As Donald Trump’s social media venture debuts on the stock market Tuesday, prospective investors may ponder whether the stock is overvalued and potentially subject to volatility.
Trump Media & Technology Group Corp. was absorbed by a special-purpose acquisition company named Digital World Acquisition Corp on Monday. Trump Media, the operator of the Truth Social platform, now replaces Digital World on the Nasdaq stock exchange.
Trump Media enters the public trading arena with a stock price hovering around $50 and a market capitalization of approximately $6.8 billion.
Much of Digital World’s investor base comprised individual investors, many of whom sought to support Trump or capitalize on the fervor surrounding the venture rather than institutional or professional investors.
Investors are wagering on a company that has yet to generate profits. Trump Media incurred a $49 million loss in the first nine months of the prior year, with revenue amounting to just $3.4 million while facing $37.7 million in interest expenses.
In regulatory filings, the company highlighted the high failure rate of new social media platforms and the expectation of continued operational losses as risks for investors.
Truth Social was launched in February 2022, a year after Trump’s ban from major social platforms such as Facebook and Twitter (formerly X) following the January 6 Capitol insurrection. Trump has since returned to both platforms but has remained committed to Truth Social.
Trump commented on Truth Social’s performance after a court appearance in New York, stating, “Truth Social is doing very well. It’s hot as a pistol and doing great.”
However, Trump Media has yet to disclose Truth Social’s user metrics, although this should change now that the company is publicly traded. According to research firm Similarweb, Truth Social had approximately 5 million active users across mobile and web platforms in February.
While this figure pales in comparison to TikTok’s 2 billion and Facebook’s 3 billion users, it surpasses other “alt-tech” competitors like Parler, which has been offline for nearly a year, or Gettr, which had fewer than 2 million visitors in February.
In addition to social media competition, Trump Media faces other risks, notably Trump himself, who will hold nearly 60% ownership in the company.
Trump Media, headquartered in Palm Beach, Florida, emphasized in regulatory filings its dependency on Trump’s popularity and presence. Any decision by Trump to reduce or sever ties with the company, including due to his political ambitions, could significantly disadvantage the company.
Additionally, Trump’s status as a controlling shareholder grants him voting rights that may not always align with the interests of all shareholders.
Recent trading activity suggests potential volatility ahead. Digital World shares surged this year ahead of the shareholder vote on the merger with Trump Media. Following the vote, shares declined by almost 14%, but Monday witnessed a robust rebound with a 35% gain.
