Donald Trump's loss-making Truth Social surges to nearly $8B valuation, Internet says 'this doesn't end well'

PALM BEACH, FLORIDA: Truth Social, a social networking platform launched by former President Donald Trump, has gained significant attention in the financial world after achieving a jaw-dropping valuation of $8 billion following its public listing this week.

However, despite this impressive figure, SEC filings reveal that the platform generated only $3.4 million in revenue during the first nine months of 2021 and incurred losses of $49 million, according to DailyMail.

To put this in perspective, the average sales of a McDonald's restaurant is around $3.6 million. As such, the valuation of Truth Social's parent company, Trump Media, which trades under the ticker DJT, is approximately 2,000 times higher than its annual sales, making it one of the most overvalued companies currently trading on the Nasdaq.

While price-to-sales ratios vary across industries, top tech stocks like Nvidia, Reddit, and Meta typically have ratios of 38, 13, and 10, respectively, according to CNBC.

Therefore, the valuation of Truth Social's parent company appears to be significantly higher than industry norms, raising concerns about the platform's long-term viability.

A 'meme stock' in the making

The substantial valuation of Trump Media has garnered considerable attention from experts who have dubbed it a "meme stock".

This term refers to a stock whose value is influenced not by the company's performance but rather by the hype and sentiment surrounding it.

Despite a 6% dip in shares on Thursday, which brought the value down to $62.09, Trump Media's stock remained significantly higher than it was the previous week.

With a personal stake of approximately 58%, Donald Trump's holdings are estimated to be worth around $5.2 billion at current market prices.

This valuation has also propelled him to the Bloomberg Billionaires Index's top 500 wealthiest individuals.

However, while the shares could potentially serve as a vital resource to fund the former POTUS' mounting legal expenses, accessing them may prove to be quite the challenge.

The future sustainability of Trump Media's substantial valuation is now in question, and the implications of its continued growth or decline are uncertain.

Why are Trump Media shares surging?

Trump Media is valued at $8 billion due to its shares trading at around $60, with approximately 135 million outstanding.

The primary asset of Trump Media is Truth Social, a social networking platform that was launched following the events of January 6th, 2021, when the 77-year-old MAGA strongman was removed from Twitter.

However, the value of Trump Media shares is not based on the platform's unique or promising business model.

The venture has proven to be largely unsuccessful, with only five million active monthly users, in stark contrast to Elon Musk's X (formerly known as Twitter), which boasts over 550 million users.

Truth Social has become a platform for the former President of the United States to issue statements and broadcast video messages to his followers, rather than aim to be a thriving social media platform.

The current interest in Trump Media indicates a fascination with the former President and his ability to capture the attention of his base.

However, from a business perspective, the future of the company remains uncertain. Given the lack of success of Truth Social, investors may question the long-term profitability of the enterprise.

Jordan Libowitz of Citizens for Responsible Ethics in Washington stated, “Truth Social also has missed its projected user base by an order of magnitude. It's not a successful company. It's not a company that seems to have a plan for success for making money.”

“It's just essentially just a meme,” Libowitz remarked.

What exactly constitutes a 'meme stock'?

The rise of "meme stocks" into the public consciousness in early 2021 was largely due to the meteoric ascent of video game retailer GameStop, whose shares surged by over 1,800 percent.

This unprecedented rally was not fueled by the company's financial performance, but rather by social media-driven virality.

The catalyst behind the surge was the Wall Street Bets online investing community, which is hosted on the popular social media platform Reddit.

This group is known for its fervent support of certain companies, frequently buying and holding their shares regardless of market conditions.

While some investments are made for ideological reasons, many are driven by a desire to make a quick profit.

GameStop held special significance for members of the Wall Street Bets community, who viewed the ailing retailer as a nostalgic reminder of their youth.

At the same time, its soaring stock price presented a lucrative opportunity to make money.

Similarly, investors in DJT, the relatively new media venture launched by former President Donald Trump, appear to be ordinary individuals rather than large institutional investors.

These buyers are a blend of people who wish to support the Trump brand, as well as those who believe that purchasing Trump Media shares now will allow them to sell them for a profit in the future.

For instance, some investors may anticipate that the stock will rally if Donald Trump is re-elected as US president later this year.

On the Wall Street Bets online forum, the phrase "Pump and Trump" is currently trending.

“It's not really Truth Social, they're investing in a potential future president of the United States,” Libowitz clarified, adding. “His net worth becomes controlled by whether people are buying or selling stock.”

In essence, the trend of meme stocks and their associated investing communities highlights the intersection of social media, investing, and popular culture.

Can Trump get a piece of the surge in his capital?

Donald Trump, the 2024 presumptive GOP presidential nominee is a majority shareholder, owning nearly 60% of the shares of Trump Media.

However, his ability to liquidate and access the substantial amount of money associated with this shareholding is restricted.

For six months following the issuance of the shares, the former president is prohibited from selling his stake due to regulatory rules enacted by the Securities and Exchange Commission (SEC).

These rules aim to instill investor confidence that significant shareholders will not suddenly abandon their investments.

Nevertheless, there exists one condition that could permit the waiver of the six-month rule with the approval of Trump Media's board.

This board comprises three members, namely, Donald Trump Jr, Linda McMahon, and Robert Lighthizer, two of whom are former Trump administration officials.

Another possibility for the former president is to borrow against the substantial value of his shares, but potential lenders may not be entirely convinced that Trump Media will retain its present value going forward.

Finally, the former president may be able to sell specific assets, such as Mar-a-Lago, to Trump Media, which was suggested in a Wall Street Journal financial column.

Dan Davies, a financial analyst and author of 'Lying For Money' told the outlet, “Buying assets from the founder (of a company) is one of the things that's very hard to guard against.”

Internet reacts as Truth Social shares soar in their valuation after recently being listed publically

People on X shared their reactions and opinions regarding the skyrocketing of Trump Media shares to $8 billion valuation.

One X user remarked: "It’s going to be the most ridiculous pump n dump ever."

Another user argued: "Amazon lost billions before turning a profit. Most tech startups lose money."

Another user said: "The grift never ends."

One user wrote: "Pump and dump."

Finally, this user tweeted: "Revenue of $3.5 million and lost $75 million. A medium Restaurant has bigger revenue."

Another said, "This doesn't end well."

A user said, "It's worthless."

 

This article contains remarks made on the Internet by individual people and organizations. MEAWW cannot confirm them independently and does not support claims or opinions being made online.