Rumble Stock Sinks After a Week of Gains: What's Behind the Pullback?

Rumble stock fell 12.7% on Monday, December 23, 2024, after a week of significant gains, as investors took profits and reacted to broader market conditions. The pullback, which came after the company announced a $775 million investment from Tether, highlights the volatility and uncertainty surrounding the video-sharing platform's stock.

Rumble stock surged 81% on Monday, December 23, following the announcement of Tether's investment. The rally came on the heels of a massive surge in the stock's price, which reached a record high of $17.35 earlier in the month. However, the stock's parabolic rise has raised concerns about its valuation and sustainability.



Several factors contributed to the recent sell-off in Rumble stock:

1. Market-wide Sell-off: The broader market, including the S&P 500 and Nasdaq Composite, experienced a significant pullback on Friday, December 27, 2024. This market-wide sell-off contributed to the decline in Rumble's stock price, as investors sold shares for tax-harvesting and profit-taking purposes, causing a significant pullback across the market (Source: "Rumble stock sinks in Friday trading").
2. Meme-stock Momentum Fading: Rumble's stock price had surged due to its status as a meme stock, but the explosive gains also set the stage for volatility. As the meme-stock momentum faded, investors took profits on the streaming-video company's recent surge, leading to a decline in its stock price (Source: "Rumble stock sinks in Friday trading").
3. Lock-up Period Expiration: On Monday, September 5, 2024, Rumble's lock-up period expired, allowing insiders, including founder and CEO Chris Pavlovski, to sell their shares. Although Pavlovski reassured investors that he didn't intend to sell any of his shares, the uncertainty surrounding insider selling contributed to the stock's decline (Source: "Rumble stock drops on Monday").
4. Interest Rate Outlook: The Federal Reserve announced a more cautious approach to interest rate cuts in 2025, which worried investors and led to sell-offs in companies with growth-dependent valuations, including Rumble (Source: "Rumble sees sell-off on interest rate outlook").
5. Valuation Concerns: Despite the excitement surrounding Tether's investment, questions remain about Rumble's valuation and growth prospects. Some analysts, such as Jason Helfstein from Oppenheimer, note that the valuation appears ahead of its current advertising and subscription revenue performance (Source: "Rumble year-to-date price chart").



Rumble's financial performance and user metrics have shown consistent growth, but they still lag behind some of its major competitors in the video-sharing platform industry. Here's a comparison:

1. Revenue Growth:
- Rumble: In the third quarter of 2024, Rumble reported revenue of $25.06 million, a 39.34% year-over-year increase. Over the past 12 months, its revenue climbed to $85.65 million, up 6.36% compared to the prior year.
- YouTube (Alphabet Inc.): YouTube's revenue in 2023 was $28.8 billion, a 10.4% increase from the previous year. In the second quarter of 2024, YouTube's revenue was $8.04 billion, up 11.4% year-over-year.
- Odysee: Odysee's revenue is not publicly disclosed, but it has been growing steadily since its launch in 2020.

2. User Metrics:
- Rumble: As of the third quarter of 2024, Rumble had an average of 67 million monthly active users (MAUs), up from 53 million in the second quarter. However, its average revenue per user (ARPU) dropped to $0.33 in Q3 from $0.37 in the previous quarter.
- YouTube: As of 2023, YouTube has over 2 billion logged-in monthly active users worldwide. Its ARPU is not publicly disclosed, but it's likely much higher than Rumble's due to its massive user base and diverse monetization strategies.
- Odysee: Odysee has over 1 million MAUs as of 2024, with a growing user base and increasing engagement.

While Rumble has shown promising growth, its revenue and user metrics still trail behind industry giants like YouTube. However, it's essential to note that Rumble is a relatively new player in the market and has been growing rapidly. Its recent investment from Tether could provide the capital needed to accelerate growth and compete more effectively with established competitors.

The Tether investment of $775 million has a significant impact on Rumble's balance sheet and cash flow, which in turn affects its valuation. Here's how:

1. Balance Sheet Impact:
- The investment will strengthen Rumble's balance sheet by adding $775 million in cash, which will increase its liquidity and financial flexibility.
- As of the third quarter of 2024, Rumble had $131 million in cash and equivalents. With the Tether investment, its cash position will surge to around $906 million, providing it with a substantial runway for growth and operations.
- The investment also reduces Rumble's outstanding shares, as Tether will purchase approximately 103.3 million shares at $7.50 per share. This will decrease the company's share count and potentially increase earnings per share (EPS) in the future.

2. Cash Flow Impact:
- The $250 million portion of the investment will be used to fund Rumble's existing business operations and pursue new growth opportunities. This will provide the company with additional capital to invest in its platform, content, and user base.
- The remaining $525 million will be used to finance a self-tender offer to repurchase up to 70 million shares of Class A Common Stock at the same $7.50 price offered to Tether. This will provide liquidity to stockholders and reinforce shareholder value by reducing the number of outstanding shares.

3. Valuation Impact:
- The Tether investment is a major vote of confidence in Rumble's potential, as it comes from a well-established player in the cryptocurrency space. This investment can signal to the market that Rumble is a promising company with growth prospects.
- However, the valuation of Rumble's stock appears ahead of its current advertising and subscription revenue performance, according to Oppenheimer analyst Jason Helfstein. This suggests that the market may be overestimating the company's future growth prospects.
- Despite the excitement surrounding the Tether investment, questions remain about Rumble's valuation and growth prospects. Analysts have revised their outlooks on the stock, with Wedbush's Scott Devitt raising the price target from $8 to $10 but maintaining a neutral stance.
- The Tether investment may alleviate some liquidity concerns and provide Rumble with additional capital to grow its business. However, the company's ability to sustain this momentum and deliver on its growth plans will be closely watched by investors.

In conclusion, the recent sell-off in Rumble stock can be attributed to a combination of market-wide factors, meme-stock momentum fading, lock-up period expiration, interest rate outlook, and valuation concerns. While the Tether investment has a significant impact on Rumble's balance sheet and cash flow, the company's ability to sustain its growth momentum and deliver on its growth plans will be crucial in determining the stock's future performance. Investors should closely monitor Rumble's financial performance and user metrics as the company continues to grow and compete in the video-sharing platform industry.