Some of the interest in CF Acquisition VI (NASDAQ:CFVI) may be related to the prospects of its merger target. But what’s likely driving much of the buzz around CFVI stock is its potential to become the next Digital World Acquisition (NASDAQ:DWAC).
What do I mean? Digital World skyrocketed on the heels of its plans to take former President Trump’s social media venture public. In turn, speculators have become interested in similar plays. That is, special purpose acquisition companies, or SPACs, that are taking right-leaning businesses public.
CF Acquisition VI fits in that category, with this blank check company’s plans to merge with video streaming platform Rumble. Regarded as a YouTube alternative that caters to conservatives, it is very similar to the conservative social media platform (TRUTH Social) that DWAC’s merger target has launched. Yet despite the similarities, I wouldn’t bank on it making a similar run as the one that sparked the “Trump stocks” trend.
Sure, looking at the performance of a similar play, it could still see a moderately high post-SPAC boost. With this, some may find it to be a worthwhile short-term trade. However, looking at its high valuation, you may not want to make it a long-term investment. It may not be able to sustain its valuation, once the trend that’s made it popular fades.
CFVI Stock at a Glance
Sponsored by Cantor Fitzgerald, CF Acquisition VI popped on many people’s radars in December, when it first announced the Rumble deal. Since then, it’s been on a moderately bumpy roller coaster ride.
On news of the planned merger, CFVI stock of course spiked in price. Rumors of a Rumble partnership with Trump’s media business helped it out as well. After this surge, things cooled off a bit, although shares stayed above the original SPAC price.
Rumors of popular podcast host Joe Rogan joining Rumble gave it another big boost in February. Unfortunately, when Rogan rejected Rumble’s $100 million offer for him to leave Spotify (NYSE:SPOT), shares pulled back again. The stock has continued to sell-off, likely due to the uncertainties putting pressure on the market.
But while it’s seen weakness lately, there may be the potential for it to bounce back when its merger closes by mid-year. This may make it a potential trading opportunity. Even so, its merits as a longer-term investment opportunity are questionable at current prices.
Murky Forecast for its Long-Term Performance
At around $11.50 per share today, could CFVI stock double once it closes on the Rumble deal? Possibly. Using a recent precedent, we may already have an idea of how it will perform after its deSPACing. As you may have guessed, I’m talking about Black Rifle Coffee (NYSE:BRCC).
Formerly a SPAC named SilverBox Engaged Merger, it completed its merger with the conservative’s answer to Starbucks (NASDAQ:SBUX) on Feb 10. Between a few days before and about a week after its deal closed, BRCC went parabolic, going from $10 to as much as $22.80 per share. It has pulled back since, yet remains up 70% from its own $10 per share original price.
Sounds good, right? Well, keep in mind that BRC may not be able to sustain this valuation. As I argued last month, Black Rifle is overvalued, inflated by the “Trump stocks” phenomenon. Once this trend plays out, it could fall to a much lower price. One more in line with the value of its business. I could see the same thing happen here with CF Acquisition stock, soon-to-be known as Rumble stock.
Based on pro forma figures provided in its investor presentation, the company will have 261.4 million shares outstanding after the deal closes. That gives it an implied valuation of just under $3 billion. Although it may sound reasonable for a site with 39 million monthly active users (MAUs), as a Seeking Alpha commentator argued last month, monetization is still in its early stages.
It’s years away from possibly reaching average revenue per user (ARPU) numbers on par with YouTube. The platform may ultimately fail to achieve billions in revenue, as its investor presentation hints is possible.
No Need to Rush Ahead of the Rumble Deal
Unless you intend to trade around it before and after its SPAC merger close, you don’t need to dive in immediately. Even if you’re bullish on Rumble’s future to grab market share from incumbents like YouTube.
With speculative frenzy over Trump-related stocks still high, shares for now are able to hold onto what’s a high valuation for a business that during the nine months ended Sep 30, 2021 generated just $7.1 million in revenue.
Months from now, or a year from now, what’s today known as CFVI stock could fall to single-digit prices, if the uncertainty around its monetization plans comes back into focus. Entering a position at such price levels is a better move for long-term investors than chasing it today.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
