Why Is Newsmax Stock Dropping Despite Soaring Viewership?
Newsmax (NYSE: NMAX) plummeted by more than 11% on Tuesday and is now nearly 70% lower than its initial public offering closing price from March 31. This significant drop occurs despite the conservative media company's swift expansion across cable, digital, and print platforms. Despite Newsmax experiencing a rise in viewership, ranking as the fifth most-watched cable channel and fourth among cable news networks, investors are growing more concerned about the company's poor financials, increased legal risks, and exorbitant valuation.
Newsmax's initial earnings report as a publicly-traded entity presents a mixed snapshot. In Q1 2025 (ending March), the firm reported $45.3 million in revenue, a 12% rise compared to the previous year (y-o-y) driven by expansion in its core segments: advertising, affiliate fees, and subscriptions. The channel also experienced a remarkable 50% increase in viewership, reaching 33.6 million for the quarter. Nevertheless, these gains in audience have yet to convert into profitability. Newsmax incurred a net loss of $17.2 million, or $0.49 per share, accompanied by an adjusted EBITDA loss of $1.2 million. This maintains a wider trend of financial underperformance, with full-year 2024 net losses increasing to $72.2 million from $41.8 million in 2023. With a present market capitalization of $2.8 billion, Newsmax is trading at a high price-to-sales ratio of 16.3, significantly above the broadcasting industry average of just 0.48. This significant valuation discrepancy has ignited investor doubt.
One of the most critical risks facing Newsmax is legal. The company is currently facing a lawsuit from Dominion Voting Systems, which claims Newsmax made defamatory allegations about vote manipulation during the 2020 U.S. election. A Delaware Superior Court recently determined that there is 'clear and compelling evidence' that Newsmax spread false claims. The case is now headed to a jury trial, with Dominion seeking $1.6 billion in compensation, an existential threat to a company whose total revenue in 2024 was only $171 million. While there's no assurance that such damages will be awarded, the impending uncertainty creates a considerable overhang for investors.
Newsmax has robust gross margins around 50%, but its current growth does not justify its valuation. With growing losses, legal exposure, and restricted financial capacity, the stock faces serious downside unless the company can grow profitably and address litigation.
Investing in a single stock can be risky. On the other hand, the Trefis High Quality (HQ) Portfolio, with a selection of 30 stocks, has demonstrated a history of comfortably outperforming the S&P 500 over the past 4-year span. What accounts for this? As a collective, HQ Portfolio stocks achieved superior returns with reduced risk compared to the standard index, with a smoother performance evident in HQ Portfolio performance metrics.
It should also be acknowledged that stocks can fall abruptly – 20%, 30%, or even 50% –as witnessed in previous market disruptions. No stock is exempt. Our dashboard How Low Can Stocks Go During A Market Crash demonstrates how key stocks performed during and after the last six market crashes.
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