Spring 2023: Microsoft and Rumble

Deal Team

Noah Kohn

• From: Detroit, Michigan

• Indiana University, Kelley School of Business | 2026

• Majors: Finance & Business Analytics

Rohan Kottamasu

• From: Marlboro, NJ

• Indiana University, Kelley School of Business | 2026

• Major: Finance & Entrepreneurship

Presentation Agenda

Executive Summary

Microsoft Situation Overview

• Microsoft is a technology company that provides software, services, devices, and solutions to empower individuals and organizations worldwide.

• Their focus on building the intelligent cloud, combined with their existing offerings in cross-device productivity applications, positions them well to acquire and integrate companies outside their portfolio.

Rumble Situation Overview

• Founded in 2013 by Chris Pavlovski, Rumble is an alternative to YouTube for independent content. It aims to provide more inclusivity and autonomy to small content creators who felt neglected by YouTube's prioritization of influencers.

• Rumble, an alternative video platform for independent content creators, has seen a remarkable 142% YoY growth in Q4 of 2022, reaching a record-high 80 million monthly active users.

• Rumble's audience is predominantly from North America, with limited growth in the international market, however their looser content policies compared to competitors make them a promising platform in the video market.

Industry Highlights

• Pay-Per-View Industry : Many businesses have started to concentrate on increasing their services in the live streaming pay-per-view industry. Furthermore, live workshops and seminars led by various educators have adopted live streaming and pay-per-view platforms, which drives the market’s growth at a CAGR of 4.88%.

• Content Creation Industry : An increasing adoption of cloud solutions in EU and NA, and ongoing innovations and technological advancements are meeting users’ expectations for high quality video content , improved performance , and better security driving market growth at a CAGR of 9.48%.

• RUM meets Microsoft’s top priorities by furthering innovation in the entertainment sector and boosting engagement within their existing suite of services.

• Complements Microsoft’s recent investments in artificial intelligence and creates a foothold in the video content market to help compete against major players like Google and Facebook.

• Great natural transition as users dissatisfied with YouTube’s increasingly stricter policies are seeking a new streaming platform.

• Very relevant synergies expected in Sales & Marketing, Cloud Computing, Technology and Data Analytics.

• Based on MSFT's current situation, FIR is recommending the acquisition of Rumble Inc. for a purchase price of $3.05B, which translates to a $9.84 per share offer at a 20% premium (all cash transaction).

FIR Recommendation Rational for Microsoft : Rumble Acquisition

Presentation Agenda

Pay-Per-View Industry Overview

Worldwide Total Pay-Per-View Sales (2017-2028)

• Revenue in the Pay-perView market is projected to reach US $2.28bn in 2023.

• Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 4.88%, resulting in a projected market volume of US$2.76bn by 2027.

• In global comparison, most revenue will be generated in the United States

• The average revenue per user in the Pay-per-View market is projected to amount to US$23.47 in 2023.

• In the Pay-per-View market, the number of users is expected to amount to 106.00m users by 2027.

• User penetration will be 28.8% in 2023 and is expected to hit 30.8% by 2027.

Average Revenue Per User (2017-2027)

Digital Content Creation Industry

Worldwide Digital Content Sales (2017-2027)

• Revenue in the Digital Content market is projected to reach US$95.35bn in 2023.

• Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 9.48%, resulting in a projected market volume of US$137.00bn by 2027.

Average Revenue Per User (2017-2027)

• In the Video Streaming market, the number of users is expected to amount to 1.64bn users by 2027.

• User penetration will be 16.9% in 2023 and is expected to hit 20.6% by 2027.

Presentation Agenda

Rumble Overview

Business Overview

• Rumble was founded in 2013 as an alternative to YouTube for independent content creators. Pavlovski founded the platform after seeing that Google was prioritizing influencers on YouTube and not small content creators.

• It enables content creators to manage, distribute, and monetize their content by connecting them with brands, publishers, and directly to their subscribers and followers. Rumble is a free-to-use video sharing platform where users can watch, share, like, comment, and upload their own videos.

• Has one subsidiary: Locals Technology Inc.

o Locals Technology Inc : Video sharing platform acquired by Rumble October. 2019

Stock Performance

• October 2021: Rum completed the acquisition of Locals Technology, Inc. for $7 million.

• January 2022: Rumble Announces Investment to Create Independent Payment Processor- Puts creator’s first.

• September 2022: Rumble Completes Business Combination with CF Acquisition Corp. VI - Rumble Stock To Begin Trading Under Symbol RUM.

• March 2022: Rumble Launches Monthly Subscriptions providing additional monetization opportunities.

Anticipated Catalyst

• Leveraging its expansive user base: Rumble Inc. is poised to enhance its revenue streams by capitalizing on its wide-ranging audience through the introduction of a new advertising platform, as well as the expansion of its cloud computing services.

• Leveraging its expansive user base: Rumble Inc. is poised to enhance its revenue streams by capitalizing on its wide-ranging audience through the introduction of a new advertising platform, as well as the expansion of its cloud computing services.

• Enlisting additional content creators: Rumble's unique approach has the potential to attract a significant influx of creators to its platform, leading to higher levels of user engagement and revenue generation.

• Enlisting additional content creators: Rumble's unique approach has the potential to attract a significant influx of creators to its platform, leading to higher levels of user engagement and revenue generation.

• Pursuing global expansion: Rumble's ambitious plans to broaden its platform beyond its current presence in Australia, Canada, France, Italy, and the U.K. present an opportunity for the company to tap into new markets and achieve sustained growth.

• Pursuing global expansion: Rumble's ambitious plans to broaden its platform beyond its current presence in Australia, Canada, France, Italy, and the U.K. present an opportunity for the company to tap into new markets and achieve sustained growth.

Presentation Agenda

Strategic Rationale

Goals

• Utilizing existing AI technologies to facilitate effective communication and strengthen their competitive position within industries.

• Further innovate in the gaming industry to create new gaming experiences that bring people together and pushing the boundaries of entertainment

• Increase their market share in the PC industry, and boost engagement with their suite of services, including Microsoft 365 Consumer, Teams, Edge, Bing, Xbox Game Pass, and more.

Source: Microsoft Investor Relations

316%

Growing Users: 61% increase in users from the second quarter to the third quarter of 2022.

Growth in Revenue FY22

Merger Catalysts

Strong Balance Sheet :

Total debt: 1.4m

Total Equity: 339m

• The Growth of Online Video: The online video market is expected to grow at a CAGR of over 18.4% by 2030, driven by increased consumption of video content across all demographics. This growth represents a significant opportunity for Microsoft to expand its presence in the market through the acquisition of Rumble.

• Increased Adoption of AI and Machine Learning: The adoption of artificial intelligence and machine learning is expected to accelerate in the coming years, particularly in the areas of content recommendation and personalization. Microsoft could leverage Rumble's platform to accelerate its own development of AI and machine learning technologies, providing a competitive advantage in the online video market.

Valuation

• Our offer of $9.84 per share for Rumble Inc. represents a discount of 38.7% to our estimated DCF valuation of $16.01 per share.

Strategic Recommendation – Hard Synergies

Synergies Description

• Sales Optimization: Microsoft's partner network would provide Rumble with access to valuable resources and expertise related to sales and marketing, which could help them streamline their processes and reduce costs associated with inefficiencies or errors.

Sales & Marketing

• Self Promotion: Leveraging Rumble's existing userbase (80 million) will provide Microsoft with a cost-effective way to promote their products / services to a wider audience, cutting down on the "direct" segment of their marketing and distribution channels. (OEMs, Direct, Distributors & Resellers).

Data Analytics Technology

Global Infrastructure

• Market Insights: Using Rumble’s data analytics, Microsoft will be able to identify new market opportunities and predict consumer trends, helping them make more informed investments and avoid mistakes.

• Personalization: Rumble’s data analytics could help improve Microsoft’s understanding of customers’ preferences / behavior.

I. i.e., Helping them enhance the accuracy of search results on Bing, reducing costs associated with user dissatisfaction and increased support inquiries.

II. i.e., Relevancy of advertisements on LinkedIn, Xbox, and related products reducing the number of wasted ad impressions and clicks, leading to cost savings.

• Serverless Infrastructure: By leveraging Microsoft Azure's serverless computing technology can enable Rumble to reduce its operational expenses by only paying for the compute power it uses. This will help Rumble optimize its infrastructure costs, leading to significant cost savings.

• Third-Party Costs : By integrating RUM's video processing technology into MSFT's Teams and Skype platforms, the companies could potentially reduce their reliance on third-party software and services resulting in substantial cost savings.

• International Expenditure : RUM's international operations currently generate around 5% of its revenue, and by leveraging MSFT's global infrastructure and supply chain capabilities, the companies could reduce international operating costs.

Strategic Recommendation – Soft Synergies

Synergies Description

• Personalized recommendations: Microsoft's AI technology could analyze user data and viewing habits on Rumble to provide personalized recommendations for content, which could increase engagement and user retention on the platform.

Artificial Intelligence

• Ad targeting: Microsoft's AI could use data analytics to target relevant ads to specific audiences, improving the effectiveness of Rumble's advertising and increasing revenue.

• Data monetization: Microsoft's AI could help Rumble monetize its data by providing insights to advertisers or other companies looking to analyze user behavior on the platform.

Cloud Computing

• Scalability: Azure's cloud computing technology could provide Rumble with the scalability needed to handle increased traffic and user demand, allowing Rumble to grow its user base and generate more revenue.

• Azure Marketplace: Rumble could leverage Azure's marketplace to offer its services to other businesses, which could open new revenue streams for the platform. For example, Rumble could offer its video hosting and streaming services to other businesses that need to stream video content on their own platforms.

Experience

• eSports Capabilities : RUM’s platform could be leveraged through MSFT's presence in the gaming industry. With the global esports market expected to grow to $1.5 billion by 2023, a 5% market share could result in a sales increase.

• Partnerships and Relationships : Using MSFT existing content creators, RUM's content library could be expanded, potentially increasing revenue from advertising and subscription-based services.

Culture

• In an official Microsoft Blog, it stated “Microsoft is committed to protecting and advancing free expression throughout the world.” Acquiring Rumble could help Microsoft enhance its relationship with this customer segment as well as employees and potentially draw in additional individuals who align with these principles.

Presentation Agenda

Competitive Landscape

Comparable Companies Analysis

Implied Valuation

• Due to RUM’s unprofitability in the last twelve months, we decided to use Price/Cash and EV/Cash to value the company at today’s prices.

• We believe EV or P/Cash is an attractive valuation multiple since it shows what share of the company’s enterprise or equity value is worth in cash.

• Based on the average or median P/Cash or EV/Cash, RUM is significantly undervalued in comparison to its peers, respectively.

Implied Valuation

Discounted Cash Flow Valuation

Discounted Cash Flow Analysis

Rumble Inc. (NASDAQ: RUM)

(All $ in USD Millions, except per share data)

Sources: SEC Filings & Cap IQ

WACC & Sensitivity Analysis

Football Field

Football Field Analysis

52-Week High/Low

DCF Valuation at 10-30x Exit Multiple Range at 11.4% WACC

Wall Street Analysts

Comparable Companies Based on High EV/Cash (40.1x) to Low EV/Cash (4.1x)

Comparable Companies Based on High P/Cash(25.4x) to Low P/Cash (4.8x)

Presentation Agenda

Strategic Alternatives

Company Description

Business Summary

• The company develops social video broadcast and communication platforms that allow users to easily stream live videos and audio, create short videos, and connect with others.

Strategic Rationale

• Acquiring BIGO would offer Microsoft an incredible opportunity to tap into a vast consumer base of 400 million users.

Rationale Against Alternative

• Due to concerns over content moderation and user privacy, BIGO has faced regulatory scrutiny and bans in some countries, which could potentially expose Microsoft.

• BIGO's revenue model based on virtual gifts and in-app purchases may not fit well with Microsoft's existing business model and monetization strategies.

Business Summary

• Video sharing platform intended to help video-makers to share their world and connect with the audience. The company offers a mix of professional content, and contextual advertising and pays content producers.

Strategic Rationale

• Acquiring Dailymotion could help Microsoft expand its video streaming presence in different countries and regions, with Dailymotion's global audience and strong presence in Europe. This could provide Microsoft with access to new markets and audiences and help the company diversify its revenue streams beyond North America.

Rationale Against Alternative

• Despite prioritizing user-generated content, Daily Motion has faced challenges in setting itself apart from other video sharing platforms, which has limited its ability to capture a significant share of the market.

Business Summary

• Vimeo is a video sharing platform that caters to businesses and creators, offering premium features and services for a subscription fee. It competes with larger platforms like YouTube but stands out for its focus on quality and appeal to creative professionals.

Strategic Rationale

• Microsoft could leverage Vimeo's cloud-based video hosting and management service to complement its existing cloud infrastructure services, like Microsoft Azure. This could create a comprehensive solution for businesses looking to build their own streaming platforms.

Rationale Against Alternative

• Microsoft already offers video hosting and sharing services through platforms like OneDrive and Stream. Acquiring Vimeo may lead to overlap in services and redundancies in offerings.

• The acquisition of Vimeo may not be financially viable due to its high acquisition cost.