Let’s Get Ready To Rumble

Rumble (NASDAQ:RUM) is a stock that I have been watching for some time. I am actually a user of the platform, both personally and for businesses that I operate. I loved the idea and intention of Rumble from when I first heard about it. I would not consider myself to be an early adopter or say that I heard about the company early on, but I have known about the platform and used it for over a year now. Seeing as many people still don’t know what it even is, to many I would be an early adopter.

Now liking the idea of a company and liking the stock are two different things. That is the situation I find myself in regards to Rumble. I like the idea of the company and like what it has done so far. The company has grown significantly since I became aware of it. The market that it fits into is massive. I think the way they are going to market and differentiating themselves from the bigger players in the industry, mostly YouTube, is the only way to have real success. There are some negatives that come along with the positives though. I will review these throughout the analysis. I like the company; they seem to be doing the right things. That does not necessarily mean the stock is a good buy. Every stock is a great buy at the right price, and the opposite is true as well. That is what we are all here for right? Should I buy, sell or hold RUM stock? My intention is to answer that through my analysis on Rumble.

What is Rumble?

Rumble is an online video platform, web hosting and cloud services business headquartered in Toronto, Ontario, with its U.S. headquarters in Longboat Key, Florida. It was founded in October 2013. Rumble announced a business combination with CF VI, a special purpose acquisition company, on December 1, 2021. The business combination was successfully completed on September 16, 2022, and the stock began trading on Nasdaq. Going public provided Rumble with gross proceeds of approximately $400 million, prior to transaction expenses. This capital infusion has helped Rumble compete with its big tech competitors.

In short, Rumble is a video hosting site similar to Alphabet’s (GOOG) (GOOGL) YouTube. It is in essence an alternative to YouTube. If you go to the website you will quickly see that it is very similar in function and look to YouTube. Video sharing sites like YouTube and Rumble compete with much more than just each other. They are competing with eyeball time from other social media players as well, Facebook, Instagram, TikTok, Snap, etc. They also provide different types of content than these other platforms, mainly in longer form content. I consider Rumble to be most comparable to YouTube in competition.

The Idea Behind Rumble

I do think there is room for multiple players in the video sharing platform, but the company needed to differentiate itself in some way. YouTube is the 1,000 pound gorilla in the room. You can’t just walk in and try and take its lunch without a plan. I think Rumble has come with the right approach. It has catered to a niche in the market rather than trying to go head on with the big players. The niche that it has targeted is not a small percentage of the population. The approach it has taken is really not to only differentiate itself from just YouTube, but most social media platforms.

Rumble’s philosophy from the beginning was meant to be those things that social media is not for many people. They saw the complaints of users on YouTube. From their 10-K:

“Rumble was founded in 2013, back when the concept of ‘preferencing’ on the internet was simple – it was big vs. small. At that time, it was clear that big tech social video platforms were beginning to prefer large creators, influencers, and brands, while leaving the small creator behind and thus, creating a market opportunity. At that time, Rumble was founded based on the premise of providing small creators with the tools and distribution that they needed to succeed.

Fast forward to 2020, when a new, and much more nuanced world of ‘preferencing’ was evolving online, which included sophisticated algorithms used by the big tech incumbents for amplification and censorship. In contrast, Rumble never took the approach of black box algorithms to drive profit and, most importantly, we never moved the goal posts on content policies….

Soon after this, the preferencing and censorship enforced by big tech social platforms continued to expand into many other areas of content, including but not limited to the crypto-finance community and pop culture.”

From the beginning, Rumble looked to target those who were unhappy with some of the social media policies. It evolved quickly into a censor resistant platform. In short, many feel that the big social media platforms were choosing to censor many ideas and thoughts that did not align with a certain vein of thought. We are not going to get into politics, as always, if it can be avoided. Politics have definitely had a big impact on Rumble. There can be a whole discussion on whether these large social media companies should be allowed to do that, even if they are a company. If they should be protected under Section 230. If free speech is being infringed. Regardless of how you personally feel about these topics, they are hot topics. This is what matters for Rumble. Rumble has been able to target and go after a certain market that is unsatisfied with the other social media platforms.

I actually heard about the platform due to the censorship on other social media channels. Certain forms of content, that are definitely not illegal or inappropriate in any way (I am not talking about COVID or politics here), on YouTube were either removed or demonetized. Social media platforms allow more than enough “inappropriate” content, it is really the matter of them (Social Media Companies) deciding what they deem to be “inappropriate”. Their version of “inappropriate” might not align with your personal version of “inappropriate” content. That is where the rift arises. Obviously none of the platforms allow pornographic content (at least not blatantly), so no one is talking about that. Some of the channel owners started to mention how they were going to look at moving over to Rumble, or most often, create a parallel channel on that platform. After hearing about it I decided to check it out. I thought from that first time visiting that it had a solid chance of becoming successful. Mostly because of how they were going after the market. I think they are building their platform in a way that many agree with and want to support.

Content is King

I have actually heard a few marketers say that content is still king but consistency is just as important. This is where the real challenge for Rumble comes into play. As a video sharing platform, Rumble does not create its own content, but rather relies on users to create and share content. Rumble needs to have content creators create enough content to draw people to the platform. It needs to be consistent content that people want to see or they are not going to keep coming back to the platform. Rumble has to compensate users sufficiently to get them to create and use their platform. We have a bit of the chicken or the egg situation occurring. Compensation is based upon viewer metrics. If there are not enough users on the platform then creators are not going to waste their time creating. If creators don’t create then users will not come to the platform. For established brands, such as YouTube, this has already been resolved. There is already a huge swath of content created, therefore people already know to go there to watch what they want. People create videos for YouTube knowing that there is an audience to watch those videos. It also allows them to be able to monetize their videos (as long as YouTube decides you can be monetized) knowing an audience is available.

Rumble has done what it must to compete and has acquired rights to certain creators, sports leagues, etc. that will be exclusively shown on Rumble. This is expensive for Rumble but they have to bring an audience from other platforms in some way. You can’t just hope that users find your platform and then magically decide to stick around and use it. Rumble is buying those users right now, as any young company must do, through their acquisition of rights to different content. Below are some of the content creators that have joined Rumble:

• Russell Brand

• Dana White and Power Slap

• Steven Crowder

• Steve Will Do It

• Glenn Greenwald

• Fresh & Fit

• Dave Rubin

• Matt Kohrs

The plan is that these creators, along with some others, will bring an audience to the platform. Then that audience will become users of the platform. This strategy is necessary to make themselves relevant and to bring an audience to the platform. This is going to hurt the margins for the company and I expect it to do so for some time going forward. We can see that the cost of services, which includes content costs, increased at a faster rate than revenues.

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This is not a surprise or concern for me at the moment. The company is a young company that is growing. It has no choice but to invest in content to draw users to the platform. This is a large reason it went public to raise funds to compete with the larger players in the industry. Judging by the growth in revenues I would say it is so far working. This is something to keep an eye out for going forward though. At what point do they cross over to where their revenue is growing at a faster pace than their costs to acquire that revenue.

The company has a decent cash position to be able to make these investments. At the end of the year it had $337 million on hand. It used around $32 million from operations in 2022. I do think that number increases for some time going forward, but it still provides the company time to grow their users and revenue base.

If you go to YouTube you can find almost anything you want. We often talk about the channels that have a huge number of followers and huge audience. Those are necessary for the platform to succeed, but also you need the many smaller accounts to upload content. When I need to fix something or troubleshoot anything, I almost always end up on YouTube watching some video that might only have a few thousand views. Maybe it has more or less. Regardless, the answer is almost always found on YouTube. The reason is that people upload it there. That is what Rumble needs to become in order to truly compete with some of the bigger social media companies. We will review some data points in the next section that demonstrate whether or not Rumble is on track to become that company.

Rumble On

There are a few important metrics to look for with Rumble to see how they are progressing towards this goal of getting more content and viewers. Three metrics to look at are Monthly Active Users, Average Monthly Minutes Watched, and Hours of Uploaded Video. Below is the chart for each of those metrics.

The average monthly active users has grown rapidly. Since Q4 of 2021 the company has seen its MAU go from 33 million to 80 million. That is good for an increase of 142%. This is outstanding growth on the platform in terms of users. It is a great sign for the company. Users is where it starts. You need users to create content and watch content.

The average monthly minutes watched, while showing growth is not as strong. Here we see great growth up through Q1 of 2022, but then the number of minutes watched on a quarter over quarter basis actually decreases. It climbs up again to reach an all-time high in Q4 of 2022. It still saw growth of 31% year over year in the Q4 of 2022. The growth was much slower than that seen in the MAU. Also since the MAUs continued to grow I would have expected to see the monthly minutes watched to continue a steady growth as well. This chart is telling me that they were attracting new users but the content available was not compelling enough to keep those new users around to watch as consistently. I think some of the larger content deals can help drive more watch time.

Overall the growth in hours of uploaded video per day is fantastic. There is a bit of hiccup during one quarter, I am not sure why they saw a dip in the middle of their stellar growth on this metric. I would not worry about a one-time blip though seeing as the rest of the growth is outstanding. This goes to my point of finding everything on YouTube. If Rumble is ever going to compete it is going to need to get content from users and lots of it. The chart demonstrates that is happening. The company saw year over year growth of 216% from Q4 2021.

I think these three charts depict the growth picture for Rumble very clearly. The company is seeing stellar growth. I think they can continue to see strength on all these metrics as well. The company is in early stages and is not a household name yet. They still have lots of room to run in their niche and from there they can look to capture a wider audience.

I don’t think many people would question the growth picture for the company. It is pretty clearly on an upward trajectory. Can they continue that growth trajectory? I think this is a yes. They are spending to get valuable new content that should help drive their growth. Can they monetize those users? Once again the platform can be great but still not be a great buy. These metrics paint us one half of the picture and it looks good. But now we need to see if they can make money.

Monetization

Rumble needs to be able to monetize its users through advertising in order to make profit. In the second half of 2022, the company made an important step to this process. It released Rumble Advertising Center (RAC). RAC is an advertising marketplace, similar to Facebook Ads Manager or Google Ad Sense, designed to facilitate transactions for advertisers seeking to advertise on Rumble’s platform. It allows advertisers to set up banner and video campaigns. This has been in beta mode and is being tested by a subset of advertisers with limited inventory. It will have a full commercial launch later in 2023.

This is a critical step for the company to start monetizing its user base. It might seem like a backend software piece that you don’t think about much, but in reality this is one of the most important parts of Rumble monetizing the platform. There are lots of companies that are looking to advertise on different platforms, but they need to be able to get a competitive return on their advertising dollars. They need a platform that allows them to create ads, target a desired audience, and see the data points so they know if it is successful or not. This is what RAC provides.

In working with marketing for my own personal company, we have used or tried to use different advertising marketplaces. Facebook, Google, Pinterest, etc. I cannot emphasize the importance of these ad management platforms. We have leaned more heavily on certain channels for a variety of reasons, but one of the reasons is usability. We are much more likely to advertise on a platform is easy to operate, allows us to customize and create ads how we want, and then provide the data to know what changes to make. It allows us to be more successful with our marketing dollars. I have been surprised by how poorly done some of the “larger” companies accomplish this task. In my opinion, this is one of the most important steps for the company to start monetizing its user base and growing revenues.

At my company we were able to be one of the beta users for RAC. I will say that the platform needs some work. I was able to use it to create some video ads. It is not near as powerful in terms of data and targeting abilities as some other platforms. It is also not as intuitive and easy to use as others. It will need to be improved upon to compete with some of the other platforms. It is also not the worst platform that I have dealt with either. I was encouraged by what I used and think the company is on the right track with the platform.

Setting the Benchmark

YouTube is the benchmark for Rumble. It is the most direct competitor. We can see the potential and also the level of competition for Rumble by looking at YouTube. Some metrics for YouTube are listed below, in comparison with Rumble.

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If you look at these metrics, it is difficult to compare the two companies. Rumble is in the early stages and growing at a much more rapid pace than YouTube. Also YouTube is not a publicly traded company so the value is nothing more than an estimate. We don’t know what the market would actually value YouTube at for sure. I do think it helps see the market size, competition, and potential for Rumble.

The valuation for YouTube is not done by me but merely pulled from estimates found online. An article could easily be dedicated to that alone. If you put a price to sales ratio onto this valuation you are looking at a P/S range of 6-17 for the $180-$500 billion valuation range. This is obviously not an analysis on that valuation but gets you an idea of where it is going to be. In comparison to get to the $2.53 billion valuation for Rumble it has a P/S ratio of 64.

If you look at monetization of its user base you can see that Rumble has a lot of room to expand. This is where I think the RAC will come into play as it gets rolled out. YouTube generates approximately $11 per MAU whereas Rumble only generates approximately $.50 per MAU. If Rumble is able to begin to monetize its user base at any scale then it has potential to generate some serious revenue. Even if generated the same $11 per user it would earn revenue of $880 million at current MAU count. That is not realistic but even it bumps it up to $2 per user, which is still nothing compared to YouTube, it would be $160 million in revenue at the current MAU count. That is just if the company is able to monetize the current base without any growth in users. I think this shows the potential.

These metrics have positives and negatives. It shows you the potential that Rumble has as a company. The massive size of the market. It also shows the size and influence of the competition. YouTube is the go to for video. Rumble has a long way to go to try and compete with them. Also it shows that if they are able to monetize their user base, there is strong potential to generate large revenues.

Risks

Rumble is not a stock without risks. It is still a young company that is in the early growth stages. The business is still loss making and I think it could be in that situation for some time. It needs growth to become profitable. The biggest risk is will they be able to grow and monetize their user base in a profitable way. They are spending more money to acquire content than they are making from that content. They have to be able to change that narrative. They need their content to grow their user base enough to make up the costs.

The company is way behind in terms of quantity and quality of content. YouTube already has the users, it already has the content, it has the upper hand. While Rumble is growing rapidly and have done well with their go to market they need to grow their quality and quantity of content to a point where they draw users in and keep them. I personally use both Rumble and YouTube for business. The number of views and reach is not even comparable at this point. If we did not create content for YouTube then we would not bother using Rumble as it would not be worth the time or effort. People will not create content unless they get paid (or get enough exposure to make their return worth it). Rumble is growing and the expectation is that the company will achieve that point. There is a risk it does not.

Another big factor of success is the monetization, and I think that comes through RAC. In the current state this system is still a little clunky and not as user friendly as it could be. If RAC does not get wide adoption then it will be hard for Rumble to monetize their users and turn a profit.

Conclusion

Rumble is a very interesting investment. The company has seen strong growth. It has targeted the market in the right way and I think this has led to its growth so far. I think they will continue to grow. The company is spending a lot of money to bring in needed users. The question is will they be able to monetize those users to generate a profit. The company has rolled out its advertising platform which should help it begin to monetize the growing user base. That will start to roll out later this year. I think the stock has strong potential. At its current valuation of $2.53 billion it is richly valued based upon current metrics. With the growth it has experienced I do think it has room to run. It is a matter of the company executing.

I do not currently hold a position but am watching the stock for a good entry point as I think the long term is positive. If you want to play it more on the safe side, monitor the progress for a few more quarters and see if the company is able to execute. If they begin to execute, the stock price could run up quickly causing you to buy at a higher point, but it will also provide some reassurance on your investment.