GAIA - Gaiam Inc.

[Foreign Tuffett]

Apparently when you operate a streaming service that largely focuses on conspiracy theories you run the risk of becoming the target of such theories.

 

Numerous Gaia content creators have left the platform over the past ~6 months including Corey Goode and David Wilcock. Their "Cosmic Disclosure" may have been Gaia's single most popular program.

 

Purported Wilcock letter is below. Sounds like a contract dispute, which isn't surprising since Gaia's IR presentation brags about how cheaply it can produce content ($10K per hour). More notably, Luciferianism may have been involved:

 

https://onstellar.com/blogs/66577/NEWS-David-Wilcock-s-resignation-letter-from-GAIA

 

Also, Patty Greer claims that she was hit with a "directed-energy weapon", possibly at Gaia's direction. Okay, sure......

 

https://www.westword.com/news/gaia-hits-filmmaker-patty-greer-with-an-old-school-weapon-a-lawsuit-10684808

 

Gaia's basic business model combines cut rate cost content with heavy sales and marketing spending. So gross margins are very high, but I think customer acquisition costs and churn probably are too. I have no idea if this will work or not, but it is worrisome that they plan on spending nearly all of their cash hoard in the fairly near future.

[Foreign Tuffett]

Also notable that subscription price recently went from $10 to $12 per month.

[Homestead31]

Apparently when you operate a streaming service that largely focuses on conspiracy theories you run the risk of becoming the target of such theories.

 

Numerous Gaia content creators have left the platform over the past ~6 months including Corey Goode and David Wilcock. Their "Cosmic Disclosure" may have been Gaia's single most popular program.

 

Purported Wilcock letter is below. Sounds like a contract dispute, which isn't surprising since Gaia's IR presentation brags about how cheaply it can produce content ($10K per hour). More notably, Luciferianism may have been involved:

 

https://onstellar.com/blogs/66577/NEWS-David-Wilcock-s-resignation-letter-from-GAIA

 

Also, Patty Greer claims that she was hit with a "directed-energy weapon", possibly at Gaia's direction. Okay, sure......

 

https://www.westword.com/news/gaia-hits-filmmaker-patty-greer-with-an-old-school-weapon-a-lawsuit-10684808

 

Gaia's basic business model combines cut rate cost content with heavy sales and marketing spending. So gross margins are very high, but I think customer acquisition costs and churn probably are too. I have no idea if this will work or not, but it is worrisome that they plan on spending nearly all of their cash hoard in the fairly near future.

 

that stuff was all last summer, and they addressed it on conference calls indirectly.  first in the Q2 call by noting that no group of titles or show represented the primary reviewing for more than 2% to 3% of our members.  on the Q3 call they then said something about replacing a host that left on one of the popular shows, and viewership actually went up.

[Seth Lowry]

Hi, I am doing some work on this company.  I have read the past posts on this thread and just would appreciate some insights on a few topics:

 

1) Why is everyone seemingly using $9.99 per month x 12 months as revenue per sub when the annual cost is $99 i.e. ignoring the annual pricing discount?

 

2) I know the company states its spends 50% of LTV on CAC, but if you actually track and plot their sub adds per quarter to their incremental CAC $ spending per quarter they are over $200/sub consistently.  If you then back out their stated "organic" customer adds at zero cost, then they are paying to acquire customers at >$300.  What am I missing here? i.e. deferred customer wins or deferred revenues or something?  I recognize that this company went "profitable" in 2015 for a quarter, but then after turning off its marketing growth slowed to 40% and it ended up raising capital.  Any insights into true contribution margin, full cycle IRRs etc is much appreciated!

 

Thanks 

CAC.xlsx

[KJP]

Hi, I am doing some work on this company.  I have read the past posts on this thread and just would appreciate some insights on a few topics:

 

1) Why is everyone seemingly using $9.99 per month x 12 months as revenue per sub when the annual cost is $99 i.e. ignoring the annual pricing discount?

 

2) I know the company states its spends 50% of LTV on CAC, but if you actually track and plot their sub adds per quarter to their incremental CAC $ spending per quarter they are over $200/sub consistently.  If you then back out their stated "organic" customer adds at zero cost, then they are paying to acquire customers at >$300.  What am I missing here? i.e. deferred customer wins or deferred revenues or something?  I recognize that this company went "profitable" in 2015 for a quarter, but then after turning off its marketing growth slowed to 40% and it ended up raising capital.  Any insights into true contribution margin, full cycle IRRs etc is much appreciated!

 

Thanks

 

 

You're dividing total customer acquisition cost by net adds rather than gross adds.  That's why your CAC/sub is so high.

[Seth Lowry]

Makes sense, but the company's financials are tied to net adds, why do we care about gross?

[Guest Schwab711]

Churn is used to calculate LTV. Otherwise it wouldn't be apples-to-apples units if we used net subs to calculate CAC.

[KJP]

Makes sense, but the company's financials are tied to net adds, why do we care about gross?

 

I don't understand what you're asking. I was simply answering your prior question (2) and pointing out that "x% of LTV on CAC" is a statement about projected per-subscriber economics, e.g., I spent $150 to acquire a subscriber that will generate $300 in gross margin, and thus I'm spending 50% of LTV on CAC.  Thus, to make sense of statements like that you need to look at gross adds. 

[Guest roark33]

There is a short case write-up on VIC for Gaia and the author calls this investment idea a "Jirka says" investment. I think that's an apt description. 

 

The numbers are becoming more flimsy each quarter. 

[KJP]

There is a short case write-up on VIC for Gaia and the author calls this investment idea a "Jirka says" investment. I think that's an apt description. 

 

The numbers are becoming more flimsy each quarter.

 

I agree.  Management is saying that acquisition economics are improving, but the numbers continue to suggest the opposite.  Specifically, in Q4 they spent $14.2 million on marketing (includes an unknown amount of translation expenses) and on the call they said cost per gross add was $91.  That implies gross adds of about 156,000 (14,200,000/91).  Net adds were only 35,000 (550,000-515,000).  So 121,000 subs churned off in the quarter on a initial sub base of 515,000, implying annual churn of almost 94% ((121/515)*4).  Spiking churn is hard to square with management's assertion that LTV is increasing.

 

In light of the numbers, it's hard to believe management's explanation for the significant change in strategy.  Rysavy's efforts to respond to Peter Rabover's question about ultimate margins also didn't make sense. 

 

Management's repeated claims on the call that they weren't going to make forward-looking statements were also new.  They haven't been shy about making forward-looking statements in the past.

 

All of this suggests to me something the skeptics were saying from the start of this thread:  The market for this content is not as big as management claimed. 

[KJP]

Are they also now playing word games with how much they're spending on subscriber acquisition? 

 

The company typically discloses marketing costs in a footnote to the financials, and those numbers have been consistent with the customer acquisition spend reported on the conference calls, which also historically has equaled (total expenses) - (non-CAC OpEx) - (Corp. costs).  In footnote two of the just released 10-K, the company reports $46.3 million in annual marketing expenses.  If you subtract the three prior quarters of customer acquisition spend disclosed on the calls, that leaves Q4 customer acquisition spend of $14.2 million.  Customer acquisition spend of $14.2 million is also consistent with $22.1 total expense - $7.8 all other non-CAC expense disclosed on the call.  The numbers in the 10-K are where I got the $14.2 million of spend I used in my prior post.

 

But during the call, management suggested that they spent only $11.2 million on subscriber acquisition.  Here's the quote:

 

"Subscriber acquisition costs for direct customers, which includes all expenses incurred in the period to support subscriber and revenue growth were 94% of streaming revenues for the quarter or $11.2 million. Similar to the third quarter, these costs include cost of continuing to translate more of our existing library into French, German and Spanish."

 

So where is the missing $3 million?  On a quick review, the only thing I see is the following reference to other "marketing activities" during the call:

 

"In the fourth quarter, we took advantage of matching funds provided by certain of our distribution partners and invested an incremental $3 million in marketing activities to support growth through these channels. While the result of this spend will take some time to be reflected in the revenue and subscriber numbers, it has elevated the awareness of Gaia within the SVOD ecosystem."

 

If this $3 million isn't for subscriber acquisition, then what is it?  Any why isn't it included in the amount of customer acquisition spend that the company discloses to shareholders during the call?

 

EDIT:  Also, the $91 cost per gross add presumably was calculated against the $11.2 million, not the $14.2 million I assumed in my prior post.  So, the churn calculation in that post is too high.

[BMC34]

I think  Rysavy could have done a better job of answering Peter's question but I think all he was trying to say is there is no change to their margin guidance other than timing.  He said you have to look  at the revenue and I think the point he was trying to make is that the 40% pre-tax margin (as I recall) that they guided to still stands at $150mm in revenue.  When they were in hyper growth mode they expected to hit $150mm in revenue in 2021.  Now at ~30%+ revenue growth the math would indicate they will hit/exceed that target in 2023.  And the 40% pre-tax margin associated with the $150mm in revenue still stands but they won't achieve that in 2021.  That is how I interpreted his answer.

[KJP]

I think  Rysavy could have done a better job of answering Peter's question but I think all he was trying to say is there is no change to their margin guidance other than timing.  He said you have to look  at the revenue and I think the point he was trying to make is that the 40% pre-tax margin (as I recall) that they guided to still stands at $150mm in revenue.  When they were in hyper growth mode they expected to hit $150mm in revenue in 2021.  Now at ~30%+ revenue growth the math would indicate they will hit/exceed that target in 2023.  And the 40% pre-tax margin associated with the $150mm in revenue still stands but they won't achieve that in 2021.  That is how I interpreted his answer.

 

I think that's a fair interpretation. 

[Guest roark33]

Any updated thoughts from the people who follow this closely.  Just seems like their ability to get to cash flow breakeven in the near future is sort of suspect. 

[Sergio8]

They can really get the P&L and cash-flows they want, it's not really hard here: you just have to scale down the customer acquisition costs and you are done.

 

I believe too many analysts put too much emphasis on P&L with this business. In my opinion, this business is all about assets.

The business consists in paying a given customer acquisition cost to acquire a customer with an average value of ~ 250 $.

 

A straightforward algorithm to value such a business: take the number of subscribers, multiply by a conservative value estimate. Add excess real estate and current cash, and here you go. Then we need to subtract a value for G&A expenses and capex that are needed to build and run this business.

 

In any case, all the future value creation of this business will come from the use of the cash, and nowhere else. One can put some premium on the cash value if he feels optimistic about the value creation from future customer acquisitions.

 

Assuming the subscribers are worth 250 $ (I guess they are worth a bit less because all of them haven't signed up yesterday), you get $ 10.7 per share before subtracting the value G&As expenses.

You get to around 9$ per share if you capitalize 2 years of G&A.