Rumble Inc. Q2 FY2023 Earnings Call

Ladies and gentlemen, greetings, and welcome to the Rumble Second Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. It is now my pleasure to introduce your host, Shannon Devine, Investor Relations for Rumble.

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 second quarter 2023 results was released today and is 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 via the company’s identified social media channels. I will now turn the call over to Rumble’s Founder, Chairman and CEO, Chris Pavlovski.

Hello, and thank you for joining us today. The second quarter of 2023 marks one of the most revealing quarters in the history of Rumble. Our business model is working and starting to provide exceptional results ahead of our expectations. I can say confidently, Rumble’s content portfolio is now diversified. The diversified content in a slow news cycle, along with major video and streaming product improvements, has helped drive Rumble’s consumption to an all-time high of an estimated 11.8 billion average minutes watched per month in the second quarter. Rumble’s average monthly active users were 44 million, with significant growth in the coveted 18 to 25 demographic due to our expansive content offerings and declines in the older demographics, partly due to a slow news cycle and news fatigue. We anticipate that the older demographics will start growing in the latter half of 2023 and in 2024 as the presidential election cycle begins to ramp up. The new sports leagues and top cultural influencers are now starting to show gains with brand advertisers. One of the more important product developments in the second quarter was the alpha release of the RAC creator sponsorship marketplace. Typically, on other platforms, a creator monetizes through two sources: programmatic advertising and subscriptions. Most often, in the cases of YouTube and Patreon, these two sources are fragmented. Rumble’s offering, which is unique to our platform, is the introduction of the creator sponsorship marketplace, which creates three sources of monetization for a creator: programmatic advertising, subscriptions, and now sponsorships. No platform provides all of these sources seamlessly. This is how Rumble will differentiate itself and be the best place for creators to monetize. Here’s the best part: We’ve already proven this model in a manual fashion. In order to substantially grow revenue, we must now take what our teams are doing manually and automate and scale it through RAC. Let me put this in perspective because I think it is very important. Rumble recorded $25 million in revenue in the second quarter, a record. But as I stated earlier, it’s the most revealing quarter yet. A significant amount of Rumble’s sponsorship revenue is currently being manually managed across a small segment of creators—fewer than 50 creators. And importantly, it doesn’t include some of our biggest creators like Dan Bongino, nor does it include any meaningful revenue from our biggest signings in digital sports and cultural influencers like Kai Cenat and IShowSpeed. We anticipate that we will see the benefit of these signings in 2024 as the sales process ramps up. My team’s goal is to take what we are doing with a small segment of creators and automate it via RAC across thousands of creators who can be onboarded rapidly. Think about this—from fewer than 50 to thousands; you can start to see how easily this can scale and what kind of impact this can have on revenue. We believe we are beginning to see a clear line of sight in this business and its growth trajectory given the significant opportunities in front of us. Rumble is only monetizing a small segment of creators, and we have proven that we have an immensely valuable audience, which is largely untapped—especially with our largest signings in 2023. We believe it’s important to measure Rumble’s revenue on a year-over-year basis. As we have articulated in the past, until RAC is fully launched and fully up to scale, we expect our quarters will continue to experience variability during the scaling and automation process. When looking at the business on a year-over-year basis, I want to highlight how we stack against the largest tech companies in the world. Starting in 2021, Rumble’s early revenue growth on a year-over-year basis is on a similar trajectory to Facebook’s in 2005 and 2006. What’s not similar is how much capital our competitors required versus what Rumble requires. Rumble is trailblazing a new way in tech, one that includes a steadfast philosophy on spending, a shared belief in good old-fashioned hard work, building amazing teams, and most importantly, unlocking long-term value for shareholders without sacrificing growth. We do not need to raise tens of billions to take on big tech. We’ve already done that with less than $500 million. Think about this: We are generating similar revenue growth to big tech companies in their early years with only a fraction of what we believe will be the required capital. All of this has come before the introduction of one of our most anticipated products. For the full year of 2022, Amazon generated $80 billion in cloud revenue. Azure delivered $34 billion; and Google, $26 billion. What Rumble has done in the video space with taking market share away from big tech is what we plan to do in the cloud business. Let me provide a little peek behind the curtain. Rumble’s beta cloud offering is on pace to launch ahead of expectations. Our teams have been hard at work, and they expect to overdeliver on the product offerings. Rumble Cloud will now include virtual machines, Kubernetes, block and object storage, among many other services. I believe our clouds will serve a significant share of the cloud market that is disenfranchised with big tech’s censorship as well as a significant share that is disenfranchised with big tech’s pricing. We are already in discussions with a potential customer in the Fortune 500 and plan to provide more updates in the near future. To sum up, Rumble had an incredible quarter. Our revenues are tracking similar to what big tech accomplished almost 20 years ago, and we are doing it with a fraction of the capital. Our moves with diversifying content are starting to show gains with brand advertisers. RAC is on pace to offer one of the most compelling monetization engines for creators. And our cloud offering is finally around the corner. We stand before a tremendous opportunity. I previously said that I believe 2024 will be our Super Bowl, and now I am more confident than ever in that statement. Thank you for joining us on this incredible journey. With that, I’ll turn the call over to our CFO, Brandon Alexandroff.

Thanks, Chris. I’ll now take you through our Q2 financials at a very high level before turning the call over to the operator for Q&A. As Chris mentioned, we reported revenues of $25 million for the quarter, our best quarter yet. This compares to $4.4 million for Q2 2022. The growth was primarily driven by an $18 million increase in advertising revenue and a $2.6 million increase in licensing and other revenue. The increase in advertising revenue was driven by an increase in consumption. And as Chris mentioned, the introduction of new advertising solutions for creators, publishers, and advertisers, including host-read advertising in RAC, both of which we started to build and test in the second half of 2022. The increase in licensing and other revenue was largely driven by subscription as well as licensing creator contracts, tipping, cloud platform, and hosting fees. Our cost of services includes all programming and content costs related to payments to content providers, including amounts paid to creators based on revenues generated as well as additional costs related to incentivizing top creators to promote and join our platform. Cost of services also includes third-party service provider costs such as data center and networking, staffing costs directly related to professional service fees, and costs paid to publishers. Cost of services for the quarter were $40.8 million compared to $4.2 million in Q2 a year ago. The increase was due to an increase in programming and content costs of $35 million, hosting expenses of $700,000, and other service costs of $1 million. Moving to our cash position: We ended the quarter with $296.7 million in cash, cash equivalents, and marketable securities compared to $338.3 million as of December 31, 2022. To date, as intended, a large portion of our cash used has been to acquire content by providing economic incentives, including minimum guaranteed earnings to a limited number of content creators, including sports leagues, which, as Chris mentioned, we have not yet begun to monetize meaningfully. This content acquisition strategy has allowed us to enter key content verticals and secure top content creators in those verticals before we have full monetization capabilities in place. Additionally, our financials and note disclosure in the 10-Q reflect the previously announced all-stock transaction for the acquisition of David Sacks’ CallIn during the second quarter. Lastly, and in light of Rumble becoming publicly traded, the company’s Audit Committee of the Board undertook a process to consider a potential audit firm change. This process included the committee inviting several registered public accounting firms, including Moss Adams LLP to participate. Following completion of the process, on August 10, the Audit Committee appointed Moss Adams, a large U.S.-based audit firm, as the company’s new auditor. This change is also detailed in our earnings release and associated Form 8-K that we filed earlier today. 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 p.m. Eastern Time in 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 from our covering analysts.

Our first question is from Thomas Forte of D.A. Davidson.

Two questions for me, and congrats on the quarter. So I know you gave a lot of details there. But on the cost of services’ side, and I apologize for opening with the content services side question. Can you talk about which costs are fixed and which ones are variable?

Yes. So there are certain costs that are variable that are contingent upon revenue, and that’s the amount that we share with creators. We don’t disclose the amount for each, but there’s an element of that that’s variable. And then there’s an element that’s more fixed, which are the incentives that we pay to the creators as well, and that’s more fixed.

And then you talked, I think, on the last call about your effort to upgrade your user interfaces. Can you talk about where those initiatives stand today?

Tom, it’s Chris from Rumble. So yes, our user interfaces have undergone an extensive list of upgrades over the last quarter, which we’ll be sharing on Twitter and on Truth today, later tonight. But the major overhaul that we’re going to be doing in the video page is expected to launch in the next two weeks.

And then third and final, I feel like when you listen to pretty much any company’s earnings call, they go on at length about artificial intelligence and what it means. So can you talk about what AI means for Rumble?

This is Chris. Yes, so we’ve been looking at artificial intelligence quite a bit in the last quarter, myself personally and obviously, our tech side. Obviously, on the cloud side of the business, we are very eager to start selling to that community once we get the cloud up and running. We think we can be a very important part of the AI community on the cloud. I see that as a massive opportunity for growth as we roll that out later in the year. And in terms of Rumble and integrations of AI, we’re looking at tools that can improve the uploading process and make the experience for the creator easier, bringing more tools to the uploading process.

So as a quick follow-up, that was very helpful. Does it help you at all with moderating content? And do you have any broader philosophical views on AI regarding its potential impact or how it may assist you in your efforts to maintain neutrality on platforms like YouTube or AWS?

Yes. We're currently observing concerns regarding biases in AI, and at this stage, I would prefer to avoid using AI for moderation due to its early development. Therefore, we are not inclined to explore AI in moderation right now. Last year, we proposed terms and conditions that we are eager to implement this year, focusing on how we handle moderation and engage the community in that process. I believe that approach is more effective for us than relying on AI. Can you please repeat the second part of your question?

Sure. Just philosophically, if you think that AI is going to be transformative as it relates to your efforts to essentially run the neutral YouTube with a neutral AWS?

Yes. So the way I look at it on the cloud, I see it as there’s a huge requirement for processing power for AI, and we feel that as a company, we can service that market and help expand that market through our cloud.

The next question we have is from Jason Helfstein of Oppenheimer.

Several questions. We can go kind of one at a time. So you called out the success of sign-in fees; are there any other metrics you want to share on other content deals that you announced in the first quarter that you’ve now seen? So that’s question one—just anything on content metrics you want to call out regarding that sign-in fee.

Yes. So we’re in the very early stages of the digital sports launches that we’ve had there. We also launched RiceGum, and we’re seeing incredible performance with RiceGum. He’s been one of our top streamers on the platform. We’re really excited about that. When it comes to these creators, obviously, IShowSpeed has had a medical situation in Japan and has been out for the last month, but they’re excited to ramp up shortly. One more thing I wanted to add is the way we’ve really shifted the audience in the last quarter to the 18 to 24 demographic because of all these digital sports and cultural influencers. So we had a really significant audience in the 18 to 24 demographic. As we go into the end of this year and into next year, we think we can compound those audiences, keeping both that 18 to 24 audience and bringing back the older audiences with the new cycles. I see that as a real big opportunity for us.

And then it was good to see, obviously, that engagement per user was up pretty nicely quarter-to-quarter. However, there was a cost associated with that, which is showing up in the cost of revenues. Should we assume that this quarter should mark the bottom as far as the negative gross margin? From here, should we expect to see improved leverage on that gross margin? I don’t know if I wanted to take that question.

Yes, I’ll answer that. We’re not going to provide any guidance at this point. However, what I will say is that I feel we’re at a point in this business where the content is very diversified. We were very aggressive in the first and second quarters on bringing in new content and signing creators to the platform. We’re going to continue to do that but will not be as aggressive as in the last two quarters. So I don’t think you’re going to see us at the same pace that you did in the last two quarters. But we’ll be very opportunistic when we see something that we feel has a really good business case for us; we will jump on it. We’ve met our goals on the signings in terms of diversifying and bringing in a younger audience. Now we’re really focused on monetizing that audience and growing engagement over the next year.

And then on the selling expense, how do you think about that needing to scale and increase as you increase revenue through RAC? How automated will the selling be given that you’re doing about $2 million per creator on an annual basis, with these 50 creators manually? Just how should we think about sales expense relative to RAC as you scale up and automate?

Yes, the beauty of RAC is that it will carry multiple ways to monetize. The programmatic advertising route is one way; sponsorship requires a more manual relationship with the creator currently. What we want to do is take that into full automation with as little overhead as possible in terms of managing that. I do see a massive opportunity with scaling that, and we have alpha released it now and are furthering that product as fast as we can. However, I do see the cost of RAC being significantly less than managing it manually on a per-creator basis.

And then just last question. Obviously, we’re pretty far into the third quarter at this point. So from a user standpoint, just any sense— I know you’re not going to give us some guidance on quarter-to-date MAUs—but any kind of sense, given we’ve obviously worked off a sequential basis, with new content creators on the platform? Should we think we’re at a bottom here now regarding MAUs, and it should grow sequentially?

I’m not going to provide any guidance, but I will say that we’ve been saying that as we get into the presidential election cycle here, with the first primary debate, which will be exclusively streamed on Rumble on August 23, we anticipate that in 2024, and as we get to this presidential election cycle, things will definitely start to ramp up. Obviously, the deals we have in place with digital sports leagues and cultural influencers should help us maintain our audience. Thus, we look to grow from that and enhance engagement as well.

Ladies and gentlemen, that concludes today’s Q&A session. Thank you for joining us. You may now disconnect your lines.