Shares of CF Acquisition (NASDAQ:CFVI) are getting buried on Thursday, with shares down more than 16%. The move adds to the latest list of volatility for CFVI stock. Shares fell 19% from last week’s high to last week’s low, then rallied 24% over a two-day span on Tuesday and Wednesday of this week.
The decline is likely surprising to some investors, particularly after the recent shareholder vote. Shareholders in CFVI stock voted in favor of the SPAC merger with Rumble. As a result, the company will begin trading under the ticker symbol RUM next week.
So what’s the problem?
This is what can become so tricky with these types of situations. In this case, there is the potential for massive dilution. Specifically, current Rumble shareholders will be eligible for up to 105 million additional shares. In this deal, they would get 50% of that amount if RUM stock trades above $15 for 20 days within a 30-day window during the escrow period (which appears to be five years). If the stock trades above $17.50 for 20 days within a 30-day window, they get the other 50%.
Notice this is for RUM shareholders, not those who own CFVI stock.
Are There Positives for CFVI Stock?
On the flip side, there is always a potential that RUM stock doesn’t trade this high for that long and the dilution never comes. But then of course, the negative side of that scenario is a sagging stock price.
The dilution may very well just be something that investors have to live with. On the plus side though, the company has had strong user growth. “According to Rumble CEO Chris Pavlovski, Rumble hit 78 million active users in August, which is up sharply from 44 million average users in 2Q 2022.”
There’s also the company’s litigation with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). In that case, “Rumble sued Google in 2021, alleging that it favored its own YouTube video platform in search results and the Android operating system.”
While it’s hard to lean on a case like this as a positive catalyst — as nothing may work out in favor of Rumble — the fact that it hasn’t been dismissed suggests there could be a positive outcome or settlement.
That said, we’re in a difficult and volatile environment. While that may allow CFVI stock or RUM stock to outperform, there’s always the potential for it to underperform due to a “risk-off” mentality among investors. Potential buyers should keep that in mind in the intermediate term.
On the date of publication, Bret Kenwell 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.