Why Newsmax Stock Fell by Nearly 21% in May

Newsmax (NYSE: NMAX), the media stock that rocketed higher in early April just after it landed on the stock exchange and then sank, continued to cool down the following month. Across May its share price tumbled by almost 21%, mostly because of an announcement the company made as the month was winding down.

Feels like a fire sale

On the final Thursday in May, Newsmax divulged that the Securities and Exchange Commission (SEC) had granted approval for a potential mass sale of its Class B common stock by a group of shareholders. The company is effectively unlocking up to nearly 121.3 million of these shares, owned by quite a long list of both individual and institutional investors.

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Class B common stock is the company's equity that trades on the Nasdaq, and the number of shares that could potentially change hands is well larger than the current level of shares outstanding (89.6 million, according to data from Yahoo! Finance). Even if a relatively small portion of the released total were to be sold, the effect could be extremely dilutive.

Shareholder dilution is a major fear of any investor, particularly one that puts money into a relatively new stock. Newsmax has had a very brief life on the market, having made its debut on the Nasdaq March 31, just after the company's initial public offering (IPO).

Investors accentuated the negative

Investors might have been more forgiving, had Newsmax not posted a significant bottom-line loss in its first earnings release as a publicly traded company.

Its deficit for the first quarter was over $17 million, and although that was far narrower than the nearly $51 million loss in the same period of 2024, it was still eight figures in the red. It was also chunky compared with overall revenue, which rose almost 12% year over year to $45.3 million.

This isn't to say that Newsmax's May was completely soggy; its negative news simply obscured the positive developments in the business. One was its signing of a multiyear deal to have top video streamer Hulu carry it for its Hulu+ Live TV service, which should help boost the Newsmax viewer base. Another was its announcement that it had surpassed 20 million followers across its social media sites.

Since Newsmax is early in its life as a stock, many investors are still judging how best to value it -- and whether it's a buy. Given the volatility and the fact that its overall business is relatively new too, I'd stay on the sidelines until we get a better idea of its ultimate potential.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.