Truth Social's Debuts On Nasdaq Amid Skepticism
Tony Nesbit 3.26.24
On March 26th, 2024, the social media landscape witnessed a significant event as Trump Media & Technology Group (TMTG), the parent company of Donald Trump's social media platform Truth Social, began trading on the Nasdaq exchange under the ticker symbol DJT. This marks the culmination of a merger with Digital World Acquisition Corp (DWAC), a Special Purpose Acquisition Company (SPAC), valuing TMTG at a staggering $11 billion.
The merger, facilitated by DWAC, a SPAC created specifically for acquiring or merging with another company, has been a topic of much debate.
While DWAC shareholders approved the merger, valuing TMTG at around $11 billion, financial experts have raised eyebrows over the valuation, especially given Truth Social's financials.
In the first nine months of 2023, the platform reported a mere $3.4 million in revenue against a loss of $49 million.
"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. "The underlying business doesn't seem to be worth much. There is no evidence this [is going to] become a large, highly profitable company."
Mr Ritter estimates Trump Media's actual worth to be around $2 per share, while it's trading at about $68. According to Ritter's observations, it is comparable to meme stocks such as GameStop and AMC.
Patrick Orlando, the man behind DWAC, played a pivotal role in making this merger happen.
Before his involvement with DWAC, Orlando was known for his leadership at Yunhong International, a SPAC based in Wuhan, China. His experience with SPACs was crucial in navigating the complexities of the merger with TMTG. However, Orlando's journey was not without controversy. Before the merger, he was terminated from his position at DWAC amid legal disputes and disagreements over the merger's terms.
SPACs such as DWAC are frequently employed to facilitate (the process of) taking a company public [bypassing] the traditional IPO route. This method was instrumental in bringing Truth Social to the public market.
This merger showcases how SPACs can be leveraged to facilitate significant business transactions and public listings, even for companies with challenging financials like Truth Social.
Despite its high valuation and the buzz surrounding its Nasdaq debut, Truth Social [finds itself] in a tough spot among its competitors.
The social media platform has struggled to compete with giants like Facebook and Twitter. Its financial struggles and the challenge of attracting a broad user base have led to skepticism about its long-term viability.
Truth Social must take strategic steps to achieve profitability and justify its valuation.
Expanding its user base is paramount. It could involve enhancing the platform's features, improving user experience, and possibly diversifying its content to appeal to a diverse audience.
Additionally, Truth Social may need to explore alternative revenue streams beyond advertising, such as premium subscriptions or exclusive content offerings, to attract more users and advertisers.
While the merger between DWAC and TMTG has successfully brought Truth Social to the Nasdaq, the platform faces an uphill battle in the competitive social media landscape. Ensuring its future success and profitability will require the company to innovate, attract a diverse user base, and develop sustainable revenue models.
"This is a very unusual situation. The stock is pretty much divorced from fundamentals,"
Jay Ritter finance professor at the University of Florida
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