Rumble: Hopefully You Sold The Rally (Rating Downgrade) (NASDAQ:RUM)

As the market soared the last couple of months, Rumble Inc. (NASDAQ:RUM) roared back to $10. The “neutral” video platform continues to grow the user base and add new content partners, but RUM stock is valued for 10x the current sales operation. My investment thesis is now ultra-Bearish on the stock while being positive on the long-term business plan.

Power Slap At $10

Rumble signed an expanded content partnership with Power Slap to become the official digital platform offering several exclusive feature shows from the slap fighting league. The video-sharing service continues to allow new media content to easily access millions of fans without the need for a time slot on cable tv.

Dana White of UFC fame is heavily involved in Power Slap and has immediately been able to release television programs on Rumble while struggling in the early days to get the mixed-martial arts league on cable tv. The company reported Power Slap garnered 1.2 million views in the first five days of launching the slap fighting shows on Rumble back in mid-January.

The sports organization was a good sign the video platform made good on a promise to move beyond content focused on conservative political themes. The company started off January with several new content partners, but a lot of the deals were with the likes of Donald Trump Jr. and “The Rubin Report” from Dave Rubin.

The problem is that the video platform doesn’t monetize the current user base at a high rate, and Rumble didn’t add a lot of new content partners during Q4. Analysts only forecast Q4’22 revenues of $10 million, down from the $11 million reported in the prior quarter.

Rumble predicted revenues going forward would be lumpy. Even if Q4’22 is down from Q3 levels, the company is forecast to generate significant growth in the quarters ahead. The current forecast has revenues tripling to over $30 million next Q4 and strong content deals in January, such as Power Slap, bold well for revenue growth.

Part of the issue with monetization is that Rumble hasn’t seen a huge uptick in traffic engagement. The company saw minutes watched per month reach 8 billion all the way back in Q3’21. The video platform only generated 9 billion minutes of engagement in Q3’22 despite 71 million MAUs in the quarter with user growth of nearly 100%.

Rumble has seen minutes per MAU plunge from a peak in Q1’22 of 256 when engagement peaked at 10 million minutes to ~126 minutes in Q3’22. For some reason, the video platform has seen content uploaded and users soar, but these higher user counts are consuming less content.

Even despite the Power Slap initial viewers being impressive, if the 1.2 million viewers only watch the full After Slap show of ~40 minutes, the engagement only adds up to 48 million minutes. The new fighting league does offer multiple shows each week, but the average viewer probably isn’t watching beyond 10 to 15 minutes a week.

A lot of the usage boost appears to have coincided with the company announcing the going public deal. The SPAC announcement was made in December 2021 and the deal was approved in mid-September 2022.

Down To $5

Rumble spent a couple of weeks at $10, but the stock collapsed at the end of last week. The problem facing investors is that the video-sharing platform had a peak valuation of $3.9 billion

The market can easily make the case for a larger revenue base, but Rumble won’t end 2023 with a revenue base much above $100 million. Under the best case scenario, the stock traded at over 35x 2023 sales targets.

The stock fell to slightly below $6 back in early January, but the valuation was still a very rich $2.3 billion. Even at this valuation, Rumble would’ve been deemed expensive at the tech stock peak in late 2021, much less now when stocks still trade near the yearly lows.

Rumble won’t be appealing until the stock dips to $5 and the company projects a strong 2023 when Q4’22 earnings are reported in the next few weeks. Investors need to understand the video-sharing platform ended September with a cash balance of $357 million and these content deals don’t come cheap. Any period of excessively cash burn will hurt the stock.

Takeaway

The key investor takeaway is that Rumble Inc. continues to offer a promising business opportunity with the ability to sign big content deals to drive engagement. The stock doesn’t offer the same appeal being one of the only SPACs going public in the last couple of years recently trading above $10. Despite this recent rally back above $10, investors should continue waiting for extreme weakness to buy Rumble Inc. stock with a starting goal of $5.