Shares of technology company Rumble (RUM +13.06%) are at 52-week highs as of this writing, having jumped roughly 300% in value since lows set back in January. And much of its leap is thanks to a massive $775 million investment from the investment arm of Tether Limited, the company behind the cryptocurrency stablecoin Tether (USDT +0.01%).
Tether is the third-largest cryptocurrency in the world by market capitalization. As of this writing, the market cap is almost $140 billion, which trails only Bitcoin and Ethereum. But Tether isn't like these other two cryptocurrencies; it's a stablecoin.
NASDAQ: RUM
Key Data Points
A stablecoin intends to have a 1-to-1 price correlation with something else. For example, a U.S. dollar stablecoin should always be worth $1. It's for people who want to explore the world of cryptocurrency without the volatility. Simply explained, they deposit $1 and Tether issues one new stablecoin worth $1.
According to Tether, it had about $125 billion in reserves as of Sept. 30 (its market cap was $119 billion at the time). Most of these reserves are in U.S. Treasury bills. It needs to hold these reserves in case people want to redeem their stablecoins for dollars. But Tether is able to make money for itself with these massive reserves in the meantime.
Tether CEO Paolo Ardoino recently said it's on pace to earn $10 billion in net profit in 2024, which is an astounding amount for any company, let alone a cryptocurrency company. And the company doesn't simply rake in these profits, but rather it invests its money from time to time, which is what it's doing with Rumble.
Why the market is excited about Tether's investment in Rumble
Rumble turned heads when it went public in 2022 because this little company has big ambitions. The company intends to build internet infrastructure that's free from censorship and it hopes to compete with Alphabet's video streaming platform, YouTube; Amazon's cloud computing service, AWS; social media platforms; and more.
The problem is that Rumble can't simply wish all of this into existence -- it takes money. And when ambitions are this high, it costs a lot of money to build. Unsurprisingly, the company had a net loss of $116 million in 2023 and has already lost another $102 million in the first three quarters of 2024.
But give Rumble some credit. The chart below shows its outstanding share count with the orange line. Ignore the brief spike shortly after it went public (the accounting of these things can get temporarily distorted upon going public). The chart shows that, to date, management hasn't been raising money by diluting shareholders with stock offerings. It also hasn't been taking on debt.
RUM Total Long Term Debt (Quarterly) data by YCharts
To the contrary, Rumble has been funding its growth with cash on hand. And I believe that's the right move. After all, the company got its cash from its shareholders in the first place. These shareholders expect it to achieve its long-term vision by actually using this cash.
However, Rumble is still burning cash at a fast pace and investors were getting worried about liquidity. The stock consequently skyrocketed when Tether announced its massive investment because the fears regarding liquidity were alleviated.
There are reasons for optimism with Rumble. In the third quarter of 2024, the company had 67 million monthly active users -- that's nothing to sneeze at. Granted, that's down from its user base of 71 million in the third quarter of 2022. But it's a large, engaged user base nonetheless.
The challenge has been growing revenue by getting advertisers to buy into Rumble's potential. As CEO Chris Pavlovski lamented on the Q3 earnings call, "How much longer can brand advertisers ignore more than half the country?"
Rumble does have a premium subscription service that makes up for lack of interest from advertisers. But ad revenue is still important to the company and Pavlovski's question is an admission that this is an ongoing headwind for the business. And, unfortunately, it's impossible to know how much longer it will be before advertising demand picks up.
The good news for Rumble's shareholders is that however long it is, it now has a longer runway than it had before thanks to the infusion of cash from Tether. While there are still a lot of moving pieces here and more details with the transaction that are worth knowing, the main takeaway is that Rumble has more time than it had before. And when it comes to investing, more time is almost always a good thing.
