For the first time in nearly 30 years, a portion of Donald Trump’s business empire is going public. Trump Media & Technology Group, the owner of Truth Social, a struggling social media platform, is set to become a public company with an estimated valuation of around $9 billion. Despite the high valuation, experts warn that this price tag is not grounded in reality. Shares of Digital World Acquisition Corp., the shell company merging with Trump Media, have surged nearly 200% this year, reaching a closing price of nearly $50 on Monday.
It is noted that Trump Media is burning through cash, accumulating losses, and losing users on its main product, Truth Social. Finance professor Jay Ritter believes that the company is likely worth around $2 a share, far below its current implied stock price of $50. The high valuation leads to a substantial windfall for Trump, who owns a significant stake in the company. However, restrictions may prevent Trump from selling or borrowing against these shares in the near future. Despite generating low revenue and high losses, the market values Trump Media at approximately $9 billion.
Truth Social faces numerous challenges and is significantly overshadowed by its competitors in terms of user numbers. The platform had fewer monthly active users compared to Twitter and Facebook, with user numbers declining significantly year-over-year. Trump Media’s valuation has been described as a “meme-SPAC” due to its astronomical value and the method by which it was created through a SPAC merger. The company’s stock price is seen as a bubble by some experts, with the potential risk of a rapid decline.
Investors are advised to exercise caution when trading Trump Media due to the high implied volatility. The company is tightly linked to Trump’s personal reputation and legal issues, as well as his history of bankruptcies. The potential lifting of lock-up restrictions on key insiders could affect the company’s share price. Trump Media will need to navigate challenges related to expanding its user base, increasing advertising revenue, and developing a subscription service in a politically polarized environment.
The public offering of Trump Media is seen as a multi-billion dollar bet on a potential second term for Trump, with the belief that Truth Social could become a primary means of presidential communication in that scenario. While the stock price may continue rising in the short term, experts warn that valuations based on fundamentals are likely to prevail in the long run, potentially leading to a significant drop in share price. Trump Media’s reliance on Trump as a key figure and the uncertain legal and financial risks associated with him could impact the company’s future prospects.
