GAIA - Gaiam Inc.

[alwaysdrawing]

No news that I've seen.  The next update should be the quarterly results in November.

[SlowAppreciation]

Has their cash dropped recently and/or have they sold that building yet?

 

Today's mkt cap of $93m would imply a negative -$2m value on the streaming business from my most recent back of the napkin estimates ($75m cash + $20m for the building).

[thinkpad]

They said they have 60millions dollars not 75. And they will burn cash to get new customers.

But anyway, it was cheap @7.8$ and now it is'cheaper... but no cash :(

[SlowAppreciation]

They said they have 60millions dollars not 75. And they will burn cash to get new customers.

But anyway, it was cheap @7.8$ and now it is'cheaper... but no cash :(

 

Are they still trying to sell that building?

[thinkpad]

Nope. As they are fully funded since they sold gaiam brand, they keep the building.

They rent it to gaiam brand and get something like 1 or 2 millions of revenue per year.

[SlowAppreciation]

Nope. As they are fully funded since they sold gaiam brand, they keep the building.

They rent it to gaiam brand and get something like 1 or 2 millions of revenue per year.

 

Got it. Thanks for the info.

[sae85400]

This was mentioned in Greenroad  Capital 3Q letter and is now a top 5 holding for them

[Phaceliacapital]

Link: https://static1.squarespace.com/static/5498841ce4b0311b8ddc012b/t/58148e2515d5dbcebabe377f/1477742119029/Q3+2016+FINAL.pdf

[KJP]

Thanks for posting the letter.  Looks like the standard thesis for this company. 

 

I'm curious who's been selling in the 6's over the last month.  Anyone who didn't like the streaming business could have participated in the (undersubscribed) tender at $7.75/share.  There has been no really new information since then.  So why refuse to tender at $7.75 and then sell a few months later at $6.20?  Similarly, no news today, yet the seller(s) in the 6's appear to have been cleared out,and the shares are up 16%. 

[namo]

I would guess today's rise is because of the Greenhaven letter.

But yes, I'm equally surprised as you are are at the fall before that.

 

Q3 publication is this Thursday.

[Travis Wiedower]

Anybody else turned off by a company that targets conspiracy theorists as one of their main demographics?

 

I'd guess most people in this thread are more likely to underestimate that part of their target market as opposed to overestimating it (because we're not a part of it).

[SlowAppreciation]

Anybody else turned off by a company that targets conspiracy theorists as one of their main demographics?

 

I'd guess most people in this thread are more likely to underestimate that part of their target market as opposed to overestimating it (because we're not a part of it).

 

Was my biggest hangup and why I didn't invest. All of my friends/family who are really into yoga felt there were far superior yoga streaming alternatives as well, which I figured would be their largest potential audience.

[Jurgis]

Anybody else turned off by a company that targets conspiracy theorists as one of their main demographics?

 

Was my biggest hangup and why I didn't invest. All of my friends/family who are really into yoga felt there were far superior yoga streaming alternatives as well, which I figured would be their largest potential audience.

 

Wait, this company's target audience are conspiracy theorists who are into yoga? ::)

"Let me tell you, Bruce Lee killed Gandhi so he wouldn't reveal secret sun salutation posture that gives immortality!"

 

;D

[Picasso]

I'm going to predict the future for this stock/thread.

 

It's going to keep ticking lower over time with posters asking "why does it keep going down?"  This will go on for at least ten pages.

 

Along the way there will be various press releases of new streaming formats that will keep the longs engaged and holding on for dear life.

 

Then when something unexpected (not in a good way) happens, everyone will get pissed off. 

 

Some of the vocal microcap funds (see that Russian Bear guy on twitter) will explain why they sold out before everything hit the fan. 

 

We'll all remember GAIA as that weird microcap stock that somehow took on a life of its own.

 

Almost good enough for a Lifetime or Hallmark movie.  Just not quite...

[Homestead31]

picasso - curious if you have done work that leads you to disagree with the longs, or if this is just your intuition as someone who has followed alot of threads on COBF?

 

based on greenhaven road's writeup and the one on seeking alpha it seems like the downside is protected by hard assets.  it doesn't seem like the business is a slam dunk, but when down side is limited, upside tends to take care of itself, don't you think?

[KJP]

I'm going to predict the future for this stock/thread.

 

It's going to keep ticking lower over time with posters asking "why does it keep going down?"  This will go on for at least ten pages.

 

Along the way there will be various press releases of new streaming formats that will keep the longs engaged and holding on for dear life.

 

Then when something unexpected (not in a good way) happens, everyone will get pissed off. 

 

Some of the vocal microcap funds (see that Russian Bear guy on twitter) will explain why they sold out before everything hit the fan. 

 

We'll all remember GAIA as that weird microcap stock that somehow took on a life of its own.

 

Almost good enough for a Lifetime or Hallmark movie.  Just not quite...

 

Could happen.  On the other hand, you can monitor the relatively few important numbers on a quarterly basis.  If sub growth isn't there or CAC (or churn) is too high, you'll see that fairly quickly, and if you do I wouldn't recommend sticking around too long based on management commentary, $50 2020 price targets or anything else.

 

The comment about the recent decline wasn't related to any particular claim of "intrinsic value" for the stock, but rather the odd choice of refusing to tender at $7.75 and then selling a few months later at $6.20, when the intervening news was exactly as expected.  That was and remains an odd choice, and is only highlighted by the fact that the stock is now back to $7.70.  It might go right down the toilet as you suggest, but that doesn't explain the short-term decision to effectively buy at $7.70 and then sell the same thing shortly thereafter at $6.20.   

[Travis Wiedower]

Cash in a negative cash flow business is not a hard asset IMO.

[Guest Schwab711]

http://www.cartesian.com/wp-content/uploads/2016/07/Why-OTT-Providers-Aren%E2%80%99t-Concerned-with-Churn-%E2%80%93-and-Why-They-Should-Be_Cartesian_July2016.pdf

 

Average other OTT service has a churn rate of 60%. Even Amazon Prime is ~20%. I don't think NFLX has a good business, so I don't know how non-AMZN OTT offerings survive in the long run.

 

I'll go long Picasso's prediction.

[alwaysdrawing]

GAIA is a bet that the biggest shareholder and CEO didn't double down for no reason.

 

Why bother with this video streaming business if he didn't think it was a winner?  He could have just distributed the cash to himself, but instead he bought back 40% of shares in a tender, and did not tender any of his shares.

 

GAIA is basically buying a business for close to current net asset value (most of which is cash and a building, plus a bunch of videos), and betting that the CEO who has 50 million invested in the company is able to make a return by investing that cash and growing the subscriber base profitably.  If he can, you make money, and if he can't you lose money. 

 

If the CEO doesn't see it working, don't you think he will stop burning the cash?  Close to 40% of the company belongs to him--he's properly incentivized.

 

Basically the downside is losing some % of your money (there is no leverage, so there should still be some cash left if it fails), and if it wins then the business could be worth 3-5x what it's worth today.  I think it's a good bet, and obviously the CEO does too, and is incentivized to make it work.  It's a limited downside, potential multi-bagger upside---I think buying at the current price (less than the tender) will yield a good result for investors.

 

 

 

[Travis Wiedower]

Management incentives is one of the first things I look at. But when a CEO's net worth is substantially more than what his stock is worth, I put a large discount on how incentivized he is. $40 million to him is not what $40 million is to you and me.

 

With that being said, he's obviously super smart and successful. Founded, built, and sold multiple businesses for a shit ton of money. Good chance he knows something I don't.

[Guest roark33]

Anybody else turned off by a company that targets conspiracy theorists as one of their main demographics?

 

I'd guess most people in this thread are more likely to underestimate that part of their target market as opposed to overestimating it (because we're not a part of it).

 

Do tell....I don't really understand this point, but I am excited for the great and funny story.

[Picasso]

picasso - curious if you have done work that leads you to disagree with the longs, or if this is just your intuition as someone who has followed alot of threads on COBF?

 

based on greenhaven road's writeup and the one on seeking alpha it seems like the downside is protected by hard assets.  it doesn't seem like the business is a slam dunk, but when down side is limited, upside tends to take care of itself, don't you think?

 

I agree, if the downside protection is really in place then the investment is fine.  I'm mostly giving GAIA shareholders a hard time because I'm not a fan of a couple of the most outspoken bulls.  I'm signing up for the service to check out the content and see what the hype is all about.

 

But just generally, I notice that Greenhaven pointed to Crunchyroll as a possibility of upside on subs.  That's absurd to me.  I know anime pretty well and I can tell you that if Crunchyroll only has 700k subs, I wouldn't expect GAIA to get anywhere close to that without a massive increase in acquisition costs or increased churn rates making it a business that no strategic would buy.  There's much more appealing content with anime, churn rates would be dramatically lower because a lot of these shows have hundreds of episodes, etc.  I don't see GAIA content being anywhere near as appealing.

 

Also, YouTube is going to put a massive cap on the amount of subs these guys can get.  All these instructors get paid a lot more on YouTube.  Tara Stiles has a channel with a few hundred thousand subs and might make $100 per video.  I don't understand how you can get that many more people to pay GAIA when they can get it for free on YouTube and get very good content.  The YouTube model seems way better from the content creation/artist/user point of view.  I've seen various personalities leave YouTube and their earnings drop substantially.  If you're not hooked into some bigger platform I think it's nearly impossible to make money in this business.

 

As a gut check, if this CEO came to me and said "I'm building the Netflix/YouTube of yoga and spiritual enlightenment, would you want to invest?" I would pass on the opportunity 99.99% of the time.  Since the existing non-netflix-of-yoga assets aren't worth more than the current share price, I'm paying something for the part I don't like when I think the odds of a return from it are close to zero.  IMO it should trade at a discount to the "hard assets."  There's no telling when or if we'll ever see future cash flow from an investment in the stock.

 

Meanwhile there's a massive amount of pumping behind this story.  I imagine the fund managers touting it aren't using the content for longer than a week ("I'm not the audience but the TAM is there because the CEO is a proven money maker").  Everything about it is setting off alarm bells for me.  TAM pitches in general don't work most of the time.  The best stocks with a high TAM don't tell you because they don't want competitors coming into the market.

 

Also annoying when Greenhaven calls it an invisible stock.  This is anything but invisible in the microcap world.  Plus the CEO does own a lot of the stock but he has a lot more net worth outside the company.  I don't think it's wise to look too much into his incentives here.  It'd be another thing if he had 90% of his net worth in the company.

[valuedontlie]

Boooom

 

Well said Picasso...

 

This would be interesting as a negative EV stock... I've seen stocks with real (i.e. profitable) businesses attached to a negative EV wrapper. At $7.65/sh ex $60m in cash and $20m in the building this thing is still trading >2x sales. At this price you're paying for some of the heavy lifting that has yet to be done.

[SlowAppreciation]

 

But just generally, I notice that Greenhaven pointed to Crunchyroll as a possibility of upside on subs.  That's absurd to me.  I know anime pretty well and I can tell you that if Crunchyroll only has 700k subs, I wouldn't expect GAIA to get anywhere close to that without a massive increase in acquisition costs or increased churn rates making it a business that no strategic would buy.  There's much more appealing content with anime, churn rates would be dramatically lower because a lot of these shows have hundreds of episodes, etc.  I don't see GAIA content being anywhere near as appealing.

 

 

100% agree. I quite like Greenhaven Road, but I thought the exact same thing when I came across that paragraph. In fact, I thought it nearly discredited the entire thesis. While I'm not the target audience for either anime nor GAIA's content, I would think that anime has FAR more niche appeal and dedicated audience than a yoga/conspiracy/spiritualism streaming service.

 

I spent a couple days on Gaia and came away thinking that the audience just isn't there, and that there are competitors with better products who are focused on the yoga segment.

[btgmf]

 

Management incentives is one of the first things I look at. But when a CEO's net worth is substantially more than what his stock is worth, I put a large discount on how incentivized he is. $40 million to him is not what $40 million is to you and me.

 

 

 

Plus the CEO does own a lot of the stock but he has a lot more net worth outside the company.  I don't think it's wise to look too much into his incentives here.  It'd be another thing if he had 90% of his net worth in the company.

 

 

Travis and / or Picasso (or anyone else), what other sources of net worth does Rysavy have / what makes you say this is a smallish portion of his net worth?

 

From what I can tell, his shares in Corporate Express would have been worth around $50M in 1999 when Corporate Express was bought by Buhrmann, and it doesn't look like he sold that much before then. Also note that he was putting his own money (presumably from any Corporate Express stock sales) into GAIA before it went public in 1999 -- before the GAIA IPO, Rysavy basically owned the whole company, meaning he would have had to use his own money for the acquisitions that went into pre-IPO GAIA.

 

His stake in GAIA has gone from 8.1M shares at IPO to 5.7M shares today. Looking at insider filings, the bulk of this is from gifts (as well as 545K shares used to generate $7M in 2007 to settle an option agreement with Revolution Living -- this itself would suggest he couldn't easily generate a lot of cash quickly from other sources of net worth).

 

I don't see anything else that would have generated a lot of wealth for him. He founded a store that was the genesis of Wild Oats Market, but that was for only $300K which he rolled into starting what became Corporate Express.

 

Thanks in advance.