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I don’t give investment advice. But I assure you that a company with $3.4 million in revenue and $49 million in losses over the past nine months is not worth $5 billion. Buy into shares of any company with those numbers and you are certain to be taken for a sucker.
That Donald Trump will be the one doing the bamboozling means that investors in his soon-to-be-public media company might as well be making a political donation to his campaign or contributing to a Trump legal defense fund instead. This scheme is unfolding in the plain light of day, and securities regulators are powerless to do anything about it.
The company in question is Digital World Acquisition, a SPAC, or special-purpose acquisition company, formed three years ago. It raised nearly $300 million in a 2021 initial public offering with the intention of buying another company. The company Digital World decided to buy is a now-two-year-old, 36-employee start-up called Trump Media & Technology Group, whose “first” product, according to securities filings, is Truth Social, Trump’s answer to Twitter.
The reason Digital World’s shares are now worth north of $5 billion is that, after years of holdups, it finally has received permission from the Securities and Exchange Commission and approval from shareholders to complete its purchase of Trump Media. Investors, and presumably some Trump fans excited to be owning a piece of a company with his name on it, bid up shares of Digital World last week. If the companies merge this week, as expected, Digital World will become Trump Media, stock-market valuation and all.
With its pre-merger frothiness, Digital World has become what was known during the stay-at-home pandemic trading era as a “meme” stock. Shares in companies such as GameStop and AMC Entertainment spiked — and ultimately collapsed — because Red Bull-addled internet traders pumped them up and then dumped them, not because of any changes in the underlying values of the corporations that issued the stock.
In the case of the earlier meme stocks, though, the companies had little role, if any, in promoting their stock activity; they merely were along for the roller-coaster ride. Trump Media’s public pronouncements, on the other hand, are giving investors plenty of flimflammery — and also some telling warnings about investing alongside Donald Trump.
In Trump Media’s own words, through its filings, it “aspires to build a media and technology powerhouse to rival the liberal media consortium and promote free expression.” The key word there is “aspiring.” So far, Truth Social hasn’t come close. To date, its sales, as noted, have been few, and it has had just under 9 million “sign-ups,” a figure as minuscule as it is meaningless. The company itself doesn’t seem impressed. It notes that “adhering to traditional key performance indicators, such as signups, average revenue per user, ad impressions and pricing … could potentially divert its focus from strategic evaluation with respect to the progress and growth of its business.”
Translation of that financial word salad: Truth Social hasn’t amounted to much so far; pay no attention to our lack of specifics.
Trump, of course, has a long and checkered business track record. The SEC’s disclosure rules require Trump Media to detail his flops, with the admonition that this investment could become one, too. The list is long, and the language is damning. “The Trump Taj Mahal, which was built and owned by President Trump, filed for Chapter 11 bankruptcy in 1991. The Trump Plaza, the Trump Castle, and the Plaza Hotel, all owned by President Trump at the time, filed for Chapter 11 bankruptcy in 1992.” It continues by name-checking Trump’s other business failures: Trump Entertainment Resorts, Trump Shuttle, Trump University, Trump Vodka, Trump Mortgage and GoTrump.com (a travel site). The recitation of instances when Trump has lost money for others wraps up by noting that “Trump Steaks, a brand of steak and other meats founded by President Trump in 2007, discontinued sales two months after its launch. … There can be no guarantee that [Trump Media’s] performance will exceed the performance of those entities.”
Another risk that investors in Trump Media will face is its namesake dumping shares to pay his legal bills. Much was made last week of Trump’s potential windfall from the deal. Because he owns about 58 percent of the company — worth more than $3 billion at last week’s stock price — Trump in theory could sell shares to fund the $454 million bond he owes the state of New York after his civil fraud judgment there. He would need the management or board of Trump Media to wave a customary six-month lockup on his shares, which easily could happen since he will control both. But selling large numbers of shares is likely to tank the stock. (Already, Digital World shares plunged 14 percent on Friday.) And despite speculation to the contrary, it stretches credulity to assume he’d be able to borrow by using Trump Media’s flimsy shares as collateral.
Investors who persist in backing Trump cannot say they weren’t warned.
Trump’s new stock deal is just another pig in a poke
11
76
25.03.2024
Sign up
I don’t give investment advice. But I assure you that a company with $3.4 million in revenue and $49 million in losses over the past nine months is not worth $5 billion. Buy into shares of any company with those numbers and you are certain to be taken for a sucker.
That Donald Trump will be the one doing the bamboozling means that investors in his soon-to-be-public media company might as well be making a political donation to his campaign or contributing to a Trump legal defense fund instead. This scheme is unfolding in the plain light of day, and securities regulators are powerless to do anything about it.
The company in question is Digital World Acquisition, a SPAC, or special-purpose acquisition company, formed three years ago. It raised nearly $300 million in a 2021 initial public offering with the intention of buying another company. The company Digital World decided to buy is a now-two-year-old, 36-employee start-up called Trump Media & Technology Group, whose “first” product, according to securities filings, is Truth Social, Trump’s answer to Twitter.
The reason Digital World’s shares are now worth north of $5 billion is that, after years of holdups, it finally has received........
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