Donald Trump’s social network went public on Tuesday and quickly reached a valuation of around $8bn (£6.3bn), up over 15% from its initial public offering (IPO) price. Shares surged in volatile trading on Wednesday, rising 13% by mid-morning, pushing the company’s market capitalization to $9.3 billion. This significant success has sparked various questions with no easy answers.
Why is it worth $9 billion?
The simplified answer is, “Because the last price at which someone bought the company’s stock was $65.70.” A publicly traded company’s valuation, like Truth Social (officially Trump Media and Technology Group Corporation, with stock symbol DJT), is determined by individual stock valuations. It’s a combination of value and figures. Remarkable.
Market capitalization, also known as value, is based on a company’s financial fundamentals: revenue, losses, growth rate. But in some instances…this might not apply.
For Truth Social, it reported a $49 million loss on just $3.3 million in ad revenue in the first nine months of the previous year.
Why don’t investors care about fundamentals?
Throughout history, speculative bubbles have often caused stock valuations to deviate from reality. Even if a company isn’t deemed particularly valuable, investors may buy the stock at a higher price anticipating further gains.
Truth Social seems to be part of a modern phenomenon: “meme stock.”
What is meme stock?
Meme stock refers to a small group of publicly traded stocks that mainly attract individual investors. These investors, using trading apps like Robinhood, actively engage in the market and utilize social media, particularly Reddit, to share stock information.
Notably, the valuation of GameStop surged over 1,800% after investors united through the WallStreetBets subreddit. The strategy was to trigger a “short squeeze” for investors who bet against GameStop, leading to a spike in share price. To this day, GameStop is still significantly valued compared to its pre-meme stock era.
Is Truth Social a true meme stock?
Investors in Trump’s social network share similarities with those in the GameStop bubble. Unlike other meme stocks such as AMC and Hertz, Truth Social relies on small individual investments rather than large corporations to elevate its stock price.
Unlike other meme stocks, Truth Social investors seem less concerned with profit and more with supporting Trump. In this aspect, Truth Social aligns more with non-fungible tokens (NFTs) and cryptocurrencies, a market even former presidents have dabbled in.
Is it possible that Trump will sell out early?
With legal claims in the millions, the primary question revolves around whether President Trump can convert his paper assets into cash post the Truth Social float. Initially, insiders are required to hold shares for six months following the IPO.
However, the board could potentially overturn this decision, consisting of independent votes from Donald Trump Jr. and former Trump administration officials. Even if a sale isn’t approved, Trump Sr. could explore using his stock as collateral for a loan.
Is Truth Social profitable?
Previously, a bright future seemed plausible for Truth Social amidst the growing societal divide, providing an ideal platform for right-wing social networks. However, with Elon Musk acquiring Twitter and transforming it into X, the dynamics shifted, impacting Truth Social’s potential success.
Under Musk’s ownership, Twitter turned into a hub for online rights, losing a significant user base. Despite rescinding Trump’s ban, the former president preferred posting on Truth Social.
Source: www.theguardian.com
