Grom Social Enterprises (GRMM) Capitalizing On a Major Opportunity

March 13, 2018 - By: Baystreet Staff

- Social media for kids represents a major opportunity

- Grom Social is a pioneer in this space

One of the major trends in the past decade has been the increasing shift to smartphones and tablets. This trend is not restricted to adults. According to data from the National Consumer Leagues (NCL), 56% of children aged between 8 and 12 now have a cellphone. Furthermore, NCL notes that 60% of families who have provided a cellphone to their child, did so between the ages of 10 and 11. Another 20% provided it to their child between 8 and 9 years old. A study conducted by Northwestern University showed that among children 8 years of age and younger, 21% use smartphones. Another startling figure comes from Around 38% of children under the age of 2 used a mobile device for media.

While these data highlight the emerging trend, they also raise concerns about exposing children to an online environment, especially social media networks such as Twitter, Instagram and Facebook. This is not to say that social media does not have some positives for children. For example, a 2015 Oxford paper showed that social media not only offers an avenue for kids to socialize but also to be creative and interactive. The paper also notes that it is an avenue to learn and notes that social networking provides an alternative way to get students interested in learning with a new and previously unconventional medium. However, there are also negative effects. A recent 2018 Common Sense Media survey indicated that, many parents are in fact concerned about smartphone use by their children, with nearly half of them saying their child might be addicted to his or her mobile device. Baroness Susan Greenfield, a top neuroscientist of the Oxford University warns about lifelong effects of too much social networking including; reduced concentration skills and poor attention span, detracts from communicating in the real world, makes kids self-centered, narcissistic, anti-social and aggressive. An even bigger concern is cyberbullying.

This creates a dilemma. Given the increasing use of smartphones and tablets among children, it would be hard to keep them away from social media networks that are primarily meant for adults. How do you solve this problem then? Enter Grom Social Enterprises (the “Company” or “Grom Social”; OTC: GRMM), a social media website for children or as the Company puts it a “By Kid for Kids” media destination.

The most astonishing thing about the Grom social media website idea is that it was conceived by a 12-year old in 2012. Zach Marks developed the concept in 2012 when he was 12 after his parents blocked his access to Facebook over their concerns regarding potential exposure to unsuitable content. After more than five years, Zach Marks is now the Chief Content Developer and the driving creative force behind Grom Social.

The Company currently produces five live-action children shows each week along with numerous other features with relevant kid content. The Company’s user base of kids spends 50.4 minutes on average on the site on a daily basis, which exceeds all other comparable websites in term of online duration.

Grom Social has created a distribution, branding and re-branding platform that can be utilized by the multi-billion dollar mass media entertainment industry as part of their enormous marketing efforts.

By utilizing original, engaging and entertaining content, the Company has attracted over 6 million children since inception between the ages of five and 16, plus approximately 6 million parents/guardians/teachers. In addition, there are another two million children being reached through the Company’s NETSPECTIVE web filtering platform and 800,000 more through its MAMABEAR app, MAMABEAR is the all-in-one worry-free parenting app designed to give parents peace of mind and protect children’s safety and online reputation.

In this five years, Grom Social has taken tremendous strides. After December 2012 launch which went viral, Grom Social reached 1 million users in July 2014. That is 1 million users in 18 months. That was a remarkable achievement. Facebook reached 1 million mark 10 months after launch. While that is little over half the time Grom Social took to reach 1 million mark, Facebook had far more resources. In light of that, Grom Social’s achievement when also considering its strong cap structure is indeed remarkable. After achieving robust user base growth, Grom Social also embarked on a robust acquisition strategy.

In July 2016, Grom Social acquired Top Draw Animation (“TDA”) an award-winning producer with a 19-year track record of top-quality animation and is one of the leading producers of 2D animation for television markets around the world. Currently with a staff of nearly 600 in Manila, TDA outputs over 200 half hours segments of television annually helping Grom Social transform into a major player in digital media and has been a focal point of Grom Social’s growth strategy. TDA provides services for Warner Brothers, Tom & Jerry, Hasbro Toys, My Little Pony, Disney’s animation’s Penn Zero: Part Time Hero.

This was followed by the acquisition of the Mama Bear app in August 2016, the NetSpective assets in January 2017 and Fyoosion Digital Marketing Platform in December 2017.

The year 2017 was an eventful year for Grom Social as not only did it surpass 10 million user mark, but it also became a publicly reporting company, offering a chance for investors to participate in future growth. And that growth is coming from various avenues. In February 2017, Grom Social formed Grom Educational Services. Through Grom Educational Services, the Company operates the NetSpective Web Filtering services. The services are provided to schools and libraries. The service has already been installed in 400 school districts and 3,700 schools. On an annual basis, an estimated 2 million children access the system. The potential market size is estimated at 77.2 million enrolled students according to the 2016 Census Bureau report. This means that there is still significant room to grow.

Grom Social entered into an agreement with Bond Technology Systems to develop, produce, market and sell a cognitive supplement for the youth that will be marketed to the Grom Social user base. Bond Technology manufactures proprietary liquid nutritional supplements and is involved with Fortune 500 clients and retailers. As per the terms of the agreement, Grom Social will own the trademark and formulation, which secures revenues in the future. Bond Technology has also agreed to provide funding for development, initial production and logistics. The two companies will split profit from product sales on a 50/50 basis. Grom Social expects to roll out the product in the second half of 2018.

The big question then where does Grom Social stand in terms of valuation. The Company currently has a market capitalization of just over $110 million as of February 22, 2018. Based on its user base, this translates to roughly 9X user base. Facebook, the social media giant, trades at a user base multiple of 250X current user base. Considering that Grom Social is still expanding its user base and the existing low multiple, there is significant upside potential from current levels.


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