Why Glory Star New Media Group Stock Was Falling Today

What happened

Shares of Glory Star New Media Group Holdings (NASDAQ:GSMG) were falling today after the Chinese online media and entertainment company posted its fourth-quarter earnings results last night.

Though the numbers mostly looked good, the stock was still down 17.4% as of 12:51 p.m. EDT.

Two kids playing on their smartphones.

Image source: Getty Images.

So what

Glory Star did not break out results for the fourth quarter, instead posting full-year numbers. The company continued to see strong growth in the period, but its expenses also ramped up as the company continued to spend to drive that growth.

Revenue for 2020 jumped 88.1% to $123.8 million, and downloads of its CHEERS app, which allows users to access the company’s online content, doubled from the quarter a year ago to 169 million. Average daily active users, meanwhile, nearly tripled to 5.4 million. Glory Star is also building out an e-commerce operation and grew gross merchandise volume on the platform from $19.4 million in 2019 to $132 million in 2020.

Even with that strong top-line growth, expenses still outpaced revenue as operating expenses jumped 139% to $93.1 million. Marketing costs surged from $3.2 million to $43.8 million as the company spent to acquire new users for the CHEERS app. Operating income rose 14.3% to $30.7 million, and earnings per share for the full year slipped from $0.57 to $0.50. 

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CFO Perry Lu said, “Going forward, our abundant cash reserves, sufficient liquidity, and healthy financial performance should continue to serve as significant competitive advantages, allowing us to increase our market share and deliver lasting shareholder value over the long-term.”

Now what

Glory Star stock doesn’t appear to be covered by any analysts so it’s difficult to say how the earnings report compared to expectations. Shares were also up after hours last night after the report came out, which makes today’s sell-off even stranger, especially as the numbers were seemingly solid. There was nothing in the earnings call this morning that would seem to be a reason to sell, either.

Shares of the Chinese stock had run up before the report, perhaps in anticipation of a better results. That may explain the sell-off today as shares are still trading above where they were two weeks ago.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

View more information: https://www.fool.com/investing/2021/03/30/why-glory-star-new-media-group-stock-was-falling-t/

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