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Former President Donald Trump plans to take his Truth Social social media platform public. Chip Somodevilla
The man who rose to the White House thanks to his prolific, if controversial, use of social media is now willing to use it to get a huge payday.
Former President Donald Trump’s social media platform, Truth Social, is preparing to go public with a current valuation of $6 billion. Trump himself would own about 60% of Truth Social if he were to go public, which would ultimately net him a possible $3.5 billion.
On Friday, Truth Social shareholders will vote on merging with a special purpose acquisition company (SPAC) called Digital World Acquisition. The vote will almost certainly pass given the very high rating.
The deal has been in the works for a couple of years and hit several bumps along the way, including insider trading allegations—but now it could finally come to fruition. Driven by Trump’s decision avid followersThe deal seems set to bring the former president a huge windfall just like his liquidity and net worth in doubt now that it must pay hundreds of millions of dollars after losing two civil court cases in New York. A civil fraud case brought by New York Attorney General Leticia James ordered Trump to post $454 million bail by Monday. While in January a judge ruled that Trump must pay writer E. Jean Carroll $83 million for defaming her.
The massive valuation looming over Truth Social isn’t necessarily aligned with its financials. It is rather a product of its owner’s ardent online support.
Truth Social “seems to be a memes or cult stocks,” says Michael Klausner, a law and business professor at Stanford who has sued SPACs in the past for allegedly misleading investors.
Since its inception in October 2021, DWAC stock has risen 324%. Recently, as it became increasingly clear that Truth Social would go public, shares soared 60% over an 11-day period in late January. As if to illustrate the connection between Trump’s political perspectives and business ties, stocks soared when won the Iowa primary and when Florida Governor Ron DeSantis dropped yout of the Republican primaries. So far this year, shares are up 133% as the prospect of the SPAC merger and subsequent initial public offering (IPO) grows closer.
Much of the increase in valuations is due to driven by Trump voters eager to support his candidate not only at the polls but in his latest business venture.
Truth Social stock “is trading in the stratosphere,” Klausner says. “Eventually, its stock price will fall to reflect its economy, which right now, at least, looks poor.”
Like most tech startups looking to go public, Truth Social doesn’t make a profit. lose 31.6 million dollars until the third quarter of 2023. However, its revenue is also almost non-existent, which is a bit more worrying for any company (outside of biotech) that wants to hit the public markets. In the third quarter of 2023, the company generated just $1.1 million in revenue.
As a social media app, Truth Social has approximately 8.9 million registered accounts, insignificant figures compared to the main platforms that dominate the industry. (Facebook, for example, has more than 3 billion users.) As a startup, it stands above other niche platforms that, like Truth Social, get press coverage that exceeds its size. Bluesky, launched by Twitter founder Jack Dorsey, is approximately 4 millions total registrations, and Mastodon, another contender to replace X, had 2.3 million from October.
The enthusiasm and excitement behind Truth Social is reminiscent of some of the most frenetic meme moments that swept the internet.
None were more popular than the widely covered Gamestop fiasco, when retail investors on Reddit held onto the stock, driving up its price, while major institutional investors, such as hedge funds, Citadel and Melvin Capital I had short-circuited it. In the end, the stock continued to rise because these retail investors (read: regular people) had created such a social media frenzy around Gamestop that they kept buying shares and refusing to sell them, driving up its price. Meanwhile, none of Gamestop’s financial results justified the astronomical share price imposed on it.
This time retail investors seem willing to do the same, but perhaps less for an Internet trend and more for a presidential candidate who inspires inordinate amounts of loyalty among his followers.
Trump, with a line of businesses bearing his name that ranges from steaks to country clubs to NFTs, has succeeded in turning his political reputation into an avid customer base. His NFT collection, Trump Digital Trading Cards, sold out in less than a day. A pair of shiny gold sneakers with red soles, called “The Never Surrender High-Top Sneaker” and priced at $399, sold even faster, selling out in just a few hours.
But investors should already be wary of the risks of investing in the stock market, perhaps even more so with a Trump digital company. Just a month after their first sales, Trump’s NFTs were already down 99%.