A Pure Play On Post-Pandemic "Netflix And Chill" With A Global Twist

Published: Wed, 05/20/20

The Post-Pandemic Consumer Landscape Has Arrived . . . And GSMG Has All The Global Cards To Play

Rally On, Traders!

Change can either mean headaches or opportunity depending on how you roll with it. I just discovered a little company called Glory Star New Media Group Holdings Limited (GSMG) in the right place to capture the opportunity of our era . . . and ironically the headaches shielded the stock from the big fish on Wall Street until now.

The company ticks just about all the boxes. First, it does streaming entertainment and electronic commerce, which is pretty much the heart of the consumer economy in a quarantined world. People stuck at home watch a lot of TV. And since they aren't spending money going out, there's room in the budget for discretionary stuff . . . new curtains, appliances, you name it.

Of course when the stores are closed you have to shop online and have it delivered. Great stuff for the electronic mall, which is why we saw stocks like Amazon and Wayfair and Shopify soar once Wall Street figured out that the pandemic would create winners as well as losers.

The electronic mall shrugged off the "quarantine crash" a whole lot faster than the Dow . . . see for yourself:

Three strong charts and one big speed bump, right? And meanwhile there's the streaming entertainment side. The last few months have been a windfall for companies like Netflix that beam the world into your screen even when you're trapped at home and all the world's movie theaters and nightclubs and concert halls and sports arenas are shut down:

Electronic shopping, electronic media. Those stocks have been real leaders and have now run up beyond levels some smart people never even thought would be possible. NFLX has a consensus target of $452. Here at $451 as I write this, that's not a lot of easy upside left. SHOP has a consensus target of $494. The most bullish guy on the Street thinks it's worth $834, which is what, only 8% away from here?

That means investors with their eyes on tomorrow need to discover the next wave of post-pandemic stocks now. The old leaders have already done huge numbers. That's yesterday's world. And that's where GSMG becomes VERY interesting.

GSMG has more to offer than Amazon with a side order of Netflix. For one thing, the entertainment and the shopping intersect and feed each other. Product placement and shopping prompts are built right into the streaming shows. Tempted by the recipe? Order the cookbook. Want to look like the kids in the soap opera? Buy the pants.

Right there on the screen. As close to instant gratification as it gets. The shows are built around product placement opportunities. There aren't any ads to skip because the show is the ad. Think of the most entertaining infomercials and go beyond.

Speaking of infomercials, GSMG created a little video to walk potential investors through the business model. If you have five minutes to spare, it's right HERE. Like any investor relations piece, there's a little blue-sky hope and a fair amount of jargon to dig through . . . but the actual numbers are shaping up nice.

GSMG just put out a press release a few days ago to prove what the pandemic did for its fledgling business. A full 100 MILLION people have downloaded its entertainment app and are in the potential audience now. Compare to mighty Netflix with 180 million . . . there's still a lot of room to catch up with the giant, but GSMG captured 15 million new sets of eyeballs last quarter alone.

And the growth ramp looks more like a rocket launch pad. It took mighty Netflix practically a full decade (2007-2016) to build its streaming reach from zero to 100 million. GSMG practically did it in a YEAR. Back at the start of 2019, this was a baby company with only 12 million people on the app. Look at it now!

The pandemic blues only get more people to download more apps. The outbreak was an ACCELERANT. Keep that in mind.

Because there's 4 million people on the GSMG app daily now. Active viewership has DOUBLED in the last three months. They're getting hooked. And as they build new viewing habits, they buy more. Maybe not a lot right away, but about $1 per person last quarter. Early stages.

But that's the plan. More people getting pulled into the shows means better ROI on every placement opportunity, which means there's a bigger incentive to list more products . . . which means more money coming in, which means bigger content development budgets and better shows.

Here's what management had to say:

GSMG has attracted an increasing number of users to its CHEERS App, as evidenced by the sevenfold increase in CHEERS app downloads on a year-over-year basis and the 365.9% growth in DAUs for 2019.

Last year, the company only had about 380 hours of programming to show people. That number can definitely come up . . . and here's the thing, unlike channels like Netflix or HBO that will spend billions on original shows to win prestige, a lot of this stuff is DIY. We're talking cooking shows, local public access programming, YouTube type stuff. Watch your buddy play a video game. Watch a talent show like "So You Think You Can Rap?" or something.

It may not be art house drama, but it's affordable and pulling 4 million people a day. The Kardashians barely did that in their prime. Multiply their cultural force today by 400% and you get the GSMG audience in these early stages.

As it happens, that audience currently supports a stock with a market cap of $220 million (55 million shares at around $4). How did a company that size sneak out without Wall Street bloodhounds on the scent?

For one thing, take a look at the timeline again. GSMG was practically nothing a year ago and only hit the market in its current form on February 15. The bloodhounds have only had three months to hit the trail.

The world got mighty busy around February 15. The market topped out a few days later, went over the biggest cliff in a generation and didn't recover its footing until late March. A lot of people got their lives disrupted. Wall Streeters are distracted, working from the beach house or socially isolated with their kids.

Now that the world is starting to get back on track, we all need to make up for lost time. The obvious winners of the pandemic era are known quantities now. Time to replenish your screen with a few new names . . . before everyone else figures out how high they can tick.

Some pandemic patterns will become new long-term habits. From what I'm seeing, a lot of restaurants and stores are simply not going to come back. People have shifted to stay-at-home life. We don't go out as much. We shop online and have food delivered. We watch TV. That's the new world GSMG always wanted to live in. That's the business plan. The outbreak only took us there a little faster.

And here's the stinger. You probably noticed the guy in the video talked a little weird. He's a robot translation because GSMG runs its channels and its online mall in CHINA.

You know where that is. It's where the pandemic first started shifting consumer habits around the world and where, for better or worse, the domestic economy opened up fastest. Restaurants are open in China now. People are getting back to work. They're getting paychecks again.

But here's the thing: their habits have changed. Weeks of ordering food online are an ingrained pattern now. They stay at home more. They watch more TV. They use less cash and buy more things through apps.

In other words, they live in GSMG's world now. And as many of us have learned, shows you only put on because you're stuck at home and bored can become strangely addictive on the other side. I would not be surprised if that big audience boost from last quarter sticks around. This might be the new normal!

That's not a bad place. Think of all the old-school businesses getting disrupted around the world right now. Old-school TV, old-school movies, old-school malls. When weakened giants fade, ambitious little newcomers like GSMG step up to carve crumbs of market share for themselves.

Down here the crumbs feel really big. They move the needle in a way shareholders can see and appreciate.

GSMG booked about $10 million in revenue last quarter. Baby company, early stages. Reading between the lines, maybe half of it was e-commerce and the other half came from things like advertising. Either way, we're a long way from the Amazon heights here right now.

But unlike Jeff Bezos, GSMG is running on a profitable basis even at this scale. Yeah, $2.9 million in net income is literally pocket change for Bezos personally, but it's real money to you and me. And as a company grows, margins usually get better instead of worse.

Last quarter GSMG maintained a 29% net margin through the pandemic. During that quarter the reach swelled 17% and the active audience DOUBLED. That's worth cheering . . . no matter what side of the investment world you find yourself on.

After all, China is BIG. 100 million reach is still just a niche over there so GSMG has plenty of room to grow. The outbreak just accelerated the shift to shopping-by-phone. There are going to be 800 MILLION people on that side of the ocean pointing at a screen to buy stuff. Likewise, 4 million people watching every day is big by U.S. standards . . . it's 0.3% viewer share there. GSMG can grow 300X without having to look beyond their borders.

300X a stock at $4 starts to look a little more like AMZN. Maybe one day people who figure out GSMG now will be in sight of long-term AMZN shareholders now. There's so much blue sky there that slapping an arbitrary on it. It's not about how high the sky stretches. All we know is which direction it points from the ground floor.

Will the Western giants end up eating that lunch? Netflix doesn't play in China. Amazon doesn't play in China. Google hasn't been here in years. Shopify? No.

Are there local heroes chasing the same shopping cart? Alibaba is the Amazon of Asia. As far as I know, it doesn't have its own TV channel. That's just not Jack Ma's comfort zone. He doesn't care. Likewise, there are plenty of video apps on Chinese phones. They don't have the store in the back.

Only GSMG has all the cards. The Netflix and the "chill" . . . in the economy that hit the pandemic first and hard. Now the new habits have been built and things there are opening up. They're in a new world. Are you in the game?

Happy, Happy, Happy Trading!

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