Rumble Inc.
Q2 2023 Earnings Call Transcript

Published: 16 Aug 2023

[Operator:]

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

[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 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.

[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 time with a slow news cycle in conjunction 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 MAUs were 44 million with significant growth in the coveted 18 to 25 demographic due to our expansive content offerings and declines in the older demos, partly due to a slow news cycle and news fatigue. We anticipate the older demos to start growing in the later half of 2023 and 2024 as the presidential election cycle starts 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 RAC creator sponsorship marketplace. Typically, on other platforms, a creator monetizes through 2 sources

[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 leads, 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

[Operator:]

[Operator Instructions] Our first question is from Thomas Forte of D.A. Davidson.

[Thomas Forte:]

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?

[Brandon Alexandroff:]

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.

[Thomas Forte:]

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?

[Chris Pavlovski:]

Tom, it’s Chris from Rumble. So yes, our user interfaces, we made 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 2 weeks.

[Thomas Forte:]

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.

[Chris Pavlovski:]

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

[Thomas Forte:]

So as a quick follow-up there, and that was very helpful. Does it help you at all? Or would it or could it help you at all with moderating content? And then do you have any just broader philosophical views on AI as far as it’s -- to what extent if at all it’s going to be transformative or just how it may or may not help you advance your efforts to be the neutral YouTube or be the neutral AWS?

[Chris Pavlovski:]

Yes. So what we’re seeing in terms of AI, like the complaints with biases around it. It’s something that I wouldn’t want to touch moderation with at all at this point just because of its infancy. So yes, I wouldn’t -- we haven’t -- we’re not really willing to explore at this point in time any AI with respect to moderation. And when it comes to our Ts & Cs, we proposed terms of conditions last year that we are still excited to roll out this year in terms of how we’re going to process the moderation and involve the community in that. And I think that’s a better step for us on the moderation front than using AI for that. And then can you repeat the second part of your question there?

[Thomas Forte:]

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?

[Chris Pavlovski:]

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 like as a company, we can service that market and help expand that market through our cloud

[Operator:]

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

[Jason Helfstein:]

Several questions. We can go kind of one at a time. So you called out the success of sign in fees, 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 of that sign in fee.

[Chris Pavlovski:]

Yes. So we’re in the very early stages of the digital sports, the launches that we’ve had there. We also launched [Academics] [Gideon] RiceGum. We’re seeing like an incredible performance with RiceGum. He’s been one of our top streamers on the platform. We’re really excited about that. And when it comes to these creators, like obviously, Kai’s speed, IShowSpeed had a medical situation in Japan, where he’s been out for the last month, but they’re excited to ramp up that very shortly here. But one more thing I wanted to add is the way we’ve really kind of shifted the audience in the last quarter to the 18 to 24 demo because of all these -- because of the digital sports and the cultural influencers. So we had a really significant audience in the 18 and 24 demo. And what I love about that is that as we go into the end of this year and into next year, we think we can compound those audiences, have both that 18 to 24 audience and then the bring back with the new cycle on the older audiences, I see that as a real big opportunity for us.

[Jason Helfstein:]

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

[Chris Pavlovski:]

Yes, I’ll answer that. We’re not going to provide any guidance at this point. But what I will say is that I feel that we’re at a point in this business where the content is very diversified. And the -- we were very aggressive in the first and second quarter on bringing in new content and adding signing -- and signing creators to the platform. We’re going to continue to do that but -- and be very opportunistic with that. But I don’t see the need to be as aggressive as we were in the last 2 quarters. So I don’t think you’re going to see us see us at the same pace that you saw in the last 2 quarters. But we will be very opportunistic when something that we feel that has a really good business case for us, we will jump on top of that. But we’ve met our goals on the signings in terms of diversifying and bringing in a younger audience. And now we’re really focused on really monetizing that audience and growing the engagement over the next year.

[Jason Helfstein:]

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

[Chris Pavlovski:]

Yes, the way the beauty of RAC is that it will carry multiple ways to monetize the programmatic advertising route is going to be one way. The other route is going to be the sponsorship. Sponsorship requires currently a lot more -- it requires a very manual relationship with the creator. And what we want to do is we want to take that into complete automation or as much automation as possible with as little overhead as possible in terms of managing that. So I do see a massive opportunity with that and scaling that and we have alpha released that now and are furthering and bettering that product as fast as we can. But I do see the cost of RAC, obviously, significantly less than doing it manually on a per creator basis.

[Jason Helfstein:]

And then just last question. I mean, obviously, we’re pretty far into the third quarter at this point. So from a user standpoint, I don’t know, just any -- I know you’re not going to give us some of a quarter-to-date where we are with MAU. But just any kind of sense of kind of -- we’ve obviously worked off on a sequential basis kind of political, you have new content creators on the platform. Like do we think kind of we’re at a bottom here now on kind of MAUs and it should grow sequentially.

[Chris Pavlovski:]

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 and obviously, the debate, the first primary debate, which will be exclusively streamed on Rumble for the online streaming is on August 23. What we do anticipate that 2024 and as we get to this presidential election cycle, things will definitely start to ramp up. And with the -- obviously, the deals we have in place on the digital sports leagues and the cultural influencers, we don’t see that audience disappearing. So we look to grow on that and build on the engagement there as well.

[Operator:]

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