Rumble Stock Creates Buzz, Long-Term Investors Should Wait And See (NASDAQ:RUM) (2024)

Rumble Inc. (NASDAQ:RUM), positioned as the free speech-centric alternative to Google's YouTube (GOOGL), made its public debut in September 2022 through a SPAC merger, boasting a valuation of $2.6 billion. This valuation starkly contrasts its revenue at the time, which was less than $10 million. Rumble's commitment to fostering a free and open Internet draws parallels to the mission of Elon Musk's X. The company's actions, often deemed polarizing, have made it a regular feature in news headlines. This media attention, coupled with strong public opinion, makes Rumble's stock particularly volatile.

It's not just the company's performance that influences its stock price, but also the public sentiment and media coverage it receives. At the same time, it can be argued that this media coverage benefits the growth of the company. A recent surge of 81.56% in its stock price followed the announcement of Rumble's partnership with Barstool Sports and the launch of its new live-streaming tool. However, for long-term investors, it may be premature to take a position. Despite an increase in revenue and user count, the company's valuation appears inflated.

The future success of Rumble will largely hinge on the commitment of its insiders to long-term growth and not only opportunistic trend waves. Therefore, I recommend a wait and see hold position.

Rumble overview

Rumble, a Canadian online video platform, web hosting and cloud services firm established in 2013, has positioned itself as a YouTube rival, providing a platform that is strongly opposed to censorship. This angle has attracted a significant user base in a short period of time, offering substantial advertising revenue and growth opportunities for its creators. The company has caught attention through some of the more polarizing individuals sharing content on its platform, such as Andrew Tate, Russel Brand and former President and current candidate Donald J. Trump.

However, it is also a very attractive space for small and new creators because, unlike YouTube, Rumble does not have the threshold requirement to start earning money. It generates its revenue primarily through advertising. More users and higher engagement mean more views for the ads, leading to increased ad revenue.

Rumble indicates its growth through monthly active users (MAUs), who are classified as anyone who views its platform from any device. We can see a 76% YoY growth in Q2 2022, reaching 44 million MAUs. By Q4 2022, MAUs increased by 142% to 80 million. However, in Q3 2023, MAUs declined to 58 million. It is too early to understand whether active users will be frequent visitors to the site, and the company has not given details on the growth of registered users.

Rumble has formed a strategic partnership with Barstool Sports to provide exclusive content to its users. This collaboration has the potential to attract a wider audience to Rumble and enhance the platform's visibility. Additionally, the recent launch of Rumble's live-streaming product is expected to increase engagement opportunities and bring financial benefits to the company in the future.

Rumble financials

If we move away from the online buzz and take a closer look at Rumble financials, it remains difficult to justify an initial valuation of $2.6 billion. The company's top line has shown promising growth, however TTM revenue is a mere $80.5 million. Furthermore, escalating costs have led to an increase in losses YoY. It's worth noting that it's not unusual for tech firms, especially those in their growth phase, to operate in the red. The key focus here is on Rumble's growth and its potential to become profitable in the future. The company anticipates breaking even by 2025, which could be a turning point for its financial performance. While the company is experiencing cash burn, it still maintains a healthy cash reserve. This will enable Rumble to continue investing in its business operations, particularly in its anticipated ad-monetization growth.

As expected in a growth stage of a company, there is a lot of cash burn, which we can see with its increasingly negative levered free cash flow.

On the balance sheet front, Rumble seems to be in a robust position. Cash and short-term investments make up $267.02 million, indicating a healthy liquidity position. However, there is a decent cash burn YoY if we compare it to $338.3 million the year prior. The company's total debt is relatively low at $1.92 million, which is a positive sign. A lower debt burden reduces the financial risk and provides more leeway for the company to invest in growth opportunities. A lot of the money is going towards its content acquisition strategy. As ad monetization grows, less of its cash balance will need to be spent on creators, which management predicts will be at the end of 2024.

RUM stock valuation

Rumble is a speculative and volatile stock, with a trajectory that's challenging to predict due to its brief history. Despite the impressive growth in its top line, the stock has seen a significant decrease of 49.04% over the past year. However, the tide seems to be turning for Rumble. In the last five days, the stock has surged by an impressive 81.56%. This uptick is largely attributed to the announcement of a partnership deal and the launch of its live-streaming product. It's worth noting that Rumble's performance is also influenced by its association with political and polarzsing figures. These connections can sway market sentiment, often independently of the company's actual performance. Seeking Alpha's Quant analysis gives Rumble a valuation grade of "C." While this isn't a top-tier rating, it doesn't necessarily spell doom for the company. Rumble's market capitalization currently stands at $1.37 billion. This is notably lower than its original valuation of $2.6 billion. Despite this decrease, the company's valuation remains high when compared to its financial performance. This is evident across all its valuation ratios, suggesting that the stock may be overpriced.

Final thoughts

Rumble has been a focal point of online discussions due to its positioning as a free-speech alternative to YouTube. Despite the buzz, the financials present a less rosy picture. The company's TTM revenue stands at $80.5 million, a figure dwarfed by its initial valuation of $2.6 billion. Costs have escalated, leading to increased losses YoY. However, this is not uncommon for tech firms in their growth phase. The company anticipates breaking even by 2025.

Despite the cash burn, Rumble Inc. maintains a healthy cash reserve, allowing continued investment in its business operations. The market is strongly reactionary to this stock based on news events rather than purely financial and company updates, which makes it a risky stock this early on. Therefore, for long-term investors, I recommend a wait and see hold position.

I am a 34-year-old globe trotting nomad with a business education who loves to discover new ideas for long and short term investments."Stop hoping for a promotion that's not coming. Instead, start a business at which you want to work." Sallie Krawcheck