Source: YouTube

For a moment this week, Newsmax stock looked like the next GameStop. The conservative news outlet’s public debut triggered a 2,230% rally in just two days, with shares soaring from $10 to over $233. At its peak, Newsmax had a larger market cap than Fox Corp and Warner Bros. Discovery. Then came the crash. On Wednesday, Newsmax stock plummeted 77.5%, erasing billions in market value and reminding retail traders that hype isn’t the same as value.

The stock’s epic rise was fueled by small investors who saw Newsmax as a political media alternative with explosive upside. Many dubbed it the “new GME,” referencing the meme stock that rocked Wall Street in 2021. But unlike GameStop, Newsmax didn’t have a retail army to hold the line. As the buzz cooled and sell orders piled in, the stock collapsed. Within hours, it lost more than $15 billion in value.

Why the Crash Was Inevitable

The warning signs were there from the start. Newsmax went public through a Regulation A offering, a shortcut that lets companies bypass some SEC requirements and sell directly to retail investors. That route is less transparent and often riskier. The company sold just 7.5 million shares, making its float tiny. With limited supply and huge demand, the price exploded. But insiders can’t sell their shares yet due to lock-up restrictions. Once those expire, more shares will hit the market, likely sending the stock lower again.

Worse still, Newsmax is burning through cash. The company posted a $72 million loss last year despite growing revenue. Legal costs from defamation lawsuits, including a $40 million settlement with Smartmatic and an ongoing $1.6 billion case with Dominion Voting Systems, are also weighing it down. Meanwhile, Warner Bros. Discovery and Fox, which Newsmax briefly surpassed in value, are highly profitable companies bringing in tens of billions in annual revenue. Newsmax pulled in just $171 million last year. Its valuation of over $30 billion made no financial sense.

A Political Boost Meets Market Reality

There’s no question Newsmax is a rising star in conservative media. Its ratings are up with Donald Trump back in office, and its alignment with his messaging makes it a favorite among his supporters. Newsmax CEO Chris Ruddy, a longtime friend of Trump, saw his paper wealth soar into the billions when the price of Newsmax stock peaked. However, even Ruddy knows that political buzz doesn’t guarantee business performance.

Analysts warn that meme-like rallies based on hype rarely last. Ruddy’s media company still trails Fox News in ratings and reach, and many believe the stock has a long way to fall before it matches its true value. Even after the crash, Newsmax stock remains over 1,000% above its IPO price. That leaves a long drop for anyone who bought near the top.

Adding to the pressure is dilution. Newsmax raised $225 million before its IPO through convertible preferred stock. Those shares can be turned into common stock at a 25% discount and will likely flood the market once unlocked. This means more supply, lower prices, and even greater risk for anyone holding the stock today.

What Comes Next for Newsmax Investors

For some investors, the ride isn’t over. The company still plans to invest in programming, digital streaming, and expansion efforts. It is currently the fourth most-watched cable news outlet in America. But staying in that spot requires funding, and Newsmax will likely need to raise more money in the future. That means selling more stock, which adds even more dilution.

For now, many early buyers are still sitting on large paper gains. But the window to cash out is shrinking. The same retail traders who cheered the stock’s rally have mostly gone silent. Trading activity has slowed, and buy orders have dropped off across major platforms. This is the part of the meme stock cycle where momentum fades, and reality kicks in.

Newsmax was pitched as the next big Trump trade. It still might be. But if recent history tells us anything, traders who chase hype without looking at fundamentals usually pay the price.

 Loading ...