Cinedigm: A Unique, Steeply Discounted Technology Play With Surprisingly High Growth Potential
I believe Cinedigm (NASDAQ: CIDM) is a rare opportunity for investors to realize asymmetric returns--substantial upside potential outweighing the downside risk.
It is a very small company (roughly $20MM market capitalization, a "nano-cap"), and small companies are inherently more volatile. In my most recent contribution to Seeking Alpha, I make a case for the possibility of a more than $1B future CIDM valuation.
I am not recommending individual investors pile in their life savings--that would be ill-advised. I do, however, think those who enjoy such stories may find Cinedigm's particularly interesting.
Here is an excerpt (for complete citation and disclosure, see the original article):
As Cinedigm is one of the only public companies operating in this space, it's difficult to find a perfect comparison. Perhaps the best glimpse we have into the valuation comes from a company called Crunchyroll, a niche OTT channel built primarily around anime. In 2013, Peter Chernin's fund acquired a 60% stake in the company. No price was announced for this acquisition, but a person with knowledge of the deal said it valued the company around $100 million.
Launched in 2006, it took Crunchyroll seven years to reach 200,000 paying subscribers (its subscriber level in 2013). Cinedigm launched its first OTT channel in 2014. As noted above, Cinedigm has around 80,000 subscribers. Applying the "Chernin valuation" would leave us with ~$40 million (~2X its current market value). After evaluating yet another isolated part of this company, we once again find ourselves with a reasonable valuation assumption well above the entire company's current market capitalization.
Of course, not every channel may take off as rapidly as Crunchyroll has. But that is once again where Cinedigm's unique positioning creates an incredible opportunity. Specifically, due to the company's aforementioned strategy - utilizing its existing titles and strategically selecting third-party partners with massive loyal audiences - the cost of launching a channel is dramatically reduced. McGurk estimated that it cost $10-20 million less for Cinedigm to launch CONtv than it did to launch Crunchyroll.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CIDM over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
For additional disclosure information, please visit Spicer Capital's disclosures.
Please Note: This article covers stocks trading with less than a $100 million market cap. Please be aware of the risks associated with these stocks.