The US presidential candidate wants to use the social network Truth Social to earn money for his election campaign – this bet is now at risk.
Donald Trump’s supporters knew it was going to be a wild ride. But her bet stands. The parent company of Truth Social, Trump’s social network, has been listed on the US technology exchange Nasdaq under the symbol DJT since the end of March. The business model of the short message platform is identical to the stock ticker symbol. Everything revolves around 77-year-old Donald John Trump.
The future of Truth Social therefore depends entirely on Trump’s success and therefore also on the outcome of the US presidential election in November, for which he is running. Many see the price development of the DJT share as a barometer for the course of his campaign: But after a brilliant start to the stock market, the share crashed. Also because Trump was once again on trial in New York. At the end of the week the titles were able to recover somewhat.
Trump’s wealth is shrinking
The listed company behind Truth Social, the Trump Media & Technology Group (TMTG), is making the ex-president rich – at least on paper. After its stock market debut, it reached a capitalization of $9 billion. After the price slide, the company is only worth $3.6 billion.
This has a direct impact on Trump’s financial situation; he holds 57 percent of TMTG. At the start of the month his stake was worth over $5 billion, now it’s worth $2 billion. This also massively reduces the theoretical payout that Trump can hope for if he were to sell his shares.
Given the size of the company, that’s still a lot: TMTG employs 36 people and posted an operating loss of $16 million in 2023, with a turnover of just over $4 million. Truth Social’s valuation cannot be justified financially, not even with the planned launch of a new streaming service.
According to TMTG boss Devin Nunes, the service is intended to be a “home for news and entertainment that is discriminated against by other content services”. Trump himself sees himself being discriminated against by the “mainstream media”. His Twitter account was suspended following the storming of the Capitol by Trump supporters in January 2021.
A good year later, the social media platform Truth Social was launched as an alternative to Twitter, now X. Truth Social’s success has so far been limited: Trump had more than 87 million followers on less than 7 million.
Price collapse with announcement
The price collapse was triggered by TMTG’s application to the US Securities and Exchange Commission (SEC) to sell millions of shares. These include many that Donald Trump received from TMTG during his stock market debut. Part of the sales will be used to exercise warrants. These investment vehicles allow investors to purchase a stock at a set price.
The shares intended for resale correspond to almost three times the publicly available capital of the company, which significantly reduces the value of the TMTG shares. The price development mainly reflects the prevailing mood among Trump supporters and is determined by short sellers who speculate on a falling share price.
TMTG came to the stock exchange through a merger with an already listed shell company, via a so-called Spac transaction. It is a normal process that shares are then sold. What is unusual, however, is that a Spac deal has occurred. These deals are seen as financial constructs from the era of low interest rates. According to Dealogic data, there were more than 600 such transactions in the US in 2021, compared to just six this year.
Reibach in September?
Trump hasn’t sold any stocks yet, but the intention alone was enough to trigger the price slide. Its shares are subject to a lock-up period that runs until the end of September. In order to sell shares beforehand, he would have to obtain special permission from the board of directors of TMTG. Although he is loyal to him, Trump has an interest in not putting any more pressure on the share price.
Because he could get 36 million more shares over the next three years. To do this, however, the average share price must be traded at at least $12.50 within a 30-day period – the price is still well above this threshold.
But the price development of TMTG is very volatile. Intentions to sell will trigger further price fluctuations. The problem is that both Trump and TMTG desperately need money. The company recently announced that it “does not have the financial resources necessary to maintain operations for a reasonable period of time.”
Truth Social is financially on the brink. Only a victorious Trump in September would be a relief for the company; for example, if he were to use Truth Social as his preferred communication channel as the new president, like Twitter during his first term in office.
Trump and Truth Social need money
Trump also urgently needs money. He is currently involved in four criminal cases and one civil fraud case, which are causing high costs. On Tuesday he was back in court in New York to answer charges related to payments to porn star Stormy Daniels. He is said to have concealed her in order to buy her silence over an alleged affair in the run-up to the 2016 elections.
For Truth Social, Trump is both its greatest asset and its risk. TMTG admits in a document to the SEC: “A negative outcome of one or more proceedings may have a negative impact on TMTG.” Bankruptcy due to the “Trump risk” is also described as a realistic scenario. In the past, several companies affiliated with Trump, such as the Taj Mahal Casino or the Plaza Hotel, had to file for bankruptcy.
But the clock is ticking in the election campaign. There are only seven months left until the first round of the US presidential election, and Trump’s campaign coffers are under-filled. According to an analysis by the “FT”, the Trump camp only raised $90 million in the first quarter and is lagging behind Joe Biden’s campaign, which was able to attract $165 million. For comparison: According to data from Open Secrets, Biden received $1 billion in contributions in the last presidential election, Trump received $775 million – he lost.
Because of the legal proceedings, Trump will only be able to exert limited influence on the election campaign in the coming weeks. In the meantime, only Trump supporters and retail investors can determine the fate of “Trump stock.” According to TMTG boss Nunes, the company has attracted more than 200,000 new investors in the last few weeks. If they are willing to continue investing and losing money on Trump, Truth Social will have a future too.