Why Rumble Stock Is Sinking Today After a Week of Gains

Rumble (NASDAQ: RUM) stock is seeing big sell-offs in Friday's trading. The company's share price was down 8.1% as of 1 p.m. ET. Meanwhile, the S&P 500 index and the Nasdaq Composite index were down 1.7% and 2.2%, respectively.

Stocks are seeing relatively thin trading volume today. Along with investors selling shares for tax-harvesting and profit-taking purposes, this is causing a significant pullback across the market. In addition to broader selling pressures, Rumble is losing ground as its recent meme-stock momentum fades.

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Rumble is volatile amid recent meme-stock surge

Last Friday, Rumble announced that it had formed a deal to receive a large investment from Tether, the company responsible for the Tether (CRYPTO: USDT) stablecoin cryptocurrency. The streaming video specialist will sell $775 million of new stock to Tether at a price of $7.50 per share.

In turn, Rumble will use $250 million of the proceeds to fund its existing business operations and pursue new growth opportunities. The remainder of the cash from the stock sale will be used to buy back shares from other large investors at a price of $7.50 per share. The deal is expected to close in the first quarter of 2025.

The announcement kicked off a massive rally for Rumble, and its share price is up 105.5% over the last week even with today's pullback. Tether's investment effectively turned Rumble into one of the latest hot meme stocks, but the explosive gains also set the stage for volatility. With downward pressure for the broader market and investors taking profits on the streaming-video company's recent surge, shares are trending lower today.

What comes next for Rumble?

Securing a new capital injection is good news for Rumble. The company posted a net loss of $31.5 million on sales of $25.1 million in the third quarter, and it closed out the period with $132 million in cash and equivalents. After executing its proposed stock buyback, the cash from Tether's investment should allow Rumble to fund its current operations for roughly two years based on its current rate of spending.

On the other hand, recent gains for the stock appear to be largely disconnected from the foundations of the deal. Some investors are betting that Tether will become an active partner in steering Rumble in a new direction, while others are simply seeking big short-term gains in conjunction with surging meme-stock status. While it's possible that Rumble will continue rocketing higher, the company's valuation looks risky right now.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.