Trump Media shares slide as filing reveals loss at social media firm

The discrepancy between where Trump Media’s shares trade and how the underlying business performs indicates that investors use it as a way to bet on Trump’s push for re-election

Mon, 01 Apr, 2024 - 10:09

Bailey Lipschultz

Shares of Donald Trump’s social-media business wiped out their gains from going public last week after the company disclosed that it lost more than $58m in 2023, as revenue for the former president’s Truth Social platform trickled in.

Trump Media & Technology Group's shares fell as much as 22% on Monday to as low as $48.03 per share, below the $49.95 level where the blank-cheque vehicle it merged with was trading a week ago. The company has still delivered a meteoric gain this year to date, with its market value sitting at about $6.6bn (€6.1bn).

The company generated just $4.1m in revenue for the full year, results reported in a filing show, underscoring how richly valued Trump Media is relative to its peers. The company doesn’t report active user numbers, disclosing in its prospectus in February only that Truth Social has about 9 million signups across its platforms.

Reddit — which went public last month and has a similar valuation — had 267.5 million weekly active users in the last quarter, and delivered $804m in revenue last year. Meanwhile Snap, which has a market value of $19bn, had a net loss of $1.3bn on $4.6bn in sales last year. Snap estimated daily active users for the first-quarter of about 420 million.

The discrepancy between where Trump Media’s shares trade and how the underlying business performs indicates that investors use it as a way to bet on Trump’s push for re-election. The stock, which has been trading since 2021 under the SPAC’s ticker code, has tripled this year as the retail-trading crowd pumps it with posts across Stocktwits and Reddit’s WallStreetBets forum.

In the filing, Trump Media’s revenue inched higher from $1.47m in 2022 as it swung to an annual loss. The company recorded a $50.5m profit in 2022 after getting a boost from a change in the value related to its convertible notes.

Unlike traditional social-media companies that tout metrics like active users or revenue per user, Trump Media “believes that adhering to traditional key performance indicators” could “divert its focus from strategic evaluation with respect to the progress and growth of its business”, according to the prospectus. When regulators inquired about Truth Social’s number of signups and users, the company pushed back, and ultimately disclosed only the signups, filings show.

Mr Trump owns a 57% stake in the company, according to the filings with the US Securities and Exchange Commission, which is worth about $3.7bn as of Monday. That paper wealth is down nearly $2.5bn. However, he can’t sell the stake immediately due to a six-month lock-up agreement, hindering his ability to monetise the shares and ease his present cash crunch.

Mr Trump’s media company debuted last week after the closing of the merger with Digital World Acquisition brought in more than $275m of much-needed cash. The media startup had warned that without the deal there were concerns that it could go bankrupt.

The heightened valuation has made it costly and risky to bet against with short sellers facing annual financing costs of 500% to borrow, according to brokerages. That makes it the most expensive US company to bet against with over $100m of short interest by a large margin, data from financial analytics firm S3 Partners show.

Mr Trump currently faces legal troubles including four criminal prosecutions. The first criminal trial — alleging he falsified business records to conceal hush money payments to a porn star before the 2016 election — is set to start April 15. He also faces an April 4 deadline to post a $175m bond after the New York attorney general proved at trial that he’d inflated his net wealth by billions of dollars a year in bank transactions. He is appealing the judgement.