The Entity Responsible for the World's Third-Biggest Cryptocurrency Commits $775 Million to this Miniscule Firm Challenging YouTube and AWS
The Entity Responsible for the World's Third-Biggest Cryptocurrency Commits $775 Million to this Miniscule Firm Challenging YouTube and AWS
Tech firm Rumble's (RUM -6.39%) shares are currently at their 52-week high, gaining approximately 300% in value since hitting their lowest points in January. This significant surge can be largely attributed to a substantial $775 million investment by the investment branch of Tether Limited, the company behind the popular cryptocurrency stablecoin Tether (USDT -0.02%).
Tether holds the position of the third-largest cryptocurrency globally by market capitalization. As of right now, its market cap is approximately $140 billion, falling behind only Bitcoin and Ethereum. Unlike these two giants in the cryptocurrency realm, Tether operates as a stablecoin.
A stablecoin is designed to maintain a 1-to-1 correlation with another entity. For instance, a U.S. dollar stablecoin should invariably be worth $1, catering to individuals interested in exploring the crypto world without experiencing the volatility. In essence, one deposits $1, and Tether generates a new stablecoin worth $1.
As per Tether's recent statements, it held approximately $125 billion in reserves as of September 30 (with its market cap at $119 billion at the time). The majority of these reserves were tied up in U.S. Treasury bills. These reserves come in handy whenever someone wants to exchange their stablecoins for actual cash. However, Tether leverages its substantial reserves for self-gain until that need arises.
Tether's CEO, Paolo Ardoino, recently disclosed the company's projections of generating a remarkable $10 billion in net profit by 2024. This is an astonishing feat for any company, let alone a crypto corporation. Furthermore, Tether invests its earnings sensibly whenever they see an opportunity, as shown in their investment in Rumble.
The market excitement surrounding Tether's investment in Rumble
Rumble generated attention when it went public in 2022, showcasing ambitious plans involving the construction of censorship-free internet infrastructure. This aspiration includes competition with Alphabet's video streaming platform, YouTube; Amazon's cloud computing service, AWS; and other social media platforms.
However, translating such ambitious dreams into a tangible reality is costly. Consequently, Rumble reported a net loss of $116 million in 2023, followed by an additional $102 million loss in the first three quarters of 2024.
Despite these financial hurdles, Rumble has managed to maintain the support of its shareholders by avoiding dilution or adding debt. In fact, it has financed its growth using its cash reserves, which is a smart strategy considering its initial source of funds was its shareholders.
Despite burning money at an intimidating pace, Rumble's concerns about liquidity had investors worried. Therefore, the stock value soared when Tether announced its hefty investment due to the relief this brought to the perceived liquidity concerns.
Rumble boasts an impressive user base of approximately 67 million monthly active users in the third quarter of 2024. Although this figure represents a decrease from the 71 million users recorded in the same quarter of 2022, it remains a substantial and active user base nonetheless.
The challenge lies in increasing its revenue by capturing advertisers' interest in Rumble's potential. In response to these concerns on the Q3 earnings call, CEO Chris Pavlovski expressed frustration, stating, "How much longer can brand advertisers ignore more than half the country?"
Rumble does offer a premium subscription service that helps compensate for the lack of interest from advertisers. Nevertheless, advertising revenue is crucial to the company's success. Pavlovski's statement is an admission of the ongoing challenge the business faces in boosting advertising demand.
Luckily for Rumble's shareholders, the company has gained a longer leash due to Tether's financial injection, extending its financial runway when facing challenges like these. However, it's essential to delve deeper into the investment details and its potential impact on Rumble's future. Ultimately, more time is almost always a welcome situation for investors.
The investment by Tether in Rumble has significantly boosted the tech firm's share price, as it helps alleviate concerns about liquidity. Tether's substantial net profit projections and wise investment strategies suggest they are looking for profitable opportunities, as demonstrated by their investment in Rumble.