls with clients, suppliers, etc. is fine for a day or two here and there, but it's not a full-time solution for any parent. 

I can say with 100% certainty that if some sort of day care was an option at the moment, we would be all over it like, well, a kid on a screen.


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## Nhakt (Jun 5, 2020)

Raggedy Dandy said:


> As someone with a child and both my wife and I working "full time", I can say with some authority that the premise of this statement is categorically false. In a two-income family, it is mentally and physically exhausting having children around while you are trying to work. Simply dropping them in front of a screen for the day while you try to concentrate and complete deliverables, carry out calls with clients, suppliers, etc. is fine for a day or two here and there, but it's not a full-time solution for any parent.
> 
> I can say with 100% certainty that if some sort of day care was an option at the moment, we would be all over it like, well, a kid on a screen.


Fair enough. But I would counter that your family is likely above the median Canadian household income and can afford the outrageously expensive daycare fees. Further, The company provides programming globally, so an anecdotal example of a single Canadian household is not indicative of the overall market trend. The trend is that demand for children's programming is increasing (*One Example, *_*Another*_). This trend will only increase as production of children's content is being ramped up to meet the new demand. Another great example is Disney launching Disney+ last year, which is an entire streaming service largely geared towards children's programming.

WildBrain offers an opportunity to invest in the growing industry.


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## Raggedy Dandy (Mar 12, 2020)

Those are fair points from an investment/business perspective, and yes, we are above median income.

My point being that "children's programming" is not remotely close to the benefits provided by daycare/preschool, such as socialization, working with others, learning to follow instruction, gaining confidence and independence, etc. It is, _at best_, a short-term babysitter. Sure, globally, maybe the demand for it is up and with that volume it makes sense from a business perspective on your side of the desk. But I still say that the assumption that "parents will be moving away from daycares and pre-school as they are extremely expensive (I will grant this point) and will be less needed" is fundamentally flawed.


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## JosephK (Nov 7, 2012)

Nhakt, any particular reason why you decided today was the day to create an account on this forum and post about WILD? 

I've noticed that over the past few days there's been some very intense pumping of this stock on other forums...


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## Nhakt (Jun 5, 2020)

JosephK said:


> Nhakt, any particular reason why you decided today was the day to create an account on this forum and post about WILD?
> 
> I've noticed that over the past few days there's been some very intense pumping of this stock on other forums...


Not sure what you are accusing me of. I posted the DD which I'm sure you read. Any particular reason you would passive aggressively post WRT the company?


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## doctrine (Sep 30, 2011)

Nhakt said:


> Not sure what you are accusing me of. I posted the DD which I'm sure you read. Any particular reason you would passive aggressively post WRT the company?


Because you posted no financials or negative case? How is that "DD"? An even cursory look at financials is scary.

WILD just posted 3 weeks ago an absolutely massive net loss of $220M in the last quarter, or $1.30 a share - almost 50% of the entire market capitalization of the company today. They aren't making money.

Oops. 65% of shareholder equity has been wiped out in the last year. This company is bleeding capital and is in serious trouble. They may never be able to pay down their debt, which is substantial at $500M and over twice the market capitalization and above 5 times EBITDA, while revenue is now falling. Advertising money is drying up, and it is becoming more difficult especially for children's advertising, due to restrictions on content. Not so easy to advertise sugary food and whatnot anymore to kids. And you can't advertise at all to kids on Youtube, a material source of revenue for WILD. What good are billions of views if you literally can't advertise?

Paying 2.5 times book value for an over-leveraged children's media company that is seeing advertising revenue choked off on multiple fronts? Not even trading at a discount?

Despite the writedown, there is still $560 million of intangibles and goodwill on the books, versus $84M in shareholder equity. Danger is flashing all over this. Negative book value is not far away. They will have to raise cash and massive dilution is a real possibility.

There was a massive pump last week over multiple sites for this company, especially Reddit. r/WallStreetBets for the loss. You can see it on trading on 4 June. A lot of people got suckered in and are going to be holding the bag on this one. Another children's content company, Genius, was also pumped on Reddit, so this is like a second chance to pump and dump a similar company. There may be a fair risk/reward for WILD, but it is going to take years and years to sort out the debt. It's trading like it's already been sorted out, and maybe more. It's not.


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