TLDR

Table of Contents

Newsmax (NMAX) stock plunged 77% to $52.71 on Wednesday after a 2,550% rally in two days following its IPO
The company priced its IPO at $10 per share on Monday, with the stock reaching $265
Newsmax’s low share float creates high volatility, similar to meme stocks
The company reported a $72.2 million loss in 2024 on revenue of $171 million
Newsmax’s post-IPO valuation reached nearly $30 billion, exceeding Warner Bros. Discovery and Fox Corp despite much lower revenue

Newsmax stock experienced a dramatic reversal Wednesday, plummeting 77% to close at $52.71 after an extraordinary two-day rally that saw shares skyrocket by 2,550% following its initial public offering (IPO).

The conservative news network priced its IPO at $10 per share on Monday. Shares jumped immediately, opening at nearly $15 – an instant 50% gain.

The stock continued its meteoric rise, touching a high of $265 on Tuesday before Wednesday’s steep decline. This wild swing has left many investors and market experts bewildered.

Small Float Creates Meme Stock Dynamics

Market analysts attribute the extreme volatility to Newsmax’s limited share float – the number of shares available for public trading.

“Given that it’s got a small float, I think that makes it susceptible to these big moves and has that meme stock characteristic,” Paul Hickey, cofounder of Bespoke Investment Group, told Business Insider.

Only 7.5 million shares were offered in the IPO. This created a supply-demand imbalance when retail investors piled in.

The trading pattern mirrors other recent high-profile stocks with limited floats. When demand exceeds the available supply of tradable shares, prices can move dramatically in either direction.

“I wish I could offer some clarity here, but I can’t,” admitted Steve Sosnick, chief market strategist at Interactive Brokers, in a note to clients Tuesday.

Financial Performance Raises Questions

The extreme valuation appears disconnected from Newsmax’s financial reality. The company has yet to achieve profitability.

Newsmax reported a $72.2 million loss in 2024, worse than its $41.8 million loss in 2023. Annual revenue did grow from $135.3 million to $171 million during this period.

These losses have forced the company to raise capital to fund operations. Before the IPO, Newsmax raised $225 million through a convertible preferred stock offering.

The IPO brought in an additional $75 million. This ongoing need for cash has some analysts concerned about the company’s long-term prospects.

At its peak, Newsmax reached a market capitalization of nearly $30 billion. This valuation exceeded established media giants like Warner Bros. Discovery (owner of CNN) and Fox Corp (owner of Fox News), both valued around $25 billion.

This occurred despite Newsmax generating only $171 million in revenue compared to Warner Bros. Discovery’s $40 billion and Fox’s $14 billion.

Future Supply Concerns

Several factors could increase Newsmax’s share supply in coming months, potentially putting downward pressure on the stock price.

Company executives and insiders typically face a six-month lockup period following an IPO. When this expires, many may sell shares to capitalize on the high valuation.

Additionally, investors holding the $225 million in convertible preferred stock can eventually convert these shares to common stock at a 25% discount to the IPO price. Many may convert and sell to lock in profits.

The combination of these factors – continued losses, extremely high valuation relative to peers, and potential increase in share supply – creates a risky environment for investors.

Newsmax competes in the crowded right-leaning media space dominated by Fox News. Its ability to grow market share while moving toward profitability will likely determine long-term stock performance.

Wednesday’s dramatic decline may signal that the initial euphoria is wearing off as investors begin to assess the company’s fundamentals more critically.

For now, Newsmax joins the ranks of highly volatile stocks that appeal to risk-seeking investors willing to endure wild price swings in pursuit of rapid gains.

The coming months will reveal whether Newsmax can justify its premium valuation through improved financial performance or if Wednesday’s reversal marks the beginning of a return to valuations more aligned with its fundamentals.

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