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    • Trump's Truth Social is now a public company. Experts warn its multibillion-dollar valuation defies logic

    The Truth Social account for former U.S. president Donald Trump is seen on a mobile device, Wednesday, March 20, 2024, in New York. (AP Photo/John Minchillo, File) The Truth Social account for former U.S. president Donald Trump is seen on a mobile device, Wednesday, March 20, 2024, in New York. (AP Photo/John Minchillo, File)
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    For the first time in almost 30 years, part of Donald Trump鈥檚 business empire has gone public. Trading started with a bang, but the frenzy eased considerably by the closing bell, with shares ending well off their highs of the day.

    Trump Media & Technology Group, the owner of struggling social media platform Truth Social, began its long-delayed journey as a public company at Tuesday鈥檚 opening bell under the ticker symbol 鈥淒JT.鈥

    The stock surged about 56 per cent at the open, to US$78, and trading was briefly halted for volatility. Trump Media shares stabilized around US$70 before fizzling. By the closing bell, Trump Media ended at US$57.99, up by a more modest 16 per cent on the day.

    Despite the late-day slide, Wall Street is still assigning Trump Media an eye-popping valuation of nearly US$11 billion 鈥 a price tag that experts warn is untethered to reality.

    Shares of Digital World Acquisition Corp., the shell company that became Trump Media Tuesday morning, have spiked more than 200 per cent so far this year. That includes a 35 per cent surge Monday after the deal closed. Shares popped again at the start of trading Tuesday 鈥 investors鈥 first opportunity to trade the stock after the merger, under the new DJT ticker.

    The skyrocketing share price comes despite the fact that Trump Media is burning through cash; piling up losses; and its main product, Truth Social, is losing users.

    鈥淭his is a very unusual situation. The stock is pretty much divorced from fundamentals,鈥 said Jay Ritter, a finance professor at the University of Florida鈥檚 Warrington College of Business, who has been studying initial public offerings (IPOs) for over 40 years.

    Ritter said the closest parallel would be GameStop, AMC and other so-called meme stocks that skyrocketed during Covid-19 as an army of retail traders piled in. He said Trump Media is likely worth somewhere around US$2 a share 鈥 nowhere near its closing stock price of US$58.

    鈥淭he underlying business doesn鈥檛 seem to be worth much. There is no evidence this is going to become a large, highly profitable company,鈥 he said. 鈥淚鈥檓 reasonably confident the stock price will eventually drop to $2 a share and could even go below that if the company blows through the money it got from the merger.鈥

    The eye-popping valuation is a massive windfall for Trump, who owns a dominant stake of 79 million shares.

    At Tuesday鈥檚 opening price of nearly US$78, that stake is worth nearly US$6 billion, although lock-up restrictions likely prevent Trump from selling or even borrowing against those shares anytime soon. The value of Trump鈥檚 stake ended at US$4.6 billion at the closing bell.

    Trump Media generated just US$3.4 million of revenue through the first nine months of last year, according to filings. The company lost US$49 million over that span.

    And yet the market is valuing Trump Media at approximately US$11 billion.

    For context, Reddit was only valued at US$6.4 billion at its IPO last week 鈥 even though it generated 160 times more revenue than Trump Media. (Reddit hauled in US$804 million in revenue in 2023, compared with Trump Media鈥檚 annualized revenue of about US$5 million.)

    鈥淎t these levels, it appears untethered to its underlying business results,鈥 said Matthew Kennedy, senior IPO strategist at Renaissance Capital. 鈥淓ventually, valuations tend to fall back on fundamentals. That means this stock is definitely at risk of plummeting back down to earth.鈥

    Michael Ohlrogge, an associate professor of law at the NYU School of Law, told CNN there is 鈥渘o way to square the current stock price with anything that would be called a rational valuation for this company.鈥

    Truth Social is tiny

    Truth Social faces real challenges and is still dwarfed by its rivals.

    Truth Social had just 494,000 monthly active US users on iOS and Android combined in February, according to Similarweb stats provided to CNN. That鈥檚 a small fraction of the 75 million on X (formerly known as Twitter) and 142 million on Facebook.

    Even Threads had more than 10 times the number of monthly active users that Truth Social had in February, according to Similarweb.

    Not only that, but Truth Social is shrinking. Its monthly active users plunged 51% year over year in February, Similarweb stats show. The number of unique visitors to Truth Social鈥檚 website was 648,000, down 20 per cent year over year.

    Kennedy described Trump Media as a 鈥渕eme-SPAC,鈥 alluding to both its astronomical valuation and the fact it was formed through a merger with a special purpose acquisition company, or SPAC.

    鈥淪tocks that trade on momentum are subject to falling rapidly,鈥 he said.

    Jonathan Macey, a law professor at Yale, told CNN last week that the Digital World stock price is 鈥渃learly a bubble.鈥

    Of course, history shows that bubbles can always inflate further, and it鈥檚 very difficult to pinpoint when they will pop.

    That means Trump Media鈥檚 share price could keep skyrocketing for now 鈥 even if those gains are not backed up by fundamentals. In theory, a rival company or wealthy group could swoop in and acquire Trump Media even at these price levels, although Ritter said that鈥檚 very unlikely.

    鈥淲e鈥檝e already seen with other meme stocks that even if they eventually fall back to reflecting a fundamental value, the process can take quite a long time,鈥 said Ohlrogge, the NYU professor. 鈥淭here鈥檚 every reason to believe that this stock could remain at highly inflated prices much longer, due to the enthusiasm that Trump鈥檚 supporters have for it.鈥

    鈥楽tay away from it鈥

    Matthew Tuttle, CEO of Tuttle Capital Management, told CNN that Trump Media is probably not worth anything close to what the market is valuing it at.

    鈥淏ut it doesn鈥檛 really matter,鈥 he said.

    Tuttle noted that there is a history of SPACs spiking on their first day of trading, and he placed options bets that stand to make money if the stock shoots up.

    鈥淏ecause of what this is, and because it鈥檚 Trump 鈥 you鈥檝e got people expecting this thing will take off [on Tuesday,]鈥 he said.

    But Tuttle advised everyday investors to use extreme caution trading Trump Media, noting the implied volatility is 鈥渋nsane.鈥

    鈥淪tay away from it,鈥 said Tuttle, who has sold his shares of Digital World but still owns options that would pay out if the stock rises sharply. 鈥淣ormally, I wouldn鈥檛 touch this with a 10-foot pole. But I鈥檓 not playing with much money and I already made a lot on this. If I wake up tomorrow and it鈥檚 trading at $1, oh well.鈥

    Beyond the valuation concerns, there are other risks involved in Trump Media.

    For example, this company鈥檚 future is inextricably linked to that of one person: Trump.

    鈥淭here is a unique key man risk because Donald Trump is the chairman, top shareholder and the most popular user. He is one man, and he鈥檚 77 years old,鈥 said Kennedy.

    Not only that, but Trump is facing felony prosecution in multiple simultaneous cases.

    Trump Media noted that risk in SEC filings, saying: 鈥淒onald J. Trump is the subject of numerous legal proceedings, the scope and scale of which are unprecedented for a former President of the United States and current candidate for that office. An adverse outcome in one or more of the ongoing legal proceedings in which President Trump is involved could negatively impact TMTG and its Truth Social platform.鈥

    A history of Trump bankruptcies

    Not only does Trump himself face reputational issues, but his companies have a history of going bankrupt.

    The last Trump company to go public, Trump Hotels and Casino Resorts in 1995, used the same DJT ticker symbol. It went bankrupt in 2004 and was delisted from the New York Stock Exchange.

    Trump Media even highlighted Trump鈥檚 history of bankruptcies as a risk in its SEC filing.

    鈥淎 number of companies that were associated with President Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt,鈥 the company said.

    Another question is what happens when the lock-up restrictions on Trump and other key insiders lapse in the coming months.

    Trump鈥檚 legal troubles could give him a reason to sell his commanding stake, an outcome that would threaten Trump Media鈥檚 share price.

    Betting on a Trump victory in November

    Other insiders, including the sponsor of the SPAC, would also be able to sell.

    Like any social media business, Truth Social faces pressure to grow its user base, expand its advertising business and build a subscription service.

    Those tasks are complicated by the polarizing political backdrop where at least some portion of the country views the Trump movement skeptically.

    Kennedy said that in many ways, Trump Media going public amounts to a 鈥渕ultibillion-dollar bet鈥 on a second Trump term, a return to the White House that could be lucrative for his social media network.

    鈥淚f he wins in November, Truth Social will probably be the primary means of presidential communication,鈥 said Kennedy. 鈥淭hat鈥檚 the bet here.鈥

    Ohlrogge, the NYU professor, agrees that the election could prove to be a real turning point for this company.

    鈥淚f Trump were to lose the 2024 election, I鈥檇 imagine the stock price would crater quite quickly,鈥 he said. 鈥淚f he were to win, it could conceivably stay higher for longer, maybe much longer.鈥

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