Under normal market conditions, a high-flying IPO rising 2,550% in just a few trading days would have captured a lot of headlines.
But these are far from normal market conditions. So the fact that Newsmax (NMAX) came public via IPO, rose 700% on the first day of trading, and would go on to close more than 2,000% higher the next day garnered nary a headline.
The IPO itself, which placed 7.5 million shares at $10 per share on March 31, was technically a success.
The full 7.5-million-share offering was completed at the proposed price via an offering targeting smaller investors rather than large institutional investors, and shares opened for trading at 14.
That’s precisely the kind of trading action that’s a hallmark of successful IPOs.
The offering was fully subscribed to, and shares began trading at a premium to the offering price, but not so much of a premium that it was clear that the offering was mispriced.
Market reaction aside, kudos to the offering bank (Digital Offering) for a well-run IPO.
What nobody expected, however, was what would happen once shares hit the tape.
On March 31, the first day of trading, shares skyrocketed to an intraday high of 82.25, up 722%. On April 1, NMAX traded as high as 265 per share, up a massive 2,550% from the IPO price.
Now, just a few weeks later, shares are trading at 26, down 206 points (88.9%) from the April 1 close.
On April 1, Newsmax was trading with a market cap north of $22 billion, larger than its 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.
Now, the shares are trading with a much more modest (although still overvalued) market cap of $2.3 billion.
We’ll look at the S-1 in more detail in a moment, but first … what gives?
Long story short, Newsmax briefly 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 6.7 million shares, nearly as many shares change hands each day as 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.
The Glory Days Are Over for Newsmax (NMAX) Shares
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 a jury trial for damages 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.
