In keeping with tradition, another right-wing media company is facing legal problems. Rumble (NASDAQ:RUM), a video-sharing platform created to be the conservative answer to YouTube, is being investigated by the U.S. Securities and Exchange Commission (SEC). A report from WIRED yesterday confirmed the probe from the regulatory agency. Though few details have been provided regarding the investigation, allegations have arisen that Rumble is inflating important metrics regarding its user growth, which the Canadian company has denied. All the same, this news has sent RUM stock down today as the platform faces an uncertain future.
Since going public, Rumble has struggled significantly as the economic landscape has shifted against it. But its most recent problem can’t be attributed to macroeconomic trends. It’s specific to the company. If revealed to be true, these allegations could spell big trouble for RUM stock and its investors. Details are still emerging, but at present, it doesn’t look good for the company.
What’s Happening With RUM Stock
As of this writing, RUM stock is down about 2% for the day. While shares have picked up some momentum, they remain in the red. Granted, Rumble hasn’t seen much good news recently. The stock spent the past six months bleeding out more than 52% of its value. But this recent development will likely keep it at penny stock levels, even as Donald Trump’s 2024 presidential campaign takes off.
Part of Rumble’s claim to fame is its status as a “Trump trade.” This term comes from its popularity with conservative politicians and pundits. Its closest peer, Digital World Acquisition Corp (NASDAQ:DWAC), has been part of multiple investigations from different regulatory agencies since before the launch of Truth Social in February 2022. Members of its board have been served subpoenas, and other regulatory probes have complicated its plans to merge with the Trump Media and Technology Group (TMTG).
Now, it appears that Rumble is following in DWAC’s footsteps. That wouldn’t be surprising, especially since Rumble and Truth Social have partnered in the past. Additionally, there is evidence to suggest that the allegations regarding user inflation may have legitimacy. As WIRED reports:
“In April 2023, investment research firm Culper Research released a report expressing skepticism about the legitimacy of Rumble’s claimed monthly active user (MAU) counts, a key metric for investors to evaluate the performance of a social media company. Culper Research said it had taken a short position in Rumble, meaning it stands to profit if Rumble’s stock price decreases.”
According to the firm’s research, Rumble had only 38-48 million unique users and had overstated its actual user count by 66-108%. Less than one month later, Culper published another report revealing that Rumble’s first quarter 2023 earnings report confirmed its negative thesis.
Time to Write Rumble Off?
These investigations can be lengthy and complicated. As such, the current SEC probe into Rumble likely won’t finish anytime soon. But regardless of when it does, RUM stock will struggle as more investors offload shares due to the inflated user allegations. For a video-sharing platform, user growth is a key metric. Investors can’t afford to take the chance that it might be true. The best-case scenario for Rumble is that the investigation turns up nothing substantial. Until that happens, though, RUM stock will likely keep falling. And at only $4 per share, it doesn’t have much further to fall.
When Elon Musk purchased X (formerly Twitter), I speculated that Rumble had a better chance of survival than DWAC. But now, the more likely scenario seems to be that neither one will survive.
On the date of publication, Samuel O’Brient 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.
