Like any news-focused media company, Newsmax (NYSE: NMAX) centers its business on bad news. While many people say they prefer good news, bad news attracts viewers. Those viewers attract advertisers. And advertisers are Newsmax's primary revenue source.
However, Newsmax might not report much about the latest not-so-good news that affects its own business. Its share price has already fallen over 70% since the initial public offering (IPO) in March. Is Newsmax stock poised to plunge even more?
Newsmax's legal setback
Delaware Superior Court Judge Eric M. Davis ruled against Newsmax last week in a lawsuit brought Dominion Voting Systems brought against the company. Dominion alleged that Newsmax "published false and defamatory statements" about the voting technology company's role in the 2020 U.S. presidential election.
Both Newsmax and Dominion filed motions to the court requesting a summary judgment, where the judge decides the case without going before a jury. The Delaware judge denied Newsmax's motion while partially granting and partially denying Dominion's motion.
Judge Davis determined that Dominion's evidence presented in its case was "clear and convincing." In his written ruling, he granted Dominion's request for summary judgment by determining that Newsmax's on-air statements about Dominion's role in the 2020 presidential election were defamatory and false. However, he denied summary judgment for both parties on claims of malice by the other, leaving that issue for a jury to decide.
All of this might sound familiar. Judge Davis also presided over a lawsuit filed by Dominion against Fox News. The parties ended up settling before the case went before a jury, with Fox News agreeing to pay $787.5 million to Dominion.
How significant could a trial loss be for Newsmax?
Dominion is seeking $1.6 billion from Newsmax. The financial impact of a trial loss on Newsmax would be significant.
In 2024, Newsmax generated revenue of $171 million, with $130.7 million of the total stemming from its broadcast operations. The company posted a net loss last year of roughly $72.2 million. If Newsmax has to pay $1.6 billion for reporting false and defamatory statements about Dominion, it could take years for the company to recover financially.
With such a significant risk, would it make sense for Newsmax to settle with Dominion? Possibly. The company did take this approach with a similar lawsuit filed by Smartmatic, another voting system company. Newsmax agreed to pay $40 million to Smartmatic to settle the case.
How much might a potential settlement with Dominion cost? That remains to be seen, assuming Newsmax and Dominion can reach a settlement agreement. However, Dominion's lawsuit against Fox News could provide a ballpark answer. Dominion was asking for $2.96 billion from Fox News but settled for a little over one-fourth of that amount. Should Newsmax reach a similar settlement agreement with Dominion, it could still have to fork over in the ballpark of $400 million -- more than twice the news company's total revenue last year.
Is Newsmax stock poised to plunge even more?
At first glance, you might think all this bad news is already baked into Newsmax's share price. After all, the stock sank more than 30% following Judge Davis' ruling last week. However, I think Newsmax could plunge even more if it settles with Dominion for a hefty amount or, even worse, goes to trial and loses.
Importantly, Newsmax stock still trades at a price-to-sales ratio of over 17 even after its steep post-IPO decline. The company's revenue is growing robustly (jumping around 26% year over year in 2024), but not enough to support that kind of multiple.
Newsmax continues to attract plenty of viewers, with 33.6 million people watching the network in the first quarter of 2025. However, the most important number for investors is the bottom line. More bad news on the legal front for Newsmax could make that metric much worse. Usually, as the bottom line goes, so goes the share price.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
