BREAKINGVIEWS-Newsmax mini-IPO foments financial delusions

By Jennifer Saba

NEW YORK, April 7 (Reuters Breakingviews) - Newsmax NMAX.N is being anchored by some misconceptions in the market. The popular, but unprofitable, cable news network debuted on the New York Stock Exchange amid last week’s market rout, and after some wild swings is now valued at a generous $6 billion. In the context of what’s happening across the industry and in stock trading worldwide, it seems to be feeding off meme-like obsessions that distort financial reality.

Started as an online publication in 1998 by Christopher Ruddy, a friend of U.S. President Donald Trump, Newsmax unveiled a broadcast outlet 16 years later. It crows about being the fourth most-watched cable news channel last year, with 50% audience growth in the first quarter from a year earlier, to about 34 million. It has been helped by Trump’s seal of approval and a conservative perspective that challenges Rupert Murdoch’s Fox News.

Revenue jumped to $171 million last year, a 26% increase from 2023. Newsmax benefited from higher fees paid by cable operators to carry the network. It is losing money, however, and embroiled in legal scandal. Losses widened last year to $72 million from $42 million, after settling allegations that it defamed voting technology company Smartmatic. A similar case with Dominion Voting Systems, which is seeking $1.6 billion in damages for being falsely accused of rigging the 2020 presidential election, remains active.

After going public by way of the uncommon Regulation A+ offering, or mini-IPO, designed for raising smaller sums and which requires less disclosure, its shares took a wild ride. They sold at $10 apiece, soared beyond $200 and have settled back around $50. Despite the volatility, exacerbated by U.S. tariffs, the outcome has been better than for many other recent equity issuers, including cloud services provider CoreWeave and cybersecurity company SailPoint Technologies, which are in far hotter sectors.

Even more curious, Newsmax is being valued at an eye-popping 30 times sales in an industry beset by cord-cutting and struggling business models. Its first-day pop implausibly made it worth more than $22 billion Fox FOXA.O. The New York Times NYT.N, worth $8 billion, has 11 million digital subscribers who help the company generate nearly twice as much annual profit as Newsmax has revenue. Ruddy’s network may be a rare media growth story, but it is being infused with alternative investment facts.

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CONTEXT NEWS

Cable news outlet Newsmax said on April 7 that its total audience increased 50%, to nearly 34 million viewers, in the first quarter from a year earlier, citing Nielsen data.

Newsmax began trading on the New York Stock Exchange on March 31, raising $75 million using an alternative public offering method for smaller companies known as Regulation A+.