Rumble Inc. (NASDAQ:RUM) Q4 2023 Earnings Call Transcript

Rumble Inc. (NASDAQ:RUM) Q4 2023 Earnings Call Transcript March 27, 2024

Rumble Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.22. RUM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to Rumble Inc. Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to, Shannon Devine, Investor Relations. Thank you. You may begin.

Shannon Devine: Thank you, operator. I’m here today with Chris Pavlovski, Founder, Chairman and CEO of Rumble; Brandon Alexandroff, the CFO; and Tyler Hughes, the COO. A press release detailing our fourth quarter and full-year 2023 results was released today and available on the Investor Relations section of our Company website. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates or other information that might be considered forward-looking. All forward-looking statements are made only as of the date of this webcast and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC.

Future Company updates will be available via press releases and Company updates via the Company’s identified social media channels. I will now turn the call over to Rumble’s Founder, Chairman and CEO, Chris Pavlovski.

Chris Pavlovski: Thank you, Shannon. To start, I want to talk about 2023, our building year as a Company. In addition to successfully diversifying our content library with several key signings across sports, comedy and entertainment, we were relentlessly focused on delivering on our product commitments. Let me recap this extraordinary year for our world-class product and engineering teams. First, we completely transformed the user experience on rumble.com launching a fully redesigned user interface across all major viewing platforms, while integrating our premium subscription service locals.com to offer more robust monetization opportunities for creators. Second, we acquired Callin in May of last year, which gave rise to the beta launch of our new patent-pending livestreaming tool, Rumble Studio, which is an incredible product that will lay the foundation for future monetization.

Third, we built and launched Rumble Advertising Center, which we often call RAC. I’m excited to say within the last 90 days, RAC began deploying pre-roll video ads across our mobile apps, while we are also expanding our inventory by onboarding other publishers to the network. Fourth, on top of all this, we built the infrastructure necessary to support rumble.com, laying the foundation for Rumble Cloud, which we publicly launched just two weeks ago. A completely revamped user interface and integration of a major video platform, a novel livestreaming tool, an advertising network and a cloud all in one year. Today, what we have is a beautiful business with four top-of-the-line products. Our team has worked tirelessly around the clock to build the products and services our audience desires.

And, I’m not only in awe of these products, but the team behind the colossal effort. What we have built is essentially a mini Google. And when you look at how long it took Google to build their offerings and the capital investment required, it really puts everything into perspective. Google purchased DoubleClick for $3 billion, this compares to the Rumble Advertising Center. Google purchased YouTube for $1.65 billion back in 2006, which compares to the Rumble Video platform. Google has also invested billions into Google Cloud, which compares to our Rumble Cloud. And by the way, we did all of this with fewer than 250 people. In terms of our expansion into the cloud business, it’s important to understand why our business was so well-positioned to launch our cloud offering.

Since day one, we have not relied on third-party cloud platforms. We’ve built and subsequently scaled our core video platform rumble.com on Bare-Metal since 2013. It really hit me when Parler got shut down especially because Big Tech platforms had more violations than Parler did, but Parler was the only company that had severe consequences. The gatekeeper in this case was the cloud provider, Amazon AWS, who ultimately turned off the lights. Parler had no recourse and had no options to get back online. We realized that building Rumble’s infrastructure was existential to our business, so we decided to do it in 2021. This undertaking allowed us to build the full-stack, which not only allowed us to protect our business, but also enabled us to enjoy the favorable long-term economics of running our own infrastructure and avoiding being locked in to the unfair pricing of the incumbent hyperscalers.

This infrastructure serves as the backbone that powers rumble.com and has laid the technical foundation for Rumble Cloud. While building our own infrastructure was critical to protect Rumble, it also presented an incredible opportunity to leverage the size of rumble.com and build out a cloud offering at scale to address the market saturated by customer pain points related to vendor lock-in strategies, unfair pricing, mistrust with data and privacy, complexity and the acts of censorship. With the launch of Rumble Cloud to the public earlier this month, the market now has an exciting new option from a cloud provider who is first devoted to protecting a free and open Internet and will not turn off the lights for any kind of subjective and arbitrary reasoning; second, built on the latest generation hardware capable of delivering top network speeds and quality; and third, disrupting the market with our pricing strategy.

Our vision is to provide the most predictable pricing to the market, so businesses can regain control of their IT spend. Just as Rumble has taken market share from YouTube, we plan for Rumble Cloud to do the exact same in the cloud market going after the excess profits and revenues at the infrastructure layer currently cornered by Big Tech. We are running on the singular highway of the free and open Internet and it’s an uncancelable highway. When Big Tech goes down, we remain untouched. This position secures Rumble and by natural extension, our ecosystem of users, creators, advertisers, subscribers, publishers, cloud partners and shareholders in a massive way while protecting the data independence of businesses. We are offering an opportunity to all companies.

To support our go-to-market strategy in the mid-market and enterprise space, we recently announced partnerships with Qinshift, a premier leader in managed IT services and solutions with 7,000 employees allowing Rumble to meaningfully scale and accelerate our go-to-market approach and ACP CreativIT, strengthening our focus on North America, while expanding our offering with a wider range of complementary services and solutions using the cloud infrastructure. While we launched the high-performance compute tiers with dedicated vCPUs, we will expand our offering to include lower cost tiers with shared vCPUs, which will better serve developers and small businesses. As with all of our products, we will iterate as the market demands, but at this moment, we feel that the medium-to-large enterprise customers is where significant opportunity exists.

Although purchasing decisions for these companies can take time, we are encouraged by the aforementioned partnerships with Qinshift and ACP CreativIT and the entry level of interest among mid-market and enterprise prospects. Today, the focus of the Company is transitioning from building the products to generating revenue. Now, that our products are in full production, we anticipate seeing sequential revenue growth beginning in the second quarter, which much of this revenue growth weighted towards the back half of 2024 as our monetization products begin to ramp. In particular, our confidence in this outlook is bolstered by the strong results we are experiencing in RAC throughout the month of March. The Rumble Way begins with the right assets and products.

Over the last two years, we have held our core audience of 40 million plus MAUs, and with this audience, we are able to hit our future revenue goals. To this point, it should be noted that our fourth quarter benefited from an outperformance in MAUs due to high profile sporting events such as Street League Skateboarding, which did extremely well, pushing MAUs to 67 million for the quarter. Due to the nature of one-off sporting events, this trend did not continue into the first quarter to-date. Today, we have the right products and core offerings, fully positioned to scale and start generating incremental revenues. We have the audience to monetize with the appropriate products and keep in mind, we did this with fewer than 250 team members, while ending the year with north of $200 million in cash on our balance sheet.

We are competing against Big Tech on all fronts with the most dedicated team in an enviable market position to drive revenue. I’m the most driven and most excited I ever have been. The team is also incredibly motivated, and I look forward to updating you as our amazing progress continues. With that, I’ll turn over the call to our CFO, Brandon Alexandroff.

Brandon Alexandroff: Thanks, Chris. I’ll now take you through our fourth quarter and full-year financials at a very high-level before turning the call over to the operator for Q&A. For the full-year of 2023, we reported revenues of $81 million, an increase of 106% when compared to $39.4 million in 2022. For the fourth quarter, we reported revenues of $20.4 million, this compares to $20 million for Q4 2022. The 2023 fourth quarter revenue reflects an increase in other services revenue of $3.5 million offset by a decrease in advertising revenue of $3.1 million. The increase in other services revenue was driven mainly by subscriptions, content licensing, tipping features and provision of one-time content. Cost of services was $39.5 million for the quarter compared to $23.5 million for the fourth quarter of 2022, due to an increase in programming and content costs of $14 million and an increase in hosting expenses and other service costs of $2 million.

For the full-year, cost of services increased by $102.4 million to $146.2 million due to an increase in programming and content costs of $98.9 million, hosting expenses of $2.7 million and other service costs of $0.8 million. Moving to our cash position, we ended the year with $219.5 million in cash, cash equivalents and marketable securities, compared to $267 million as of September 30, 2023. We are sitting on sufficient cash to meet our ongoing capital needs. With our monetization assets coming online late in first quarter, we are transitioning from manual processes with a small number of creators to automated processes that scale more easily and therefore yield more predictable revenue generation. First quarter revenues still largely reflect this volatility and as a result will be down slightly from the fourth quarter.

However, with the benefits of improved automation, we expect to see a sequential quarterly increase in revenues beginning in the second quarter. Specifically, this anticipated increase in revenues is supported by our experience with RAC throughout the month of March. Before I conclude, I want to reiterate what I stated on our third quarter earnings call. With our revenue engines coming online and our guaranteed creator commitments set to significantly decrease during 2024 and 2025, we continue to move materially towards breakeven in 2025. That concludes my prepared remarks. Before I turn the call over to the operator, I invite you all to join Chris this evening at 7:00 PM Eastern Time for an exclusive post earnings interview with Matt Kohrs to be streamed live on the Matt Kohrs Rumble channel.

I will now turn the call over to the operator to open up the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Jason Helfstein with Oppenheimer & Co. Please proceed.

Jason Helfstein: Thanks everybody. So, I’ll ask like several questions and then I’ll go back in the queue and, depending if there are other questions I could kind of ask them more. So, maybe just talk about the drivers of the lower just some of the engagement drivers in the fourth quarter. So, as far as like the maybe weaker minutes, was most of that YouTube-related or did some of that have to do with just less premium content from your paid creators? I’ll just do them one at a time.

Chris Pavlovski: Hey, Jason, this is Chris Pavlovski. With respect to the uploaded hours, that definitely had a — we had an impact when YouTube cut off the auto sync that we disclosed back in January, I think it was. So, that definitely had an impact on hours uploaded. With respect to the estimated bandwidth consumption, minutes watched based on bandwidth consumption, you’ll notice that, if you remember in Q3, we’ve been migrating over to our CDN. We continued that migration in the fourth quarter and that also had an impact. And, if you recall the, that’s an estimate based on bandwidth consumption. So, the CDN had an impact on that. And, also in addition to that, the – our MEs were really strong based on one-off sporting events such as the Street League Skateboarding that did extremely well in the fourth quarter in December in specific.

Jason Helfstein: Okay. So yes, so the focus will be more MAU than, I mean, just given some those factors. And then, you beat our gross profit estimate by a nice amount even on lower revenue, which would suggest like you manage content costs pretty well in the quarter. I mean just maybe, Brandon, can you talk a little bit about that? I mean, how much of that was you were able to manage it versus you just had less content that had minimum guarantees? And just talk about the dynamics on gross profit in the quarter? Thanks.

Brandon Alexandroff: Yes, sure. So, just as a reminder of what the components are of cost of services, there’s three main components. So, the first one is the revenue share that we give to the creator. So, for advertising, we share 60% of the revenue to the creator. So, that’s one component of cost of services. The second component, which at the moment is the largest component, are the guaranteed contracts that we’re giving to those creators. And so, as we scale, we expect those to decline over time. And, the third component of cost of services, which is the smallest amount, relates to network hosting costs. So, yes, I mean, we’re continuing, as we said, to focus on those minimum guarantee contracts. And, as they come off of contract, the plan is that we don’t have to renew those, because as the monetization tools start kicking in, the creators will actually start earning that 60% ad revenue, and we don’t have to extend those contracts.

Jason Helfstein: And then, I’ll do one more and go back in the queue. So again, maybe give us an update on reducing creator guarantees later in ’24, and you’ve talked about meaningful progress towards breakeven in ’25. So just, given that EBITDA I think was better EBITDA and cash burn was better than I think we were looking for in the quarter. Just how should we think about I guess those metrics for the rest of this year, and are you willing to say if you’re targeting positive EBITDA in ’25?

Brandon Alexandroff: Yes. I mean, our plan is to move materially towards breakeven in 2025. And as I said, it’s coming from two main reasons. Number one, we’re turning on the monetization engine. So, that’s going to start kicking in. You’ll see sequential growth starting in the second quarter of this year. So, the revenue starts kicking in and then those minimum guarantee costs start declining through the rest of ‘24 and into ‘25, which allows us to get towards breakeven in 2025.

Jason Helfstein: Okay. I’ll go back in the queue. Thanks.

Operator: Our next question is from Tom Forte with Maxim Group. Please proceed.

Tom Forte: Great. Thanks. Chris and team congrats on the quarter and year. Like Jason and I have several, I’m going to ask three, and then I’ll get back in the queue as well. And, I’ll go one at a time. So, the first question I had was, Reddit is off to a very impressive start as a public company. Chris, I was wondering how you see the mission of Rumble as similar to Reddit and how you think it’s different?

Chris Pavlovski: Yes. So Reddit, it’s been around for a very long time. When I look at Reddit and I compare it to Rumble, there, in a way it started a lot, I would say, 10 years ago. One of the original founders was a lot in common in terms of free speech and freedom of expression. But I think that’s changed a lot as the business has changed over the last decade. But, one of the things that kind of like stick out to me with Reddit is that, I think they did like was it $400 million in R&D, whereas with Rumble, our R&D spend and building the cloud and building the Rumble Advertising Center and building the video platform really kind of stands out in terms of what our team is capable of doing versus what a company that’s been around for several decades almost now has been doing.

So, I see there’s like heavy contrast there and I’m very prideful about that and what we’ve done with the size team that we’ve done and the amount of capital needed to get it done in comparison to Reddit.