As Truth Social becomes a meme stock, Trump’s 60% ownership could yield $3.5 billion

Former President Donald Trump intends to make his social media network Truth Social public.

The guy who catapulted himself to the White House by his extensive, albeit contentious, use of social media is now planning to utilize it to get himself a large payoff.

Former President Donald Trump’s social media network Truth Social is ready to go public, with a current valuation of $6 billion. If Truth Social went public, Trump would own roughly 60% of the company, potentially earning $3.5 billion in total.

On Friday, Truth Social’s shareholders will vote on whether to merge with Digital World Acquisition, a Special Purpose Acquisition Company (SPAC). Given the extremely high valuation, the vote is almost guaranteed to pass.

As Truth Social becomes a meme stock, Trump's 60% ownership could yield $3.5 billion

The acquisition has been in the works for a few years and has encountered various stumbling blocks along the way, including insider trading suspicions, but it may now be ready for completion. Buoyed by Trump’s ardent followers, the deal appears to be a significant windfall for the former president, just as his liquidity and net worth are being called into question after he was ordered to pay hundreds of millions of dollars after losing two civil court lawsuits in New York.

New York Attorney General Leticia James filed a civil fraud prosecution against Trump and ordered him to pay a $454 million bond by Monday. In January, a judge determined that Trump must pay writer E. Jean Carroll $83 million for defaming her.

Truth Social’s enormous valuation may not be in line with its financial performance. It’s more the result of its owner’s tireless internet support.

Truth Social “appears to be a meme or cult stock,” says Michael Klausner, a Stanford law and business professor who has previously sued SPACs for allegedly misleading investors.

Since its beginning in October 2021, DWAC’s stock has surged 324%. When it became clear that Truth Social would go public, the stock surged 60% in an 11-day period in late January. As if to demonstrate the link between Trump’s political chances and business relationships, the stock jumped when he won the Iowa primary and Florida Gov. Ron DeSantis withdrew out of the Republican contest. So far this year, shares have soared 133% as the SPAC merger and anticipated IPO approaches.

Much of the increase in valuations is driven by Trump supporters wanting to support their candidate not just at the polls but also in his latest business venture.

“Shares of Truth Social are trading in the stratosphere,” Klausner claims. “Eventually, its share price will fall to reflect its economics, which at this point, at least, look poor.”

Truth Social, like other IT businesses vying for an IPO, has no earnings and will lose $31.6 million through Q3 2023. However, its sales are essentially nonexistent, which is mildly troubling for any company (other than biotech) looking to enter the public markets. In the third quarter of 2023, the company made only $1.1 million in revenue.

As a social media app, Truth Social has approximately 8.9 million registered accounts, which is insignificant in comparison to the industry’s dominant platforms. (Facebook, for example, has over three billion users).

As Truth Social becomes a meme stock, Trump's 60% ownership could yield $3.5 billion

As a newcomer, it outperforms other niche sites that, like Truth Social, receive press coverage that dwarfs their size. Bluesky, launched by Twitter creator Jack Dorsey, has over 4 million total signups, while Mastodon, another wannabe X replacement, has 2.3 million as of October.

Truth Social’s excitement and zeal evoke some of the most feverish meme stock moments that swept the internet.

None was more well-known than the widely reported Gamestop catastrophe, in which retail investors on Reddit held the stock, driving up its price, while significant institutional investors such as hedge funds Citadel and Melvin Capital shorted it. Finally, the stock rose because these retail investors—read average people—had created such a social media frenzy about Gamestop that they continued to buy the shares while refusing to sell, driving up the price. All the time, none of Gamestop’s financial performance justified the high share price imposed on it.

This time, retail investors appear to be set to do the same thing, but for a presidential candidate who inspires extreme loyalty among his supporters rather than an internet trend.

Trump, who owns a variety of businesses ranging from steaks to country clubs to NFTs, has found success by parlaying his political brand into a loyal consumer base. His NFT collection, the Trump Digital Trading Cards, sold out in under a day. A pair of glossy gold sneakers with red soles, called the “The Never Surrender High-Top Sneaker” and priced at $399, sold out even faster, in only hours.

However, investors should be aware of the hazards associated with stock market investing, which may be amplified by a Trump digital company. Trump NFT sales had dropped by 99% within a month after their release.

Leave a Reply

Your email address will not be published. Required fields are marked *