With shares down 70% from an all-time high of $16.81, Rumble (RUM -0.15%) stock has been challenging for its early investors. But behind the poor performance lies a business with rapid growth and a unique niche in the video-streaming industry. Will management be able to turn the ship around over the long term? Let's dig deeper to find out.
What is Rumble, and how fast is it growing?
Founded in 2013, Rumble bills itself as an alternative to large, user-created content platforms such as Alphabet's YouTube or Twitch, a subsidiary of Amazon. Rumble claims that these rivals deprioritize small content creators in favor of influencers, corporations, and large brands. Rumble believes it can fill a gap in the market by being a neutral platform with less censorship of controversial ideas. This strategy, while risky, seems to be generating substantial growth.
In the 12 months between the third quarter of 2020 and 2021, the platform's average monthly active users (MAUs) skyrocketed by over 2,100% to 36 million. But this surge was probably helped by the U.S. election cycle and the stay-at-home boom during the COVID-19 pandemic. Rumble's more recent performance has been mixed.
While third-quarter revenue increased by an impressive 468% from a year ago to $25 million, MAU growth remained flat at just 44 million -- a fact management blames on increasing competition and a slowdown of the news and politics cycle. While the revenue increase is impressive, it will likely plateau unless the platform can continue to attract new users. Management's efforts to poach big-name influencers like IShowSpeed Kai Cenat (Twitch's most subscribed streamer) could help it boost user growth, but the full impacts of these deals remain to be seen.
On top of that, Rumble's hands-off content moderation strategy could also pose some long-term risks. According to Bloomberg, the platform is 'conspiracy-filled,' and it is home to several highly controversial figures who have been kicked off mainstream platforms. This could scare of advertisers who are worried about potentially damaging their reputations by being associated with unmoderated or politically sensitive content.
Losses are mounting
While Rumble's future growth remains uncertain, its losses are not. The platform's cost of services (which includes content fees and hosting) stood at $40.8 million in the third quarter -- dwarfing its $25 million in revenue and contributing to an operating loss of $35 million. Over the coming years, investors should expect cash burn to worsen before it improves because Rumble's largest outflow (cost of services) scales with the amount of content produced and stored on its servers.
Image source: Getty Images.
With an impressive $295.6 million in cash and equivalents on its balance sheet, Rumble can sustain its operations for a long time without relying on equity dilution or debt. The platform also has backing from a consortium of conservative investors, including the billionaire Peter Thiel, who may be incentivized to financially support the platform for political reasons. All in all, it looks unlikely that Rumble will go bankrupt before it gets a chance to prove the viability of its business model, if possible.
Rumble may have a bright future, but it's too early to bet on it
Despite its near-term challenges, Rumble's future looks bright. The exceptional MAU growth it experienced in 2020 and 2021 indicates strong demand for its niche. And most importantly, these users stuck around even after the impetus for their joining (COVID-19 and the elections) ended. This suggests that intense news cycles in the future (such as the next U.S. election) could drive sustainable growth for the platform.
That said, Rumble's losses are huge, and it currently has no clear pathway to profitability. Risk-averse investors should wait for more quarters (or even years) of data before considering a position in the stock.
