Description

Although pitched a few months ago by mm202, Gaia (NASDAQ: GAIA) is by far my best idea. Gaia is a vertical streaming platform serving an unmet need, with little competition, an obsessed customer base, >80% exclusive low-cost content, and excellent economics going forward. I will attempt to add to the overall thesis while pointing out some of the key reasons why this is a fantastic business with a clear misperception by investors. I highly recommend reading mm202’s write-up first, particularly surrounding the hidden asset.

Quick Background: 

Gaia is a “hippie” streaming service on every device Netflix is on (including Apple Watch) with video content centered around yoga, meditation, nutrition, spirituality, and secrets / cover-ups (“seeking truth”). The latter is primarily centered around conspiracy theories, while staying out of the political limelight and potentially bannable / deplatformable topics.

It’s clear that funds shy away from Gaia due to the eccentric nature of the content, although management is shareholder friendly without any shady or self dealings, and a generous tender offer right after GaiamTV was incubated. This psychological bias obscures the 2-3x return opportunity in Gaia in the next few years. Although the yoga streaming is admittedly commoditized by Youtube, Gaia’s integration as a health, spirituality, and enlightenment platform is a strong value proposition to consumers that has already been more than validated.

Gaia gets 40k downloads on mobile monthly (sensortower), or 120k a quarter and ranks among the top 4 yoga apps. Members grew from 170k in Q2 2016 to 770k in Q2 2021. Management claims that LTV:CAC is around 4:1, primarily utilizing instagram and facebook advertising while cherrypicking some keywords on google like “third eye” and “spirituality”.

Gaia Members Over Time, with a noticeable hiccup in 2018-2019 at the time of the short thesis. Members are currently growing 15-20% y/y and are the primary driver of gross profit growth.

As for the core concerns with Gaia, TAM saturation is questionable - although there is a notable opportunity internationally. Gaia has had recent success with ambassadors (think MLM partners) in Mexico and South America. Gaia’s mainly known for its content from “thought leaders” with large social media followings. Summing the twitter followers of the lead influencers (many of which also host Gaia events) is about the current members - an overstatement given that there are overlapping followers. However, Gaia does have a strong position in yoga, meditation, and nutrition that is understated, and an audience that is primarily on Facebook. Further, international travel should be a good opportunity to expand TAM and management believes it is over 7M. If Gaia managed to attain subscribers equal to the facebook followers of the “thought leaders” developing the core content on the platform,

there's an opportunity to 6x members.

Addressing some of the short points, from SanQuinn’s pitch:

The author points out that bulls primarily are “betting on the jockey” in the eccentric CEO Jirka - but that isn’t really the case any more now that Gaia has attained profitability and won’t need to raise expensive equity going forward. Although, Jirka is probably one of few people that could have made a platform like Gaia as there is limited to no competition in the genre of conspiracy theories Gaia is in. I believe that he’s in this business for at least another 5-10 years, given that he stepped into the CEO role and he is passionate about content production and hiring and owns almost 30%. Glassdoor comments show that he personally interviews candidates. Gaia is primarily focused on the historical / aliens / UFO / psychedelics genre rather than the Alex Jones type of politics / fear mongering /  covid & vaccine skepticism. 

Three years ago, SanQuinn noted that Gaia burned ~$30M in cash on a ~$30 M revenue base building out the streaming platform on a $350M market cap. Today that has dramatically reversed, with flat OPEX going forward (less CAC), profitability, a ~$80M subscription revenue base in 2021, and a valuation at $190M!

Touching on valuation overall, Gaia is at under 3x 2021 gross profit vs. comparable CuriosityStream at 26x gross profit. CuriosityStream just SPACed and is burning far more capital, albeit growing gross profit rapidly. Crunchyroll raised at a $600M valuation at a similar member base, although growing faster in a large TAM with key drawbacks of competition, lack of a unique content library, and piracy. Netflix trades at 19x gross profit with higher content costs but a similar member saturation profile. Interestingly, Netflix also traded under 3x gross profit at one point in late 2012. In terms of cash flow, Gaia is expected to do over $20M or a >10% yield in 2023.

This is in stark contrast to when SanQuinn pitched Gaia as a short at around 10x gross profit, burning $20M in cash in 2019 and 2020 to get to today. Guidance and expectations  are for 20%-30% growth going forward, mostly in new members but also in pricing and a premium “events” subscription. 

For those that dig deeper, the $300 events subscription isn’t all that exciting, as they only have a few hundred seats at their HQ but primarily sell the virtual experience. The new ambassador program is a new initiative similar to a MLM to speed up member growth, with a generous revenue share. 

The rest of the short pitch culminates in discussion of churn and interesting commentary by Jirka on member growth, which isn’t core to this thesis. Churn has already improved dramatically, and app store reviews show a fanaticism for the platform. From a large sample of mobile reviews, low ratings are primarily on technical issues. Gaia has managed to keep pace on member growth while achieving profitability in 2 years (a large feat from -100% margins!).

Key Risk:

The biggest risk I see to Gaia (1-10%) in the next 5 years is a potential deplatforming as they are on many very progressive platforms. Apple, AWS, Roku, etc. are key partners that could unwind Gaia on ethical grounds if they wished.

According to technology journalist Declan McCullagh, "Silicon Valley's efforts to pull the plug on dissenting opinions" began around 2018 with Twitter, Facebook, and YouTube denying service to selected users of their platforms, "devising excuses to suspend ideologically disfavored accounts." Gaia’s “seeking truth” content undoubtedly constitutes dissenting opinions. 

That being said, recent deplatformings have been on the grounds of hate speech, COVID-19 misleading information, etc. Alex Jones and Gavin McInnes were primarily on the grounds of promoting violent extremist groups and hate speech.  David Icke (runs Escape the Matrix on Gaia) was recently deplatformed for commentary around COVID vaccinations. Furthermore, mainstream conservative figures like PragerU and those pushing election skepticism in 2020 also took serious hits.

However, this risk is low as many more individual users would be banned before Gaia. Further, Gaia’s “hippie” ideology is out of the limelight, although their focus on alternative medicine could become too fringe. That being said, Gaia is a major customer of Google, Facebook, etc. on CAC and is rated as a top 4 yoga app on Apple devices. 

Gaia Facebook ads (they were featured by FB a few years back as a key utilizer / high LTV customer) - 

https://www.facebook.com/ads/library/?active_status=all&ad_type=all&country=US&view_all_page_id=182073298490036&sort_data[direction]=desc&sort_data[mode]=relevancy_monthly_grouped&search_type=page&media_type=all

All in all, Gaia is extremely cheap and has all of the qualities of a moaty subscription business. Given the growth profile and peers, Gaia should trade at around 10x gross profit (3x return) ignoring the hidden asset. Gaia uses the latest tech stack in presenting their content and built an amazing platform. Gaia has extremely low content costs that represent a fixed cost base going forward. Gaia has been ignored and falls out of scope for most funds, creating a significant alpha opportunity.

Catalyst

Unlock of hidden asset (potentially worth $50M - $100M ) in 2H 2021

Continued growth to >10% yield in 2023

Large buyback authorized in Q1