Is Truth Social really worth billions? Financial experts weigh in on Trump’s media site

Former President Donald Trump’s net worth ballooned by several billion dollars following a merger that took Truth Social public, making the social media site among his most profitable investments of all time.

The site’s parent company, Trump Media & Technology Group, was approved to merge with Digital World Acquisition Corp., a publicly traded company, on March 22.

On March 26, the new company began trading on the Nasdaq under the ticker symbol “DJT” at around $50 per share, putting its market value near $6.8 billion. Trump, who founded Truth Social in 2022 and is the majority owner of the new company, has a stake worth about $3 billion.

But financial experts caution that the company is dramatically overvalued and likely to see its share price drop, meaning it could be one of the worst investments for stockholders.

“It’d be hard to see why a rational investor would want to invest in this company,” Brian Dunn, a lecturer of corporate governance at Cornell University, told McClatchy News.

A representative for Truth Social did not immediately respond to a request for comment from McClatchy News.

‘Meme stock’

The actual value of the new company is likely around $2 per share, more than 90% below its current share price, Jay Ritter, a finance professor at the University of Florida, told McClatchy News.

“Trump Media is having trouble generating both advertising revenue and paying subscribers,” Ritter said. “As a result of the (recent) merger, it has about $2 in cash per share.”

The company generated less than $5 million in revenue in 2023, and lost money. At its current valuation of close to $10 billion, the price-to-sales ratio is over 2,000. By comparison, Meta’s price-earnings ratio is 34, Cristian Tiu, a finance professor at the University of Buffalo, told McClatchy News.

So, why is its valuation so high given its relatively meager revenue?

“Because Truth Social users help the frenzy, in part, so in that sense it is a meme stock,” Tiu said.

“My own personal opinion is it has to be a bit of a meme stock,” Dunn said. “It’s clear that the underlying assets don’t justify the price.”

Meme stocks are investments that become popular despite having little to no intrinsic value.

GameStop and AMC became well-known examples of this phenomenon, when a group of investors — largely based on Reddit — drove up their share prices in 2021. Their aim was to cripple large funds that were betting against the companies.

For Truth Social, it is Trump’s avid supporters who are driving up the price, Tiu said.

“Buy Baby Buy!” one user wrote on the platform March 21. “Truth Social is our voice make it happen if you can afford a few more shares.”

“Wake Up Patriots…#DJT Day,” another user wrote March 22. “Rise and Buy!”

“If Mr. Trump has a large supporter base who wants to buy stock and hold it for sentimental reasons, these shares can have a high valuation even though the company produces nothing,” Tiu said. “It is like holding baseball cards in a sense.”

Just how long the company can retain its current multi-billion dollar valuation is a matter of some debate, according to experts.

“The only question is when, not if, the share price will drop substantially,” Ritter said.

Pushing back, Dunn said it could prove to be less volatile than other meme stocks, like AMC and GameStop, which investors purchased knowing they had little value.

“I think this is slightly different,” Dunn said. “I think people are buying it because they support the ex-president.”

Tiu cast further doubt on the notion of a swift drop in share price. Quoting economist John Maynard Keynes, he said, “Markets can remain irrational longer than you can stay solvent.”

Can Trump cash out?

Can Trump sell some of his Truth Social shares to pay his legal bills, which include a $175 million bond owed in New York?

Here, experts are in agreement: likely not in the short term.

For these types of deals, the principal individuals involved are almost always barred from selling their stock for a period of time, often six months or more, Dunn said. Though, it’s possible the company board revise these rules.

But even if Trump were allowed to liquidate immediately, the share price would quickly decrease as a result.

If a company leader starts selling off shares — particularly a sizable number of shares — it “communicates to other shareholders that they don’t think (the company) is worth it. And it sort of leads to a panic,” Dunn said.

“If that pressure shows up, it often has a way to compound into a selling frenzy,” Tiu said.

For this reason, even if Trump could sell his shares right away, he would be wise not to, Tiu added.

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