Why Genius Brands International's Stock Dropped Today

What happened

Shares of children's content company Genius Brands International (NASDAQ:GNUS) plunged as much as 25.6% in trading on Monday after completing a 1-for-10 reverse stock split. Shares are still down 21.3% at 11:30 a.m. ET.

So what

At the start of trading today, Genius Brands has completed a reverse stock split, giving shareholders one share for every 10 that they own. This was done to stay in compliance with Nasdaq's trading rules, which require a stock to trade for over $1 per share.

Image source: Getty Images.

The split may keep shares in compliance, but it doesn't help the underlying weakness of the business. Revenue did jump from $1.9 million a year ago to $19.7 million last quarter, but the company still lost $11.2 million and had just $97 million of cash and investments on the balance sheet. That's not a sustainable business yet, and investors aren't buying the dip.

Now what

Genius Brands is in a tough position as a content creator, as every company across the media business is cutting content costs. The company is still developing new shows, but it may not have the same number of buyers for them over the long term.

The stock's drop today is another sign that investors don't have an appetite for funding money-losing companies indefinitely. Unless Genius Brands shows it can make money, this is a stock I'm staying out of, and the market seems to agree today.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.