Windfall or Hot Air? Trump’s Truth Social Stock Deal May Not Bail Him Out

By David Lieberman, March 25, 2024

Business news reporters forgot to add an important line to their stories about the windfall Donald Trump might reap now that Trump Media and Technology Group (TMTG), the parent of Truth Social, is a publicly traded company.

The Wall Street Journal, Financial Times, and AP said his stake in TMTG is worth about $3 billion – with the Journal saying this “could be the best investment the former president has ever made.” The New York Times came in at “nearly $4 billion” and called this “a potential financial lifeline.”

These accounts neglected to say: “if pigs fly.”

The numbers imagine that Trump’s value to the social media company is twice as big as all of AMC Entertainment – the nation’s largest movie theater chain.

That’s bizarre but not, as the former guy would say, fake news.

Reporters did some simple arithmetic. They looked at the inflated market value of Digital World Acquisition Corp. (DWAC), a thinly traded public holding company whose shareholders approved the deal to merge with TMTG that closed on Monday. Then they multiplied DWAC’s stock price (it closed on Friday at $36.94) by the number of shares Trump will control in the new company.

As Chairman, Trump controls as much as 60 percent of the stock in the entity that has kept the TMTG name. DWAC shareholders contributed about $300 million in cash that Trump’s company desperately needs and ended up with about 30 percent.

These stock calculations are timely because Trump’s scrounging for cash to cover the $454 million he says he can’t afford to pay New York State after a court found he had fraudulently inflated the valuations of his real estate assets. (An appellate court reduced his tab to $175 million March 25 and gave him 10 days to come up with the money.)

TMTG probably won’t solve his problem. He accepted a lock-up agreement that currently prevents him from selling his shares for six months. TMTG probably won’t solve his problem. He accepted a lock-up agreement that currently prevents him from selling his shares for six months. While it’s theoretically possible that the board, which includes Don Jr. and other Trump pals, could waive the lock-up, that would likely result in a whole lot of lawsuits. Selling that many shares would almost certainly crash the price. And public shareholders as well as others who must continue to respect the lock-up could interpret the change as a form of fraud.

Lender Beware

Still, it’s conceivable that someone could lend him the cash and accept his TMTG stock as collateral.

Anyone who does that would have to believe the current stock price is sustainable – which only makes sense if you believe the highly optimistic targets Truth Social set for itself in an investor presentation in December.

The company said that by 2025 Truth Social will have 3.4 million daily users who’ll each see 14 ads a day. It also assumes brands will pay $10 for each 1,000 impressions — more than they currently do on LinkedIn, Facebook, X, Instagram, and YouTube.

Investors will have trouble keeping track of Truth Social’s metrics. The company told them that “adhering to traditional key performance indicators” including monthly and daily active users “could lead to short-term decision-making at the expense of long-term innovation and value creation.”

But people will see in its quarterly financial reports whether Truth Social approaches its goal to generate more than $173.7 million in revenue in 2025 with a nearly 54 percent operating profit margin. That, it says, would justify a roughly $1 billion valuation for the company.

Trump and Co. will have to do a lot of work to achieve those lofty goals. TMTG sold $3.4 million worth of ads in the first nine months of 2023. That’s less than half the amount CBS made on a single, average 30-second spot on this year’s Super Bowl.

Bankruptcies and Other Red Flags

There’s nothing in the background of TMTG’s leaders that suggests they know how to grow a social media platform that quickly.

Some 154 political scientists recently ranked him the worst president in U.S. history.

His CEO for TMTG, former congressman Devin Nunes, has little-to-no significant experience selling ads or running a publicly traded company. He managed just 36 full time employees as of September,

Let’s not kid ourselves. Even a great manager probably couldn’t persuade lots of major brands to do business with a platform run by a deeply unpopular guy who traffics in hate, disinformation, and fascism – and faces 91 felony charges in four states. Trump will become completely radioactive if he loses the presidential election in November.

But Wall Street votes every weekday, and investors will be able to make unflinching decisions based on the financial information TMTG must begin to share.

About 11 percent of DWAC investors are already betting that the TMTG’s stock bubble will burst. Short-sellers borrow shares from other investors and sell them believing that they can buy them back at a lower price and pocket the difference when they return the stock to the original owners.

Is it possible that the shorts will lose out – that investors will continue to buy TMTG at today’s inflated prices? Sure. But if they don’t, then the reporters who cast a bright spotlight on Trump’s supposed windfall should write follow-up stories.

They can call the people betting big on its success and ask them: What the hell were you thinking? Then they can ask the same question of themselves.

Contributing: Gina Chuang

Right Wing Biz Watch is an ongoing series of articles examining the business and finances of right wing media. Its author, David Lieberman, covered the media business full time for 30 years at USA Today and other publications before joining The New School as an Associate Professor in its graduate Media Management program.

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