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Once again, Donald Trump is challenging the establishment. The blank-check merger phenomenon that has swept U.S. capital markets during the pandemic has largely subsided. Cash shell companies brought a series of immature companies to the public markets. High interest rates and low profits quickly sent many into the dustbin. Regulators have stepped in to add protections for shareholders.
But Trump's startup venture, Trump Media and Technology Group, has ended its SPAC merger, despite long-term prospects. On Tuesday, in early trading, TMTG shares rose to a level that implied a diluted stock valuation of $14 billion.
The value of the former president and current Republican candidate's share is estimated at $5.5 billion. In its investor presentation shared in December, TMTG estimated its valuation might only reach $1.6 billion given the strong outlook.
Most of TMTG's shareholder base are retail holders. Given the company's meager revenues (just $3.4 million in revenue in the first nine months of last year) and the competitive digital media market, TMTG looks like a right-wing stock mixed with the classic pathology of the Spac bubble.
TMTG is supposed to contain two components. The first is a classic social network that generates advertising revenue from user impressions. The company estimated that Truth Social — where Trump posts his daily eclectic thoughts — could have 10 million users this year, doubling by next year.
Seems like a modest goal. Trump received 74 million votes in 2020. Facebook has billions of users; X in hundreds of millions. However, so far in 2024, data trackers calculate that Truth Social has fewer than 1 million monthly users.
TMTG also says it could create a paid subscription tier known as “Truth+” to provide “non-woke” entertainment — to four million users by the end of 2026. All of that should add up to $400 million in revenue after a few years.
Given the difficulties that long-established media and social networking companies have in generating growth and profits, a $14 billion valuation that essentially came from nothing is fanciful. (The popular Reddit listing left the company with a market cap of about $10 billion on revenue of about $1 billion.) Then there is the question of how long Trump will hold onto his shares, given his potential need to raise $500 million in cash in order to issue legal judgments.
Based on the combination and cash envelope, TMTG should have more than $300 million to build its business. But users, market share, revenue and cash flow may be missing the point.
TMTG shareholders may just be big fans who want to soak up Trump's stardust. Monetizing Maga on the public markets may be Trump's greatest commercial success.
sujeet.indap@ft.com
