Just letting yall know I have no clue how spacs work and shit, but this did seem promising so could anyone with a good knowledge in spacs give their opinion on if this has potential to play out?
Rumble Video $RUM will start trading on the Nasdaq on Monday for the first time since finishing its merger with its SPAC at an over 2.5 Billion dollar valuation. This is going to be one of the biggest “buy the rumor, sell the news” events of the year and I predict a 50%+ decline in price this week.
First of all the 2.5 Billion dollar valuation is ridiculous. They are not profitable and did about $2 million in revenue in Q4. When they originally announced they were going to go public back in December 2021 at a 2.1 Billion dollar valuation via SPAC the stock quickly fell to $10 (SPAC floor price) and stayed there all year. It never fell below $10 because SPACs can’t fall below $10. So during the entire market crash (Jan '22 - Now) when all tech stocks got hammered and almost every SPAC is well below $10 (most below $5) this stock was saved by the SPAC floor price because it hadn’t merged yet. Now you have a bunch of traders buying this week thinking Monday the stock will rocket because it’s no longer a SPAC. This sets up for a perfect “buy the rumor, sell the news” event and I predict the stock will fall over 50% this week. I think most people who own this stock forget that SPACs can actually fall below $10 once the merger is complete.
My target price is $5 ($1.1 Billion valuation) and just to be clear that is still way too high and generous. I have a 35k short / put position for this.
Awesome find, recently the despac plays have had insane IV on puts but I think due to the Andrew tate pump theres a good r/r reward here. Not to mention a lot of the hype behind rumble was due to it being used on truth social which is a complete failure.
$2.5billion valuation is insane, reminds me of BZFD.
This guy makes some good points and I generally agree with him and here are my thoughts:
SPACs can and often do go below $10. The price of a SPAC is entirely dependent on what people are willing to pay for it. While you would be able to eventually get your money back, the next time you would be able to redeem could be 18 months away and you would be paying the opportunity cost for tying your money up for so long. Hence the discount to NAV.
I agree with him that the valuation is ridiculous. However, what sets $CFVI (ticker change will be $RUM) apart is that it has a cult-like investor base. $CFVI and $DWAC are two SPACs with very unique and similar investors. This is not a traditional despac shitco in which the investors are only motivated by the financials. Because of the make-up of the investor base it is possible that they won’t rush to the exits as quickly as hoped.
PIPE doesn’t have a lockup whatsoever (lol) and the FPA shares held by the sponsor only have a 30 day lockup. Together they account for 10 million shares. Since we can anticipate minimal to no redemptions (due to the stock trading so much above NAV), there will be ~30.7 milion shares in the public float after merger. So there will be a negative effect if the PIPE and sponsor decide to sell but it won’t be an oversized one due to the relatively large public float.
