By Rumble Inc (NASDAQ: RUM) opened a whopping 50% up this morning after announcing to have received a $775 million strategic investment from Tether.
The online video and cloud services company will use part of the proceeds to “fund a self-tender offer” for up to 70 million Rumble shares.
Tether’s minority stake does not win it the right to nominate members to Rumble’s board, as per a press release on Monday.
Rumble stock is trading at a year-to-date high of well over $10 at writing.
Rumble stock may pare gains due to poor financials
Rumble has sure grown in terms of popularity in recent years particularly on the back of the pandemic that resulted in an exciting 44-fold increase in its monthly active users to 36 million.
At writing, the online video platform has about 67 million monthly active viewers in total.
Still, the financials don’t paint a rosy picture of what the future holds for Rumble Inc.
Rumble generated about $65 million in revenue in the first three quarters of 2024 that translates to about an 8.0% year-on-year growth only.
More importantly, the Nasdaq listed firm incurred $104 million in cost of sales that left its gross margin deep in the negative territory for the period.
Rumble lost a total of $102 million through the end of September – wider than $87 million it lost in the first nine months of 2023.
Note that Rumble stock is now going for about a 30% premium to its IPO price.
RUM may dilute shareholders moving forward
Rumble ended its latest reported quarter with $132 million of liquidity, which means it may run out of money to fund its operations over the next four quarters if losses continued to mount as they have in 2024.
So, there’s a possibility that Rumble will have to secure additional funding or raise fresh capital in the coming year that may end up diluting the current shareholders.
Additionally, the recent surge in Rumble stock price has pushed its price-to-sales multiple well past 20.
In other words, shares of the Software-as-a-Service (SaaS) company are not inexpensive to own by any stretch of the imagination at writing.
RUM shares don’t currently pay a dividend either.
Rumble shares remain a high-risk investment
Rumble counts billionaire Peter Thiel as an investor.
But Wall Street analysts continue to rate its stock at “hold” only due to financial challenges.
In fact, the consensus price target on RUM shares currently cuts at $8.0 that warns of a more than 20% downside from here.
All in all, Rumble stock remains a high-risk investment following the recent rally.
It may be out of any further upside at least until it turns green in terms of gross margin.
A Rumble’s director recently unloaded more than 27,000 shares of the company as well.
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