A few days ago Donald Trump’s social media site, Truth Social, officially began trading publicly and tons of people are getting in on the action. As of the moment I’m writing this, the market cap, or total value of his company is over $9 billion dollars.
Is Truth Social worth $9B? In short, no. In the first three months of 2023 Truth Social did $3.4 million in revenue. That’s top line revenue. They didn’t profit $3.4M, they actually lost $49M in those 9 months. But if we give them credit just for the revenue and extrapolate that to the full year it’s about $4.5M. One way to value tech companies is from a multiple of revenue. If we give Truth Social a 5x multiple, that values the company at $22M. So $9B is about 400X more than this valuation metric.
Does that mean the new DJT stock will go to zero? We don’t know yet! Sometimes unprofitable companies turn it around. Although comparing Truth Social to pretty much any other social media platform makes the valuation look bonkers. For example, Truth Social has 5 million monthly active users. Pinterest had 250 million when they went public. Pinterests valuation with 50X more users was about the same, $10B.
One kind of logistical side note on this graph. The stock prices before a few days ago weren’t technically for DJT/Truth Social, but rather a “Special Purpose Acquisition Company” called Digital World Acquisition Corp. That company is basically a shell company that went public as an empty company for the sole purpose of acquiring Truth Social, thus subverting some of the oversight and regulations that are involved in taking an operating company public. So up until a few days ago, the stock price really reflected investors expectations that this merger would finally go through and the resulting value.
Am I going to buy DJT? No. I’m kind of tempted to short sell it or buy puts because I don’t think there’s a very likely long term successful outcome, but I’m more likely going to laugh from the sidelines eating popcorn and buying and holding my index funds.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
