In a recent article, I’d talked about why WildBrain (TSXV:WILD) could be the next Corus Entertainment (TSX:CJR.B), rather than the next Netflix. Not only do I stand by that thesis today, but I actually think Corus is a much better pick in this environment.
Here’s why I’m growing more bullish on Corus and more bearish on WildBrain by the day.
The Hulu deal that changes everything
On the back of better-than-expected earnings, Corus Entertainment (TSX:CJR.B) announced that it had signed a deal with streaming service Hulu. This distribution deal is for the Corus Studios division to sell more than 200 episodes across different genres.
While financial details were not disclosed, Corus believes this multi-year deal is nothing short of a breakthrough. Some details of the shows included in the deal have surfaced. These shows include popular titles like Big Food Bucket List, Backyard Builds (first three seasons), and $ave My Reno.
I believe this deal is massive for Corus and changes the view of traditional investors on this stock. Company officials have revealed that this firm has had an amazing run with advertisers. In fact, rising TV advertising revenue combined with new subscribers and growing licensing revenue helped Corus beat analyst expectations.
In the quarter ending Feb. 28, Corus reported a doubling of its net profits on a year-over-year basis. It detailed a second-quarter profit of $0.17 per diluted share to a total of $35.3 million, up from $0.09 per diluted share to a total of $18.5 million last year. Earnings clocked in at $0.18 per adjusted share in this quarter, up from $0.12 per adjusted share last year.
Why you should stay away from WildBrain
Investors have been quick to brand WildBrain as the next Netflix, which I think is really incorrect. It is still a relatively small player when compared to other players in the market. Not only that, but the company has terrible fundamentals and is not earning a profit.
This company remains a speculative pick in a peer group that is making much more headway than WildBrain right now. Accordingly, I’d suggest the company’s negative earnings growth, ROE, and margins are indicative of deeper structural problems than peers like Corus.
There’s no reason to own this company, and I stand by my firm belief it’s an overvalued, overhyped stock that could be a zero long term.
The recent deal Corus has managed to pull off is impressive. I think investors considering content producers really are looking at a tale of two companies here.
The long and short of it is this: avoid WildBrain right now. For those speculative growth investors out there looking for a content producer, pick Corus.
Looking for other high-growth picks? Here are a few to consider right now:
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any of the stocks mentioned. David Gardner owns shares of Netflix. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix.