The attempted assassination of former president Trump may have artificially inflated Rumble’s value
Rumble (NASDAQ:RUM) stock leaped 20.71% higher to $7.17 on Monday. However, with less-than-ideal financials, the video-sharing platform’s recent rally probably doesn’t represent its potential.
Rumble, the platform said to be “immune to cancel culture,” is an alternative to the much more popular YouTube. The site’s championing of free speech principles has led it to become a hub for conservative commentary, with controversial figures such as Andrew Tate, Rudi Giuliani, and Alex Jones all prominent users.
Why did Rumble stock soar?
It’s not unheard of for stocks representing small-to-medium-sized businesses to make outsized moves. However, heads certainly turned when Rumble stock increased its value by over a fifth on Monday, ending the trading session at $7.17.
That morning, the company had announced partnerships with three “exclusive Rumble-branded products”: pet product platform Pawsitive, male health brand Be Naked, and electromagnetic field wellness company 5G Free.
While the nature of the partnerships was unclear, Rumble CEO Chris Pavlovski stated they would “not only add revenue to our bottom line but also advance our mission of a free and open internet”.
However, the likely catalyst for the 21% single-day rally didn’t directly concern Rumble. Rather, it pertained to a competing alternative, First Amendment-focused social-media platform, Truth Social. The company that owns Truth Social is Trump Media & Technology Group (NASDAQ:DJT), led by former U.S. president and current presidential candidate Donald Trump.
Crucially, DJT stock rallied more than 31% on Monday following the attempted assassination of former president Trump during a Republican rally in Pennsylvania on the weekend.
It is highly probable that Rumble stock raced higher on Monday, not because of the company’s announcement of three partnerships but because of the sympathy effect. In other words, DJT stock shot higher and short-term traders decided that RUM stock ought to move higher as well, since Rumble occupies a similar market and demographic as Truth Social.
Don’t assume Rumble stock will keep rumbling on
The problem with the sympathy effect is that it often doesn’t last very long. It’s easy to get trapped as the market will typically re-focus on the fundamental facts in short order.
This could easily happen to Rumble stock because, after all, Truth Social is a competitor to Rumble, and Truth Social is getting the lion’s share of the attention now. Trump Media is making a big move into TV streaming now, which means that the company could potentially lure viewers away from Rumble’s “conservative YouTube” video platform.
Furthermore, Rumble’s most recently released quarterly report indicates that Rumble has fundamental flaws. In Q1 2024, Rumble generated $17.7 million in revenue, basically flat year over year. The company cited a “decrease in advertising revenues of $3.1 million” as the cause, which isn’t particularly encouraging as Rumble has to compete for advertisers with YouTube and Truth Social.
The primary concern, however, was that the company’s first-quarter expenses vastly outweighed Rumble’s revenue. In just three months, Rumble spent approximately $31.8 million on “content, hosting and other”, $9.3 million on general and administrative expenses, $4.5 million on research and development, $3.3 million on sales and marketing costs, and $2.4 million on amortization and depreciation.
Consequently, Rumble incurred a staggering net loss of $43.3 million in this year’s first quarter. Prospective investors might wonder how long it may take, at the current cash-burn rate, for Rumble to expend its $182.7 million worth of cash and cash equivalents.
One good day doesn’t make a pattern, and a sympathy-effect rally shouldn’t lead to overly bullish assumptions about Rumble stock. Hence, it’s wise to stay on the sidelines and wait for more encouraging data from Rumble — especially if it indicates cost containment — before considering a share position.
