Rumble Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 13, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, greetings, and welcome to the Rumble Inc. 3rd Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce your host, Shannon Devine, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. I'm here today with Chris Pavlovsky, Founder, Chairman and CEO of Rumble Brandon Alexandroff, the CFO and Tyler Hughes, the COO. A press release detailing our Q3 2023 results was released today and It 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 This 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.

Speaker 1

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 Pawlowski. Chris?

Speaker 2

Hello, and thank you for joining us today. The Q3 was strong for our business as we continue to deliver on our commitments to build our video And get ready to scale monetization in 2024. First, I would like to highlight the cloud business, where we achieved our biggest milestone to date with the launch of the beta release of Rumble Cloud in September, ahead of schedule. As we have stated in the past, building our own infrastructure for Rumble's video platform is existential for our business. We can never rely on big tech cloud providers for hosting.

Speaker 2

Today, with a full build out of the infrastructure To support Rumble Video, we are in position to sell our excess capacity to the market through Rumble Cloud. The aim of Rumble Cloud is to provide cloud solutions The growing segment of businesses who are disenfranchised with big tech cloud providers due to unfair pricing strategies and increasingly restrictive terms and conditions. Since we launched in September with minimal promotion, the response has been extremely encouraging with qualified leads spread out over many markets, led by entertainment, e commerce, gaming, education and telecommunications. We have already begun on boarding clients onto the platform Where we will refine our product and continue to ramp onboarding over the coming months. Our goal is to collect as much feedback in the beta stage as possible and launch fully in the first half of twenty twenty four.

Speaker 2

2nd, I'd like to touch on the progress we've made to our video platform, where our vision is to build the most attractive economic toolkit for creators on the Internet. I'm very excited to share The integration of our recent acquisition of Rumble Studio, previously, Colin, which closed in May, is now in beta. I believe this could be a game changer for Rumble and the creator community as a whole. It has the potential to not only transform the live streaming experience for our creators, But also become a critical component of driving creator sponsorship revenue at scale. From the live streaming perspective, Rumble Studio will be the new cockpit for creators, where they will be able to seamlessly manage and customize their live stream production directly from the Rumble Studio application, control their distribution and ultimately provide a world class interactive experience for their audience.

Speaker 2

From the monetization perspective, Rumble Advertising Center will be directly integrated into Rumble Studio. Imagine having Rack Present creator sponsorship offers in real time during streams and prior to going live on Rumble Studio. Creators being able to elect to do the sponsorship within their stream. This is what gets our teams really excited and why I believe it could be a real game changer. These sponsorship offers will not only extend to the Rumble audience when going live, but since Rumble Studio will allow streaming to all platforms, Our sponsorship marketplace can now extend into all live streaming platforms and all audiences, creating massive potential opportunity for this product.

Speaker 2

On our last earnings call, we mentioned that our creator sponsorships are currently facilitated by a manual sales process. Rumble Studio integrated with Rack will be the key for us to facilitate scaling this part of the business, enabling us to move from a small cohort of creators to potentially thousands of monetized creators overnight. We expect Rumble Studio To very quickly add value to our business, both by greatly reducing the friction to live stream on Rumble, which will bring more creators to the platform and also by accelerating scaling for sponsorship revenue in the future. Looking back over our 1st year as a public company, The capital raised in our public listing has enabled us to build out our content library and attract leading content creators, helping us successfully grow our diversified audience The 58,000,000 monthly active users. Our content acquisition and diversification strategy has come at a calculated cost, But we believe our money has been well spent to date.

Speaker 2

In particular, our strategy should position us well to achieve our next goal relating to monetization initiatives, and that is attracting advertising agencies to our platform. Our momentum with advertising agencies, including top tier brand and political agencies, stems largely from our relationships with sports leagues and the acquired talent in this field. The investments we have made to date position us to leverage these relationships with very clear runway ahead. Today, Rumble reaches a great variety of audiences. And according to Comscore, the industry standard for 3rd party digital audience tracking, political independence and those with no party affiliation are our largest segment, Democrats 2nd and Republicans 3rd.

Speaker 2

Let me repeat that. Independence and those with no party affiliation is our largest audience political audience segment. It's clear Rumble has entered a stage of diversification that caters to a diverse audience, allowing advertisers to reach desired audience segments on our platform. Importantly, the attraction of advertising agencies allows us to slow down our spending without affecting our revenue potential. If there is one takeaway from our Q3, it is that Rumble is nearing the end of the building phase and is on schedule to scale monetization in 2024.

Speaker 2

We raised the necessary funds just over a year ago, have been diligent and strategic in our spending and now have the creators in audience necessary to attract the attention of To date, we provided a small number of our creators with guaranteed minimum earnings because of our advertising ecosystem did not This development enables us to pull back on our spending to acquire content, while maintaining our creator and audience base. To crystallize this a bit further, by the end of 2024, we anticipate increased ad driven monetization will allow us to attract new And retain existing craters with reduced reliance on guaranteed payments. With the aforementioned in place, we Our guaranteed creator commitments to significantly decrease by the end of 2024, while our revenue engines come online, moving us materially towards breakeven in 2025. The Q3 also proves that we have created a community for everyone. We have proven that Rumble is the preeminent neutral platform and the opportunity that we provide has never been more attractive.

Speaker 2

With that, I'll turn the call over to our CFO, Brandon Alexandrov.

Speaker 3

Thanks, Chris. I'll now take you through our Q3 financials at a very high level Before turning the call over to the operator for Q and A, we reported revenues of $18,000,000 for the quarter. This compares to $11,000,000 for Q3 2022. The growth was primarily driven by a $2,300,000 increase in advertising revenue And a $4,700,000 increase in licensing and other revenue. The increase in advertising revenue was driven by an increase in Assumption as well as the introduction of new advertising solutions for creators, publishers and advertisers, including Host Red Advertising and Rack, both of which we started to build and test in the second half of twenty twenty two.

Speaker 3

While our revenue remains relatively small And subject to variability quarter over quarter, the progress made in attracting and retaining our audience as well as the development of creator monetization tools are proving out our overall business model and potential of the company. Our cost of services include 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 3rd 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 $39,800,000 compared to $12,300,000 in Q3 a year ago. The increase was due to an increase in programming and content costs of $26,100,000 Hosting expenses of $700,000 and other service costs of $700,000 Moving to our cash position.

Speaker 3

We ended the quarter with approximately $267,000,000 in cash, cash equivalents and marketable securities compared to $338,300,000 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 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. And as Chris mentioned, We anticipate increased ad driven monetization will allow us to attract new and retain existing creators with reduced reliance on guaranteed payments. As a result, we expect our guaranteed creator commitments to significantly decrease by the end of 2024, while our revenue engines come online, moving us materially towards breakeven in 2025.

Speaker 3

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 p. M. Eastern Time in an exclusive post earnings interview with Matt Kors to be streamed live on the MacKors Rumble channel. I will now turn the call over to the operator to open up the line for questions from our covering analysts.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question comes from Tom Forte with D. A. Davidson.

Operator

Please go ahead. Great.

Speaker 4

Thanks. So I had several questions. I wanted to ask 2 and then get back in the queue and then ask the remainder. So First off, can you provide your current thoughts on your ability to attract influencers from other platforms, including Twitch? It looks like news came out today that Amazon had more layoffs in their gaming space, only this time it was not Twitch specifically.

Speaker 4

That was my first question.

Speaker 2

Yes. So we've had a lot of success with attracting creators from Twitch as of, I would say, earlier Q2 of This year, and we believe that momentum should be able to continue going into next year as these other platforms have exorbit fees With creators. So for example, I believe the rev shares on Twitch are very high in favor of Twitch, Whereas a platform like Rumble is offering much more compelling rev shares, which should help attract that creator base over to our platform.

Speaker 4

Great. And then for my second question, and I'll get back in the queue. It looks like you've been the exclusive live streamer for numerous Republican presidential debates With more kind of coming up, have these been needle movers as far as engagement goes?

Speaker 2

Absolutely. When it comes to the RNC, the Republican primary debates, The first debate in particular that I can remember had over 7 across the platform at a single point in time with The GOP being the largest stream, we had over 700,000 concurrent streamers watchers on the platform according to stream charts. And I believe the GOP was the number one stream in the United States at the time that it happened. So we've seen some huge Success on the debates and pushing our platform as well to really high to very high marks.

Speaker 4

Great. I'll get back in the queue for more questions.

Operator

Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer and Company. Please go ahead.

Speaker 5

Thanks. I'll ask a few. First of all, I want to say, Joe, I watched the recent GOP debate on my phone on cellular on your app and It was well done. So kudos to that. So I guess we have a lot of stuff to unpack, so I'll ask a few and then we'll keep taking turns.

Speaker 5

So, U. S. MAU was up nicely quarter to quarter, but minutes kind of per user were down. Any like general thoughts behind that, as far as like mix of content in the quarter? So that's question 1.

Speaker 5

So I will just go one at a time.

Speaker 2

Yes. So when it comes to the engagement metric, there's a couple of things there. First off is the Is that we have in the summer when for example, we had the GOP debate in the middle of the summer, a lot of creators not only in the summer are taking time off. So you're seeing a lot of like, for example, Steven Crowder is not doing his stream all in July. And these long streams We add to a lot of the watch time, not him particularly, but a lot of different creators that don't create content over the summer.

Speaker 2

We also have moved We're slowly moving over our CDN onto our own CDN and from preliminary results that we're seeing is that our CDN It is recording it seems to have be recording less bandwidth than the 3rd party CDNs that we used.

Speaker 5

Got it. So maybe MAU will be a better indicator than minutes kind of at least from a trending standpoint. And then on ad monetization, I mean is RAC behind schedule? I mean given the MAU being up sequentially, It's a little surprising to see kind of particularly like the U. S.

Speaker 5

Revenue or just the advertising revenue kind of down sequentially. So, I mean maybe just like unpack that. I mean sales and marketing was down, so was there like less manual selling effort maybe ahead of rack? Just And why was revenue down sequentially because I just usually Q3 seasonally isn't a smaller quarter than Q2? And I'll do one more.

Speaker 2

Yes. No, absolutely. So when it comes to revenue, what we said in the Q2 is that a lot of our revenue stems from the testing that we've done with Small cohort of creators on the sponsorship side. And we haven't, at this point, fully scaled rack On the programmatic side. So there's 2 sides to the business at Rumble when it comes to the advertising.

Speaker 2

1 is the sponsorship rack And

Operator

the other one is going to

Speaker 2

be Rack Programmatic. And right now, we're on schedule to be launching programmatic within our app this quarter, Hopefully in a few weeks to like 2 to 4 weeks time. And that will be a big moment for us when we start introducing pre rolls within app And should have an effect on revenue going into 2024. And then the second component is because we're only testing a small cohort of creators on the sponsorship side, We need to integrate that into Rumble Studio and Rack and deliver that early in 2024 so that people can get those sponsorships on Scale while they're going live on streaming. So I wouldn't say rack is behind.

Speaker 2

In fact, I think we're Making history in the sense that we're building these tools in the last year that companies like Google took, they bought DoubleClick for 1,000,000,000 of dollars And built out their tools over like a decade. We're trying to compress that all in the last 3 65 days. So I think we're doing Extremely well on that, having RAC where it is right now and being ready to introduce pre rolls for 2024 is In our apps and OTT is a big milestone for us and we're on target to be doing that. And then as we introduce Rack into Rumble Studio, Which just came out into beta in the last couple of weeks, we still have to build the sponsorship part into the studio. I think we're doing Quite well on building that

Speaker 5

out. So just a follow-up and not to put words in your mouth. So was basically the Sequential decline in advertising revenue more a function of that you had in the advertisers who tested the platform in the 2nd quarter, but did not come in, in the 3rd quarter Or like just for you kind of shifting resources ahead of RAC and Rumble Studio launch?

Speaker 2

Yes, I don't think it was a it's an advertiser thing. I think it's more of a cohort of creators. If we have a small cohort of creators that we're monetizing very well and they're taking During the summer that that's going to have an impact in addition to the fact that we are really trying to get rack in the sponsorships and rack in the Studio and all that, all our focus is there as well. It's a combination of a few things and those are at least two things that really contribute to it.

Speaker 5

And then last one, then I'll jump back in with you. So gross margin loss was a lot worse than the it's been getting worse, right, like this is Q3 Of incrementally worse gross margin loss. I mean, obviously, there's the revenue impact, but was there also kind of mix on content, Just the way licensing, I believe, I think as a low well, I mean mix between revenue licensing versus advertising or other content maybe just help us unpack why gross The gross margin loss from a ratio standpoint was kind of so much worse from the Q2. Yes.

Speaker 3

Hey, Jason, it's Brandon. So cost of services, I think was a little down roughly flat to the prior quarter. And the biggest chunk of cost of services is the creator incentive costs, Right, which are the commitments that we've made and the minimum guarantees that we've been talking about, which will be coming off, as we said, at the end of 2024, that's when they'll be meaningfully coming down. So they'll continue to be in there for the next few quarters and then that's when they start coming off. So That's just part of the business plan with respect to the commitments on the content acquisition strategy.

Speaker 5

Thanks. I'll jump back in queue.

Operator

Thank you. Our next question is from Tom Forte with D. A. Davidson. Please go ahead.

Speaker 4

Great. So three follow ups for me and then I'll stop. So one at a time, can you discuss what artificial intelligence means to Rumble and what extent you're able to use the technology to enhance content moderation on the platform?

Speaker 2

Yes. Thanks, Tom. So when it comes to AI and moderation, we've opted to stay away from that entirely. I think those are the mistakes that the larger platforms have done is relied on a lot of technology to flag and remove content, Whereas we want to be a little bit more particular about that and have real human eyes on something and not rely on something that hasn't proved out to be 100% accurate. So when it comes to AI and the moderation side, we haven't implemented anything of that And we have no current plans to implement anything of that sort.

Speaker 4

And then second, this is very philosophical, but I like to get philosophical So on AIs, it seems to me there's a real risk that given the parties involved, advancement in AI is going to increase the excess influence on consumers From Big Tech, Amazon, Apple, Google, Meta Platforms, Microsoft. So, I'd appreciate your thoughts on that as long term participant. And then also what can you do, if anything, to disrupt that?

Speaker 2

Yes. So at this point, When looking at AI and artificial intelligence on the Rumble side, the obviously video is the massive contributor To AI models, it's not something that we're doing and it's not something that we're in. Additionally, there I think a first step for Rumble when it comes to any sort of machine learning or any sort of recommendations will be in terms of like making sure that we deliver content that people A lot after a video is done. We're not going to be adopting a new feed based on AI, not anytime soon and For a lot of various reasons. But when it comes to surfacing content and helping drive watch time, I think there's things that we could do On the recommendation side, but I want to be very careful on how we do that and what we do just based on the what we currently And what our audience really wants.

Speaker 2

I want to make sure we deliver what they want more than what other companies are doing.

Speaker 4

Excellent. Last question. Thanks for taking all my questions. So can you give your current thoughts on the regulatory efforts across the globe when it comes to Internet broadly and free speech more specifically, Including those in Canada?

Speaker 2

Yes. So when it comes to obviously in the United The First Amendment is the most important is there. So it's critically important to us and obviously Puts a really big safeguard for what we do. When it comes to other jurisdictions like France or China or North Korea, It's obviously murky. Those aren't markets that we're participating in.

Speaker 2

And when it comes To Canada, obviously, we're hoping that things will change. In Canada, we're not really sure on how the laws in Canada will play out. So it's still a wait and see moment for us in terms of how they will enforce and what they plan to enforce and what they plan to do. It's very early stage In Canada and along and with many other markets. But when it comes to the U.

Speaker 2

S, that's Kind of where our bread and butter is at this moment. And we've challenged things and like in the New York State when they try to Pushback on the First Amendment and we have successfully we've been very successful there in overturning that and obviously now it's an appeal And we'll continue to push forward on that in the United States alongside the First Amendment.

Speaker 4

Great. Thanks, Chris. Thanks for taking my questions.

Operator

Thank you. Our next question is from the line of Jason Helfstein with Oppenheimer and Company. Please go ahead.

Speaker 5

Thanks. Just a few more. So, can you just talk about, what drove, I think, hold on a No, I'm good on that question. Okay. So the next question, how should we think about Rumble Cloud impact on either gross profit or EBITDA over the 12 months, I mean, just like broadly.

Speaker 5

I mean, is this entirely just selling excess capacity? Are there going to be additional costs? But it will still be like accretive from a financial standpoint, that one and then I'll just do one more after that.

Speaker 2

Yes, we're not providing any guidance on cloud at this point.

Speaker 5

Okay. And then your comment about EBITDA breakeven in 'twenty five, is that for the full year of 'twenty five or just like at a point In 2025, like a quarter in 25.

Speaker 3

Yes. Just to clarify, so we haven't defined what we mean by breakeven at this time. It's There's disclosure requirements around that, surrounding non GAAP metrics. And so we'll develop the appropriate Set of metrics around this and communicate that during 2024. But at this time, we haven't defined it nor we're giving guidance on the timing of that specifically.

Speaker 5

So what was that comment though? Like you specifically said our goal is to be breakeven in 2025, so

Speaker 3

No, No, I think we said we're heading towards breakeven in 2025. As these expenses that I was mentioning earlier, As these creator commitment expenses start coming off and revenue starts to scale, that's when we start heading towards the breakeven timeframe, which we expect to happen in 2025.

Speaker 5

So basically, you're trying to say that you will see an improvement In 2025, like as a marginal level, but there's no commitment to absolute levels at this point?

Speaker 3

We expect we will be breakeven. We'll communicate more about what that means in 2024.

Speaker 5

Okay. That's it for me. Thank you.

Operator

Thank you. As there are no further questions at this time, the conference of Rumble Inc. Has now concluded. Thank you for your participation. You may now disconnect your lines.

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