Rumble Inc. (NASDAQ: RUM), opened 50% higher this morning, after Tether announced that it had received a $775m strategic investment.
The online video and cloud service company will use a portion of the proceeds “to fund a self-tender” for up to 70% of Rumble shares.
According to a press statement issued on Monday, Tether’s minor stake does not give it the right nominate members to Rumble’s board.
At the time of writing, Rumble stock was trading at a high of over $10 for the year to date.
Rumble stock could see gains reduced due to poor financials
Rumble’s popularity has grown over the past few years, mainly due to the pandemic which resulted in a 44-fold increase of its monthly active users.
As of this writing, the online platform has approximately 67 million active monthly viewers.
Rumble Inc.’s financials do not paint a picture of a bright future.
Rumble generated approximately $65 million in revenue during the first three quarters in 2024. This is equivalent to an 8.0% growth year-on-year.
The Nasdaq-listed firm’s gross margin was in the negative for the period, as it incurred a cost of sales of $104 million.
Rumble lost $102 million by the end of September, which is more than the $87 million that it lost in the nine months leading up to 2023.
Note that Rumble’s stock is now selling at a premium of about 30% over its IPO price.
RUM may dilute investors moving forward
Rumble reported $132 million in liquidity at the end of its last reported quarter. This means that it may not have enough money to fund operations for the next four quarters, if losses continue to rise as they did in 2024.
Rumble may have to raise additional capital or secure additional funding in the next year, which could end up diluting current shareholders.
The recent surge in Rumble’s stock price has pushed the price-to-sales ratio well beyond 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 do not pay a dividend at the moment.
Rumble shares are still a high-risk asset.
Rumble counts billionaire Peter Thiel among its investors.
Wall Street analysts continue only to rate its stock as “hold” due to financial difficulties.
The consensus price target for RUM shares is currently $8.0, which warns of a 20% drop from here.
Rumble stock is still a high-risk asset despite the recent rally.
It is possible that it will not be able to gain any more until the gross margin turns green.
A Rumble director recently sold more than 27,000 shares in the company.
This post, Why the Tether-driven rally may be short in Rumble Stock may be modified as new information is revealed.
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