Rising Regulatory Risks Will Stall Digital Evolution Yet Invite Recovery

Key Takeaways

• Elevated regulatory risks, slow international adoption, and brand hesitancy threaten Rumble's ability to scale revenues and diversify income sources.
  
• High infrastructure costs and niche audience could delay profitability, with entrenched competition potentially capping long-term margin expansion.
  
• Ongoing monetization struggles, persistent operating losses, and risky new ventures threaten Rumble's ability to achieve profitable growth, stable revenue, and long-term earnings stability.

Catalysts

Operates video sharing platforms and cloud services in the United States, Canada, and internationally.

• While Rumble is leveraging the global shift toward alternative media and free speech platforms, as evidenced by strong user retention and consistent monthly active users above 50 million, the company still faces elevated risks tied to increased regulatory scrutiny which could raise compliance costs and potentially limit the ability to monetize controversial content, ultimately constraining both revenue growth and profitability.
  
• Although the expansion into international markets with Rumble Wallet could capitalize on growing digital video consumption and provide diversified, crypto-based monetization routes for creators and users, the complexity of simultaneously localizing products and building financial infrastructure across multiple jurisdictions may slow international adoption, delay revenue recognition, and heighten exposure to unpredictable regulatory hurdles affecting future earnings.
  
• Despite recent notable brand advertising partnerships and improved ARPU contributions from subscription and tipping-based models, Rumble's historic niche audience and ongoing political polarization could continue deterring mainstream advertisers and brands, making it difficult to scale advertising revenues sustainably and increasing reliance on less diversified income streams.
  
• While the rise in digital ad spend supports further monetization, falling ARPU compared to previous quarters and reliance on heavy upfront investments in proprietary cloud and streaming infrastructure raise concerns that monetization may lag user growth, extending the timeline for achieving EBITDA breakeven and putting downward pressure on net margins if operational efficiencies are not realized.
  
• Even as industry-wide content decentralization benefits platforms like Rumble, entrenched competition from well-capitalized incumbent platforms and the growing sophistication of ad fraud and brand safety demands may push advertisers towards established players, ultimately capping Rumble's future revenue share and impeding sustainable margin expansion.

Rumble Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Rumble compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Rumble's revenue will grow by 24.6% annually over the next 3 years.
• The bearish analysts are not forecasting that Rumble will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Rumble's profit margin will increase from -293.4% to the average US Interactive Media and Services industry of 10.9% in 3 years.
• If Rumble's profit margin were to converge on the industry average, you could expect earnings to reach $21.5 million (and earnings per share of $0.05) by about August 2028, up from $-297.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 243.1x on those 2028 earnings, up from -9.0x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Rumble Future Earnings Per Share Growth

Risks

• Rumble's average revenue per user decreased to thirty-four cents from thirty-nine cents in the previous quarter, driven by lower advertising revenue, which highlights ongoing challenges in scaling advertising monetization and could limit future revenue and earnings growth.
  
• The company's adjusted EBITDA loss for the quarter remained substantial at twenty-two point seven million dollars despite improvement, underscoring persistent operating losses that, if not addressed through accelerated profitable growth, may ultimately constrain improvements in net margins and long-term earnings.
  
• Heavy upfront investments in new initiatives like the Rumble Wallet and the international expansion strategy, without clear evidence of widespread user uptake or successful monetization, may depress short
• to medium-term net margins and create risk to achieving positive cash flow or earnings.
  
• Growing reliance on high-profile but limited brand advertising partnerships, with only one completed and a handful currently ongoing, raises questions about Rumble's ability to sustain and diversify advertising revenue at scale, potentially leading to volatility in overall revenue.
  
• The push into crypto-related products and treasury management introduces exposure to regulatory uncertainty and crypto market volatility, which could increase compliance costs and financial risks, thereby impacting both net margins and earnings stability over the long term.

Valuation

• The assumed bearish price target for Rumble is $10.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Rumble's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $10.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $196.1 million, earnings will come to $21.5 million, and it would be trading on a PE ratio of 243.1x, assuming you use a discount rate of 8.0%.
• Given the current share price of $7.88, the bearish analyst price target of $10.0 is 21.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.