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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Once again, Donald Trump is defying the establishment. The blank cheque merger phenomenon that swept US capital markets during the pandemic has largely abated. Cash shell companies brought a series of immature businesses to public markets. High interest rates and low profits quickly sent many into the dustbin. Regulators stepped in to add shareholder protections.
But Trump’s nascent venture, Trump Media & Technology Group, has closed its Spac merger, against long odds. On Tuesday, in early trading, TMTG shares soared to a level that implied a diluted equity valuation of $14bn.
The stake of the former president and current Republican candidate is valued at $5.5bn. In its investor presentation shared in December, TMTG estimated that its valuation could perhaps touch only $1.6bn on aggressive forecasts.
Much of the shareholder base of TMTG is retail holders. Given the company’s scant revenues (just $3.4mn in revenue in the first nine months of last year) and the competitive digital media marketplace, TMTG looks like a rightwing meme stock combined with the classic pathologies of the Spac bubble.
TMTG is supposed to have two elements. First is a classic social network that generates ad revenue from user impressions. The company estimated that Truth Social — where Trump posts his daily eclectic thoughts — could have 10mn such users this year, doubling by next.
It seems like a modest target. Trump garnered 74mn votes in 2020. Facebook has billions of users; X in the hundreds of millions. Yet, so far in 2024, data trackers calculate Truth Social has fewer than 1mn monthly users.
TMTG also says it can create a paid subscription tier known as “Truth +” to provide “non-woke” entertainment — for 4mn users by the end of 2026. It is all supposed to add up to $400mn of revenues some years away.
Given the difficulties that long-standing media and social network companies have in generating growth and profit, the $14bn valuation, essentially out of thin air, is fanciful. (Reddit’s blockbuster listing left it with a market cap of almost $10bn on about $1bn of revenue). Then there is the question of how long Trump will hold on to his shares given his potential need to stump up $500mn in cash for legal judgments.
Based on the merger with the cash shell, TMTG should have more than $300mn to build its business. But users, market share, revenues and cash flows probably miss the point.
TMTG shareholders may be just superfans wishing to soak up the Trump stardust. Monetising Maga in the public markets may be Trump’s greatest business success.