Looking at the chart and investor interest Chicken Soup for the Soul Entertainment (CSSE) may need some more positive affirmations.
The price broke when it debuted on the Nasdaq Aug. 18, raising some concerns about how much market success could be expected from a crowdfunded Mini-IPO.
After a slow rebound, the stock is still no back below $10.
It’s a good time to look at the dichotomy of the Mini-IPO (developed for the so-to-speak little guy, but still beset by the same market forces). And also a good time to look at the difficulty of investing in a company based on optimism with a healthy dose of market cynicism.
CSSE Raised $30 Million
For those who missed CSSE’s Nasdaq debut, the company raised $30 million in what is known formally as a Regulation A+ IPO. This allows the company to raise money (up to $50 million) from non-accredited investors who normally wouldn’t get the chance to buy at the initial price.
For Chicken Soup for the Soul Entertainment it gave loyal fans of the brand to get a piece of the company as it transitioned from selling its huge catalog of self-help books to producing TV shows and working on its digital partnership.
The fans, or at least non-accredited investors, came through. CCSE initially planned to sell 900,000 shares at $12 per share. It left itself the option to sell an additional 1.6 million shares based on demand and sold all of those as well with an oversubscribed offering.
The company’s CEO said that more than 70,000 people visited its site to look at investing.
Shares opened at $13 Friday and reached a high of $13.26, but then dropped to the close. CCSE finished at $9.25, a 23% fall from the $12 pricing.
Now shares are at $9.80.
Victory for the Little Guy or More Fresh Meat?
My question is whether the Regulatory A+ deal is a good expansion of the ability to invest near the ground floor or a bad echo of the late ‘90s when fundamental analysis took a back seat to fervor.
The answer is that the same things that attracted people to buy 2.5 million shares of CSSE will make the stock a really tough hold for a while.
Chicken Soup for the Soul Entertainment CEO Bill Rouhana said going a traditional IPO route didn’t seem very “Chicken Soupy.” It also might have been the best way to raise the most cash. Wall Street isn’t exactly a hotbed of optimism and positive thinking. Maybe with the usual underwriters and roadshow, cynicism would have barred CSSE’s path to the Nasdaq.
But with all the money raised, the shares are going to be influenced by that same cynicism. Tough questions are going to be asked.
CSSE is profitable, but from where does the next jump in revenue come?
Whether anticipating the question or quickly taking the initiative after a tough opening trading day, the company said it plans on 2017 revenue of $20 million and $10 million in earnings before interest, taxation, depreciation and amortization (EBITDA).
That should rise to $36 million in revenue and EBITDA of $18 million in 2018 as it ramps up development of three TV shows and other video projects, it said.
“While working to complete our IPO, our operating team was preparing to ramp up production of television programming and other video content immediately upon closing,” Rouhana said in a statement.
But TV is exceptionally fragile business, where many programs can last less than a year despite intensive development and lots of investment. The company is locked into this guidance as far as far as Wall Street is concerned.
Also, its digital offerings via aplus.com will have to contribute. The site, co-founded by Ashton Kutcher, focuses on positive stories and videos in the Chicken Soup way. But the internet is hardly lacking in uplifting content or feel-good stories. The site will have to work really hard to compete with already established sites and the ubiquitous click-bait happy story content.
Celebrities Are a Double-Edged Sword
It’s difficult to mention the Mini-IPO without mentioning Ashton Kutcher again. The company certainly mentioned him as a major asset in its SEC filing.
I can’t say if Ashton Kutcher consulting and producing will make great television. But as an investor, I’d be concerned about
As part of the Mini-IPO, Kutcher received shares and also warrants to buy more shares at a designated price.
What if Kutcher’s financial advisor thinks it’s wise for his particular financial situation to take a loss on CSSE shares and just dump then onto the market. It’d be tough to know whether he still has confidence in the company, but investors could be sure that a stock dump won’t buoy their shares.
“Do your homework” is an investing cliché by now, but with Mini-IPOs it would be wise to check your work as well.
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