Description

We recommend a short on RUM with a price target of its cash value at $270 or ~$0.90 a share which the company is currently burning at the rate of ~$100mm ($0.33/share) a year for an 88% downside. Rumble is an alternative right media platform who’s share price has taken off with renewed interest with the buzz of a recent partnership with Barstool Sports that has effectively added $1 billion in market cap and double the company’s valuation without providing any details on contract terms. Underneath the recent price action is a business that is severely CF negative with negative gross margins, management that has limited understanding of their industry, declining MAUs, and operating in an industry with strong incumbents that benefit from network effects.

The major risks to the investment are technical in nature, the recent share spike caused an evaporation in available shares to borrow as well as a sharp rise in borrowing costs causes the stock to be more prone to squeezes. Borrow costs are likely to come down over time as the hype unwinds but with the current election year it will be necessary to track and see if the stock start tracking to Trump election results and enter post-election or position size accordingly.

Figure 1:RUM Share Price, Borrow Rate, Shares Available |Source: iBorrowDesk

Barstool Sports Partnership

First, to address the Barstools Partnership. Looking at the stats on Barstool, it is clear that it was not an exclusive agreement as Barstool continues to post the bulk of their content onto YouTube. Further, it is clear that the YouTube posts are getting far more views and are more widely followed than the Rumble profile. Unless the revenue split is uneconomical to RUM it is hard to see how BarStool will not make more money from the YouTube channel. Thus it is difficult to understand why BarStool would ever be exclusive on Rumble. This can be seen with past partnerships such as Kaysan, who resumed positing on Youtube/Instagram, RiceGum who has far fewer views and only post periodically on Rumble, and Tucker Carlson who moved to twitter after a brief stint at RUM.

Figure 2: BarStool YouTube Page with 1.7mm Subscribers

Figure 3: Barstool Rumble Page with 19k Followers

The Competition - Scale Economies and Network Effects

Competitively Rumble operates in an industry that needs scale to survive. Advertisers often gain familiarity with ad networks and marketing platforms such as Meta’s and Google’s and create content to be served in certain formats. The ad providers such as Rumble also need scale to ensure that they are large enough for advertisers to both meet their goals and have large enough of the target audience pool. Because of the nature of Rumble as a alt right platform, it inherently limits not only the audience but also the advertising pool which suggests the end state for ARPU will be much lower than competitors no matter what.

This can be seen by the abysmal ARPU that RUM has compared to the larger platforms where Rumble currently has slightly over a dollar per user while competitors are closer to $10. This will likely not improve significantly in the future as there are only a limited set of advertisers who are willing to advertise next to alt right content.

Figure 4: Users and ARPU of Media Platforms

With the introduction of more lax content policing efforts on Twitter / X and Trump’s own alt right social platform, Truth Social, it’s difficult to see a scenario where Rumble becomes the ideal network for alt right personalities with its lack of audience. This is evidenced by Tucker Carlson’s departure and move to X and his subsequent 200mm+ viewership numbers.

Rumble also wants to enter new markets such as the cloud and hyperscale market to compete with the likes of AWS, GCP and Azure. Not only do is this nonesensical with the most likely outcome being the company becoming a subscale a hosting solution of some sort but it is clear that the company lacks the resources to even accomplish a modest scale cloud service with $200mm in the bank and the average datacenter costing $1.2-1.5mm / MW. To put this in perspective, the hyperscalers plan to spend over $100B on datacenter capex this year.

Financials

It is difficult to see when the business will reach profitability, if ever, given the business is currently gross margin negative with negative incrementals and has not seen any operating leverage all while having declining domestic and overall users bases.

Figure 5: Declining MAUs YoY

Figure 6: Deteriorating Financial Picture

Presently, Rumble is burning approximately $25mm a quarter not accounting for any developments on its cloud objectives and has struggled to acquire customers or talent. On its current $267mm case pile the business can survive for slightly over 2.5 years.

Catalyst

End of election cycle
Continued deteriation in perfromance / cash burn