The man who propelled himself to the White House on the back of his prolific, if controversial, use of social media, is now set to use it to get himself a massive payday.
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Truth Social, a social media platform founded by former U.S. president Donald Trump, is getting ready to go public at a $6 billion valuation. If Truth Social went public, Trump would own roughly 60% of the company, potentially earning him a whooping $3.5 billion.
The decision to combine with Digital World Acquisition, a Special Purpose Acquisition Company (SPAC), will be put to a vote by Truth Social’s shareholders on Friday. Given the astronomically high valuation, the vote is almost guaranteed to pass.
The deal, which has been in the works for a few years, may finally close despite encountering a number of obstacles along the way, including accusations of insider trading. Encouraged by his ardent supporters, the transaction appears set to bring the former president a sizable windfall at a time when his financial stability and net worth are being called into question due to his obligation to pay hundreds of millions of dollars following his defeat in two New York civil court cases. Attorney General Leticia James of New York ordered Trump to pay a $454 million bond by Monday in a civil fraud case. A judge decided in January that Trump was obligated to pay writer E. Jean Carroll $83 million for defaming her.
Truth Social’s enormous valuation isn’t always consistent with its financial performance. It’s more of an outcome of its owner’s passionate internet support.
According to Stanford law and business professor Michael Klausner, who has sued SPACs for allegedly misleading investors in the past, Truth Social “appears to be a meme or cult stock.”
DWAC’s stock has surged 324% since its launch in October 2021. Recently, the stock of Truth Social surged 60% over the course of 11 days in late January as it became more and more clear that the company would go public. As if to highlight the link between Trump’s business connections and political prospects, the stock increased following his victory in the Iowa primary and Florida Governor Ron DeSantis’ withdrawal from the Republican primary. As the likelihood of the SPAC merger and subsequent IPO grows, shares have increased 133% so far this year.
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A significant portion of the increasing valuations can be attributed to Trump supporters who are keen to back their candidate in both his latest business endeavor and at the polls.
According to Klausner, “shares of Truth Social are trading in the stratosphere.” “Its share price will eventually drop to reflect its poor economics, which at least now appear to be the case.”
Truth Social, which lost $31.6 million through the third quarter of 2023, is a profitless company, much like the majority of tech startups hoping to go public. Its nearly nonexistent revenues are also a cause for concern for any company (apart from biotech) hoping to enter the public markets. The company’s revenue for the third quarter of 2023 was a meager $1.1 million.
With only 8.9 million registered accounts, Truth Social is a tiny social media app in comparison to the major platforms that rule the market. (Facebook, with its billions of users, is one example). As a newcomer, it performs better than other specialized platforms that, like Truth Social, receive greater press attention than their actual size. Jack Dorsey, the founder of Twitter, launched Bluesky, which has about 4 million signups overall. Mastodon, another attempt to replace X, has 2.3 million as of October.
Truth Social’s excitement and passion bring back memories of some of the craziest meme stock moments that went viral online.
None was more well-known than the extensively reported Gamestop debacle, in which large institutional investors like hedge funds Citadel and Melvin Capital had shorted the stock while individual Reddit users held the shares, pushing up its price. In the end, the stock continued to rise because these regular people, or retail investors, had created such a social media frenzy around Gamestop that they continued to purchase the stock and refused to sell, thereby driving up its price. Throughout, Gamestop’s financial performance was insufficient to support the exorbitant share price that was imposed upon it.
This time, however, retail investors appear ready to follow suit—possibly more so due to a presidential candidate who inspires extreme loyalty among his supporters than because of an online fad.
With his name attached to everything from steaks to country clubs to NFTs, Trump has succeeded in turning his political persona into a devoted following of supporters. The Trump Digital Trading Cards, his NFT collection, sold out in less than a day. A $399 pair of shiny gold sneakers with red soles that were dubbed “The Never Surrender High-Top Sneaker” sold out in a matter of hours.
However, stock market investing carries risks, which investors should already be aware of. These risks may increase if they invest in a Trump digital project. The first month of sales for Trump NFTs was already 99% lower than the previous one.
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