For the first time in almost 30 years, part of Donald Trump’s business empire is going public.
Trump Media & Technology Group, the owner of struggling social media platform Truth Social, is set to begin its long-delayed journey as a public company at Tuesday’s opening bell under the ticker symbol “DJT.”
Wall Street is assigning Trump Media an eye-popping valuation of around $9 billion – a price tag that experts warn is untethered to reality.
Shares of Digital World Acquisition Corp., the shell company that is about to become Trump Media, have spiked nearly 200% so far this year. That includes a 35% surge Monday after the deal closed.
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.
“This is a very unusual situation. The stock is pretty much divorced from fundamentals,” said Jay Ritter, a finance professor at the University of Florida’s 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 $2 a share – nowhere near its implied stock price of $50.
“The underlying business doesn’t seem to be worth much. There is no evidence this is going to become a large, highly profitable company,” he said. “I’m 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.”
The eye-popping valuation is a massive windfall for Trump, who owns a dominant stake of 79 million shares.
At Monday’s closing price of nearly $50, that stake is worth nearly $4 billion, although lock-up restrictions likely prevent Trump from selling or even borrowing against those shares anytime soon.
Trump Media generated just $3.4 million of revenue through the first nine months of last year, according to filings. The company lost $49 million over that span.
And yet the market is valuing Trump Media at approximately $9 billion.
For context, Reddit was only valued at $6.4 billion at its IPO last week – even though it generated 160 times more revenue than Trump Media. (Reddit hauled in $804 million in revenue in 2023, compared with Trump Media’s annualized revenue of about $5 million.)
“At these levels, it appears untethered to its underlying business results,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital. “Eventually, valuations tend to fall back on fundamentals. That means this stock is definitely at risk of plummeting back down to earth.”
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’s 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. Truth Social’s 648,000 unique visitors to its website was down 20% year-over-year.
Kennedy described Trump Media as a “meme-SPAC,” alluding to both its astronomical valuation and the fact it was formed through a merger with a special purpose acquisition company, or SPAC.
“Stocks that trade on momentum are subject to falling rapidly,” he said.
Jonathan Macey, a law professor at Yale, told CNN last week that the Digital World stock price is “clearly a bubble.”
Of course, history shows that bubbles can always inflate further, and it’s very difficult to pinpoint when they will pop.
That means Trump Media’s share price could keep skyrocketing – 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’s very unlikely.
Matthew Tuttle, CEO of Tuttle Capital Management, told CNN that Trump Media is probably not worth anything close to $9 billion.
“But it doesn’t really matter,” 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.
“Because of what this is, and because it’s Trump – you’ve got people expecting this thing will take off tomorrow,” he said.
But Tuttle advised everyday investors to use extreme caution trading Trump Media, noting the implied volatility is “insane.”
“Stay away from it,” said Tuttle, who has sold his shares of Digital World but still owns options that would pay out if the stock rises sharply. “Normally, I wouldn’t touch this with a ten-foot pole. But I’m not playing with much money and I already made a lot on this. If I wake up tomorrow and it’s trading at $1, oh well.”
Beyond the valuation concerns, there are other risks involved in Trump Media.
For example, this company’s future is inextricably linked to that of one person: Trump.
“There is a unique keyman risk because Donald Trump is the chairman, top shareholder and the most popular user. He is one man, and he’s 77 years old,” said Kennedy.
Not only that, but Trump is facing felony prosecution in multiple simultaneous cases.
Trump Media noted that risk in SEC filings, saying: “Donald 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.”
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’s history of bankruptcies as a risk in its SEC filing.
“A 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,” 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’s legal troubles could give him a reason to sell his commanding stake, an outcome that would threaten Trump Media’s share price.
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 “mutli-billion dollar bet” on a second Trump term, a return to the White House that could be lucrative for his social media network.
“If he wins in November, Truth Social will probably be the primary means of presidential communication,” said Kennedy. “That’s the bet here.”
