Truth Social stock success hinges on Trump’s cult of personality – not real business value

On Friday, shareholders of special purpose acquisition company Digital World Acquisition Corp, which trades under the ticker symbol DWAC, voted to approve a merger with Trump Media & Technology Group (TMTG), the former president’s media organization and the owner of Truth Social.

Following news of the acquisition Friday, shares of DWAC dropped almost 14% – but the tides shifted on Monday, with the stock up about 10% in the late morning.

The newly merged organization has an estimated market cap of $5bn. The stock will begin trading Tuesday under the ticker DJT, Trump’s initials and the former ticker of Trump Hotels and Casino Resorts, which went public in a highly emancipated IPO in 1995. (Despite the hype, Trump Hotels and Casino Resorts was largely a flop. Though it generated more than $44m for Trump personally, the organization bled out and eventually filed for bankruptcy and was stripped from the New York Stock Exchange in 2004).

However, the forthcoming Nasdaq debut of TMTG could spell good fortune for Trump, who controls close to 60% of the organization’s shares. At the current stock price, it’s estimated that Trump would own about $3bn in TMTG shares.

The potential windfall of cash would be particularly valuable for Trump in a moment when he is on the hook for hefty legal bills and is scrambling to post bond today for a $500m court judgment.

However, analysts in the media and financial sectors are wary of TMTG’s prospects in the market.

“There’s no real business here – at least not that I’m yet aware of. I haven’t seen recent financials for the business, but it’s doubtful that there is a meaningful one,” says Brian Wieser, principal of Madison and Wall, a strategic advisory firm founded this year after Wieser left his post as GroupM’s lead analyst.

Wieser says it appears that little has changed since November, when TMTG’s investment partner, Digital World Acquisition, filed a report with the US Securities and Exchange Commission (SEC) evidencing major losses at the organization.

“TMTG has suffered negative cash flows and recurring losses from operations that raise substantial doubt about its ability to continue as a going concern,” the filing read. The media company’s public accounting firm reported that in the first six months of 2023, TMTG lost $22.9m and generated just $2.3m in sales.

And TMTG faces additional challenges on its path to success, experts say.

For one, points out Max Willens, a senior analyst at eMarketer focused on social media and advertising, highly partisan media organizations, like Breitbart News, Parler and Gab, as well as a smattering of left-leaning organizations as well, tend to struggle to attract meaningful subscriber revenue.

And advertising dollars can be even harder to come by, as hands-off content moderation policies like those of Truth Social and other right-leaning platforms create brand safety concerns for big brands (just ask X, which, according to Reuters, saw ad revenue drop at least 55% year-over-year every month of its first year under Elon Musk’s ownership).

Ultimately, the issue of stunted ad revenue – paired with limited scalability – will be the biggest stumbling block for TMTG, Willens predicts. “Though Donald Trump has a long history of creating his own reality, the reality is that Truth Social is a niche player in a market where scale is prized above almost anything else, and brand safety is growing, not waning, in importance,” says Willens. “Thanks to that combination, Truth Social is losing money and will likely continue to lose money for the foreseeable future.”

Wieser, too, sees brand safety as a major impediment to Truth Social’s potential growth opportunities. “Most advertisers who care about their brands will stay away from environments that allow for the reckless promotion of fact-free content, are intolerant or incendiary,” he says.

Of course, Wieser caveats, with high engagement levels on a platform, “there can still be a market for that media inventory, too,” but he doubts that “marketers who care about their brands” will be investing any time soon.

And beyond the challenge of attracting ad dollars to monetize the platform, Truth Social is still struggling to cultivate a loyal user base. In the US market, active mobile device users hit a peak at 1.1 million in August 2023 – since then, numbers have dipped to just 800,000 as of February 2024. To put it in perspective, Reddit, a relatively small player in a social media market dominated by the likes of Meta and TikTok, had 46 million monthly active users in February 2024. Reddit made its Wall Street debut with a highly anticipated IPO last week; it closed its first day of trading at $50.44 per share, bringing the company’s market cap to around $9.5bn.

Whatever value TMTG garners in its early days of trading, some have suggested, will be tied to Trump’s cult of personality – not any substantive business value.

The LA Times business columnist Michael Hiltzik on Friday compared TMTG’s stock with that of GameStop, the meme stock whose Reddit-spurred 2021 short squeeze eventually led to a dramatic downfall. “In other words,” Hiltzik wrote, “you shouldn’t expect Truth Social’s market value to be related much to its revenues or profits but on the public standing of Donald Trump.”

It’s a perspective shared by Cody Slach, senior managing director at Gateway Group, an investor relations and public relations advisory firm. “[TMTG] carries elements akin to a meme stock, driven by Trump’s ardent and often polarizing followers,“ he says. “At the end of the day, it must grow into this valuation, meaning it must put up the numbers to justify this price. There is a long way to go to see if they can do that, but if there’s anything meme stocks have taught us, it can be painful to be on the wrong side of the trade.“

Willens, too, cautions against underestimating the momentum of Trump’s cult following. “Because so many Trump Media & Technology Group’s investors are Trump acolytes, there is a chance its stock will be much more resilient than a similar company’s might be.”

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