Donald Trump's social network, Truth Social, debuted on the stock market Tuesday, swiftly reaching a valuation of nearly $8 billion, marking a 15% increase from its initial public offering (IPO) value.
The following day, shares continued to surge, climbing 14% in volatile trading and pushing its valuation to $9.6 billion. However, this meteoric rise has sparked questions, particularly regarding its staggering valuation.
How can Donald Trump’s loss-making Truth Social be worth $9bn? https://t.co/XEE2ZdZvsp
— Guardian Australia (@GuardianAus) March 27, 2024
The company, officially known as the Trump Media & Technology Group Corp, operates under the stock ticker DJT, also the founder's initials.
Its valuation is determined by multiplying the value of individual shares by the total number outstanding, a figure commonly referred to as market capitalization.
Typically, market capitalization is tethered to a company's financial performance, including revenue, profitability, and growth trajectory.
In the case of Truth Social, financial metrics paint a less optimistic picture. The company reported meager revenue of $3.3 million from advertising during the first nine months of the previous year, coupled with a significant loss of $49 million.
Despite these underwhelming fundamentals, investor enthusiasm remains robust, prompting speculation about the disconnect between valuation and reality.
This phenomenon is not entirely unprecedented and is often attributed to speculative bubbles. Truth Social appears to be emblematic of a more recent trend known as the "meme stock."
Coined to describe stocks favored by private retail investors, meme stocks garner attention and investment through coordinated efforts on social media platforms like Reddit.
While Truth Social shares similarities with meme stocks like GameStop, AMC, and Hertz, its investor base diverges in motivation.
Unlike investors seeking financial gain, many Truth Social shareholders view their investment as a means of supporting former President Trump. This distinction aligns Truth Social more closely with non-fungible tokens (NFTs) and cryptocurrencies, where sentiment and allegiance play significant roles.
The looming question for many observers is whether Truth Social's IPO will enable Trump to monetize his newfound wealth, especially for his legal expenses. While IPO agreements stipulate a six-month holding period for insiders, the company's board of directors, including Trump allies, retains the authority to override this requirement or explore alternative arrangements.
Despite its initial popularity, the path to profitability for Truth Social appears uncertain, particularly with the emergence of competing platforms and shifting online dynamics in the heated election year as Trump seeks a comeback bid for the White House.
