Shall We Catch A Falling Knife?
Crisis creates opportunity. That could be what we have here today. Or I could be way off target. Time will tell.
If 2023 has taught us anything, it’s that stock prices can be impacted by political wars. Anheuser-Busch InBev BUD 0.00%↑ shareholders probably know this better than anyone. Now, we have a new stonk in the crosshairs. But this time, the equity shelling is due to a company’s connection with a completely different social media influencer and for a completely different reason.
I touched on the Russell Brand story already and I don’t know that I have much more to say about it. Brand has been demonetized by Google-owned GOOG 0.00%↑ YouTube but not by streaming insurgent Rumble RUM 0.00%↑. Rumble has publicly stood by Brand’s ability to earn a living despite having criminal allegations against him. For that stance, advertisers like Burger King QSR 0.00%↑ and HelloFresh have pulled ad spend from the Rumble platform.
Quite the stance for Burger King to take even though Russell Brand hasn’t even been formally charged with anything. But hey, just remember, none of this is about silencing dissenting voices and Jeffrey Epstein definitely killed himself.
Regardless, losing advertisers is deeply problematic for Rumble the company because it has been reliant on ad dollars for over 80% of its total revenue so far in 2023. I’ve said it before and I’ll say it again until I’m blue in the face; advertising is the easy way to monetize an audience but it should be avoided if it can be, in my opinion. I’ve taken that view for a variety of reasons:
People who buy audiences often think they’ve also bought editorial influence. If their wallets are important enough to an individual creator or newsroom, sometimes that ad-buyer has indeed bought editorial influence through
extortionimplied pressure even if creative control hasn’t been overtly priced on a rate sheet.Brand associations have risk both ways. I see your “advertisers don’t want to be associated with low-value content” and raise you “content creators don’t want to put their neck out there for scoundrels with a marketing budget.”
Of course, for a platform that champions itself a defender of free speech, one would expect Rumble the company to make subscription-based revenue streams more of a growth priority than ad-based models; but here we are.
As of writing, RUM shares are down 44% this month. To be fair though, it isn’t just the Russell Brand situation that is weighing RUM shares down in September. The stock’s insider shares just unlocked and there is speculation that some of the shares owned by insiders are about to hit the ask. Insiders own roughly 54% of the shares outstanding, so any rush to the gates from large holders could potentially hammer the price of RUM stock.
However, it should be noted that the impending unlock of insider-held RUM hasn’t kept investment funds away from the ticker:
There were 87 funds holding RUM last September. There are currently 123. I’ve written about Rumble stock for Seeking Alpha twice, each time giving the equity a “hold” rating. I’ve also traded RUM a handful of times since it came public via SPAC. It’s possible to like what Rumble the platform stands for and dislike the current fundamentals of Rumble the company’s business - you can pretty much put me in that camp:
Rumble needs organic growth in UGC or it is likely going to continue to need to pay creators to distribute content on the platform. Organic growth wasn't necessarily a problem during COVID/lockdowns when there was justifiable fear of de-platforming in the creator economy. Unfortunately for Rumble, people seem to have short memories and that fear appears to be less intense now.
Perhaps we’ll see spicy YouTubers rethink some things following Russell Brand’s cancellation. We’ll see.
I want to be very clear about my thoughts on RUM; I’m not sure this company is a great long term investment today. Even after the big drawdown, the ticker is still trading at a preposterous 14 times sales…
However, bad fundamentals, bad press, and bad valuations don’t mean the stock is destined to go down any further in the short term. Let me share with you what I’m seeing…
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