The Newsmax (NMAX) IPO, which placed 7.5 million shares at $10 per share on March 31, was technically a success.
The investment bank, a small outfit by the name of Digital Offering, sold the full 7.5-million-share offering at the proposed price via an offering targeting smaller investors rather than large institutional investors, and shares opened for trading at 14.
If there were a checkbox for IPOs, that alone would have ticked all the boxes.
Sold all the shares? Check.
Get your asking price? Check.
Start trading at a premium to the offering price (but not such a premium as to indicate that shares have been mispriced)? Check.
What nobody expected, however, was the market’s reaction once shares hit the tape.
Newsmax (NMAX) Shares Are Thriving …
On March 31, the first day of trading, shares skyrocketed to an intraday high of 82.25, up 722%. In the days since, NMAX has traded as high as 265 per share, up a massive 2,550% from the IPO price.
At the time of writing, shares are trading at 124, down 108 points (46.8%) from Tuesday’s close, but have still more than 10x-ed their offering price.
At the current price, Newsmax is trading with a market cap north of $11 billion, or about half the size of closest competitor Fox Corp. (FOX).
And that’s despite having just a fraction of the reach. A look at Newsmax’s S-1 filing shows that the company has only 220,000 subscribers to streaming service Newsmax+ as compared to an estimated 2-2.5 million paid subscribers to Fox’s Fox Nation offering.
We’ll look at the S-1 in more detail in a moment, but first … what gives?
Long story short, Newsmax has achieved meme stock status, and there are a couple of structural factors that are also helping.
First, with a float of only 7.5 million shares, NMAX is susceptible to wild price swings. In fact, with an average trading volume of 9 million shares, more shares have changed hands each day than there are available to trade.
And second, by using a Regulation A+ offering (what is essentially a mini-IPO; it’s also the reason the offering was limited to $75 million) and targeting retail investors, many shareholders are invested for sentiment-driven reasons, so there is, frankly, not much in the way of meaningful selling pressure.
… But Newsmax the Company Is Flailing
The fact of the matter is, Newsmax is a money-losing legacy media business (among other things) that appeals to a very narrow demographic.
According to the S-1 filing, Newsmax did $135.3 million in revenue in 2022 but lost $19.9 million for the year.
In 2023, the company produced the same revenue but lost $41.8 million, partially owing to the realization of a one-time asset impairment.
Of those revenues, 68.6% are derived from its Broadcast segment (including traditional cable, satellite and telecom) while the remaining 31.4% come from the company’s Digital segment (subscriptions, digital magazines, newsletters, etc.).
For the first six months of 2024, advertising accounted for 61% of total revenue across both segments.
Also included in the mix are a handful of product offerings, including the Medix Health nutraceuticals company and Crown Atlantic Insurance, which the S-1 states primarily focuses on life insurance and retirement products (such as annuities). These are a relatively small portion of total revenue.
Contributing to the losses for the last few years has been a legal settlement with Smartmatic. The settlement, which totaled $40 million, has $20 million outstanding, which will be paid over the next few years.
These figures do not account for the ongoing litigation between Newsmax and voting machine company Dominion, which has an unresolved lawsuit (expected to go to trial this year) in which Dominion is seeking $1.6 billion in damages.
Given that the original claim by Smartmatic when it initiated the suit was for something between $400-$600 million in damages, the settlement may have been for as much as 10% of the claimed damages, which could make even a settlement with Dominion an expensive overhang.
To put it plainly, Newsmax has been losing money for years in an industry that’s already on the wane and appears unlikely to suddenly become profitable.
History doesn’t repeat itself, but it does rhyme, and a money-losing company in a struggling industry whose shares suddenly erupt for seemingly no reason sure sounds a lot like a meme stock to me.
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