Former President Donald Trump is set to lead a publicly traded company with the ticker symbol "DJT," named after his initials. The company is expected to have a valuation of over $5 billion, despite facing financial challenges with losses and minimal revenue.
Trump's new role as the head of a publicly traded company follows the approval of a merger between Digital World Acquisition Corp. (DWAC), a blank-check company or SPAC, and the Trump Media & Technology Group. After the merger, DWAC will be rebranded as Trump Media & Technology Group and could soon start trading under this new name.
Traditionally, investors seek companies with strong potential for returns, focusing on factors like profitability, revenue growth, dividends, and stock value appreciation. However, Trump Media's primary venture, Truth Social, a social media platform, is struggling to compete with established platforms like Facebook and "X" (formerly Twitter), facing challenges such as limited revenue and increasing losses as per regulatory filings.
Despite traditional financial indicators, investors in DWAC remain unfazed, with many supporters of Trump promoting the stock on Truth Social. One member of a Truth Social group dedicated to DWAC posted, "I am holding and not selling! I believe in TRUTH and MAGA," on Friday morning.
According to Kristi Marvin, CEO of SPACInsider.com, Trump Media & Technology Group's financial standing would typically not justify a $5 billion valuation. However, the stock is not trading based on traditional financial metrics like revenue and profit. "This has never traded on fundamentals, and I don't expect it to, going forward," Marvin told CBS MoneyWatch. "This is almost like a barometer for Trump and how he's doing in the election."
Marvin highlighted that the majority of DWAC shareholders are retail investors, distinguishing them from institutional investors. She described DWAC, and its upcoming transformation into Trump Media, as a "retail meme stock."
Meme stocks and SPACs
Special Purpose Acquisition Companies (SPACs) are entities formed to take private businesses public without an initial public offering. In 2021, DWAC announced its merger plans with Trump's media group, causing Digital World shares to surge by over 800%. This move drew comparisons to meme stock phenomena like GameStop. SPACs had been gaining significant attention from small investors, particularly after receiving endorsements from celebrities and investors.
Exciting News for DWAC Stock Owners!
Exciting news for investors who own DWAC stock! A regulatory filing has revealed that they will receive one share of the new company for each share of DWAC they owned. This means that after the merger, the new business could potentially have a valuation of $5.4 billion, considering DWAC's current price and approximately 136 million shares outstanding.
Furthermore, the new company, Trump Media & Technology Group, will see former President Donald Trump serving as chairman and owning about 58% of the company. This would value his stake at an impressive $3.5 billion.
However, it's important to note that the stock price of the newly merged company may fluctuate post-merger. Some early investors might sell their stock, leading to a potential decrease in price. As financial analyst Marvin pointed out, this could result in a turnover of original shareholders.
Despite this, the merged company is expected to attract individual investors, with some institutional investors possibly staying away due to political concerns and other issues, Marvin added.
Key Risks to Consider
Investors should be aware of the risk factors associated with Trump Media & Technology Group. The company, a budding social media business, reported revenue of $3.3 million for the first nine months of 2023. As with any investment, risks such as bankruptcy, failure, and legal issues should be carefully considered.
But similar to many other tech startups, Trump Media is bleeding money, with its losses totaling $49 million during that same period last year. Nonetheless, a company's financial challenges do not always hinder it from achieving a high public valuation, as evidenced by the case of money-losing Reddit, whose recent IPO resulted in an $8 billion market cap.
As of February this year, Truth Social had approximately 5 million active members — encompassing both mobile users and website visitors, according to estimates from research firm Similarweb. Truth Social does not publicly disclose its user numbers.
In comparison, TikTok boasts 2 billion users and Facebook 3 billion. Nevertheless, within the "alt-tech" sector, Truth Social outperforms competitors like Parler, which recently made a comeback to Apple's app store after over a year of being offline, and Gettr, which had fewer than 2 million visitors in February.
The critical question is whether Truth Social can increase its revenue by enticing new advertisers to a platform that critics argue is solely centered on Trump's persona and conservative viewpoints. Expanding its user base will be crucial to its prosperity, as outlined in risk factors detailed in a regulatory filing related to the merger.
However, financial risks are not the sole concern for the business, as highlighted in the filing. Other risks include the potential "death, incarceration, or incapacity" of Trump, as well as Trump's track record with some of his previous ventures, such as the bankruptcy of the Trump Taj Mahal in 1991 and the bankruptcy of the Trump Hotels and Casinos Resorts in 2004, among other bankruptcies.
According to recent filings, several companies linked to former President Trump have declared bankruptcy. The filing raises concerns about the possibility of Trump Media & Technology Group also facing a similar fate.
