This analysis was first published in SvD Näringsliv, in Swedish, on March 26th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
The valuation is astronomical as Donald Trump’s company goes public. The reasons to invest in Truth Social have nothing to do with business fundamentals.
Giving your listed company the same ticker as your own initials is unusual. Doing it a second time should, by any reasonable measure, be unique.
Nothing about it is normal when Donald Trump’s social network, Truth Social, goes public on Tuesday. The company being listed via SPAC is called “Trump Media & Technology Group Corp,” but will trade under the ticker “DJT” — Trump’s own initials.
The prospects look better this time than when Trump took a casino public in 1995 — also under the name “DJT.” That ended with the company running into financial difficulties and eventually filing for bankruptcy protection in 2004.
This time, it is far more than the threat of bankruptcy that hangs over Trump’s new public company. Its figurehead is a presidential candidate facing criminal charges in a string of legal proceedings. He has also been found liable and needs liquidity to pay fines running into the billions.
Despite all this, the SPAC’s shares surged when the merger was confirmed. What are investors hoping for?
It is not anything as conventional as revenues and profitability, at least. DJT — which in all material respects consists solely of the right-leaning social network Truth Social — had revenues of around 36 million kronor and made a loss of over 500 million kronor during the first nine months of 2023. Such numbers make it difficult to justify a valuation of around 53 billion kronor, which is roughly where the share is expected to trade initially.
A simple calculation shows that DJT would then be valued at approximately 1,100 times its annual sales. Comparing that to equivalent figures for other social media companies: Meta trades at 9.5 times, Snap at 4, and the recently listed Reddit at 6.4.
Investing in DJT has nothing to do with business fundamentals. There are, however, two other powerful motivations at play. Either the hope that something irrational will happen, or an expression of ideological conviction.
The irrational dimension finds its clearest expression in Reddit forums like Wall Street Bets — best known as the gathering place for the GameStop hysteria of 2021. There, traders discuss options contracts with extremely high risk. In that context, the quality of the underlying company matters little — what counts is whether you correctly predict how the price will move. A kind of lottery, but on the stock market. A stock like DJT — with Donald Trump as its face — becomes the perfect candidate for a so-called meme stock. Anything can happen.
The ideological dimension is more about investing in Donald Trump, rather than alongside him. Trump has not bought shares in DJT at this valuation; his ownership is a result of the SPAC merger. Buying shares can become a way of expressing support for Trump.
The timing works well for Trump. In the coming days he needs to raise billions to prevent his property assets and other holdings from being seized by the courts. Trump’s agreement with DJT stipulates that he cannot sell any shares during the first six months after the IPO. But the agreement can be renegotiated — no law governs his ownership. Were that to happen, Trump would be able to sell shares and thereby resolve some of his financial difficulties with the justice system.
There is, however, a problem with this plan. To be a seller, you need buyers. Will the market stand ready to buy Trump’s shares at the current valuation, even when the largest shareholder and the company’s namesake is selling? If not, the share price would fall dramatically.
Buying shares from Trump can also be done with other, less noble, motives. In the US, there are laws regulating how much money you can donate to presidential candidates. But buying shares — and making a bad investment — is not illegal. The major Republican donor Jeffrey Yass, for example, is already a significant shareholder in both ByteDance (TikTok’s parent company) and in the SPAC that is now being converted into DJT.
Being close to the man who could become the next President of the United States can be worth a great deal of money. In that context, even a bad stock trade might end up paying off.
