Technology company shares. Rumble(NASDAQ: RON) are at 52-week highs at the time of writing, having risen approximately 300% in value from the lows set in January. And much of its jump is due to a massive $775 million investment from the investment arm of Tether Limited, the company behind the stablecoin. Tie(CRYPT: USDT).
Tether is the world’s third largest cryptocurrency by market capitalization. At the time of writing, the market capitalization is almost $140 billion, behind only bitcoin and Ethereum. But Tether is not like these other two cryptocurrencies; It is a stable currency.
A stablecoin aims to have a 1-to-1 price correlation with something else. For example, a US dollar stablecoin should always be worth $1. It is for people who want to explore the world of cryptocurrencies without volatility. Simply put, they deposit $1 and Tether issues a new stablecoin worth $1.
According to Tether, it had around $125 billion in reserves as of September 30 (its market capitalization was $119 billion at the time). Most of these reserves are in US Treasury bills. You need to keep these reserves in case people want to redeem your stablecoins for dollars. But in the meantime, Tether can make money on its own from these huge reserves.
Tether CEO Paolo Ardoino recently said he’s on track to make $10 billion in net profits in 2024, which is a staggering amount for any company, let alone a cryptocurrency company. And the company doesn’t just make these profits, it invests its money from time to time, which is what it’s doing with Rumble.
Rumble attracted attention when it went public in 2022 because this small company has big ambitions. The company intends to build a censorship-free Internet infrastructure and hopes to compete with Alphabetthe YouTube video streaming platform; Amazonthe AWS cloud computing service, AWS; social media platforms; and more.
The problem is that Rumble can’t just will all of this into existence: it takes money. And when ambitions are so high, it costs a lot batch of money to build. As expected, the company had a net loss of $116 million in 2023 and has already lost another $102 million in the first three quarters of 2024.
But give Rumble some credit. The chart below shows the outstanding share count with the orange line. Ignore the brief spike shortly after it went public (the accounting for these things can be temporarily distorted upon going public). The chart shows that, to date, management has not been raising money by diluting shareholders with stock offerings. He has not gone into debt either.
RON Long-Term Total Debt Data (Quarterly) by YCharts
By contrast, Rumble has been funding its growth with cash on hand. And I think that’s the right move. After all, the company got its cash from its shareholders in the first place. These shareholders expect you to achieve your long-term vision by actually using this cash.
However, Rumble is still burning through cash at a rapid rate and investors were concerned about liquidity. Consequently, shares soared when Tether announced its massive investment as liquidity fears eased.
There are reasons for optimism with Rumble. In the third quarter of 2024, the company had 67 million monthly active users, that is nothing to sneeze at. Of course, that’s less than its user base of 71 million in Q3 2022. But it’s a large and engaged user base nonetheless.
The challenge has been to increase revenue by getting advertisers to buy into Rumble’s potential. As CEO Chris Pavlovski lamented on the third-quarter earnings call, “How much longer can brand advertisers ignore more than half the country?”
Rumble has a premium subscription service that makes up for the lack of interest from advertisers. But advertising revenue is still important to the company, and Pavlovsky’s question is an admission that this is a constant drag on the business. And, unfortunately, it’s impossible to know how long it will be before advertising demand increases.
The good news for Rumble shareholders is that, as long as it is, it now has a longer runway than before thanks to the cash injection from Tether. While there are still plenty of moving pieces here and more details about the transaction worth knowing, the main takeaway is that Rumble has more time than before. And when it comes to investing, more time is almost always a good thing.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Jon Quast has positions in Ethereum. The Motley Fool has positions and recommends Alphabet, Amazon, Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The company behind the third largest cryptocurrency in the world just invested $775 million in this small company that takes over YouTube and AWS originally published by The Motley Fool
