Donald Trump’s social media platform Truth Social appears to have achieved ‘meme stock’ status after reaching a staggering valuation of $8 billion following its public listing this week.
That is despite the fact that it generated only $3.4 million of revenue in the first nine months of last year and incurred losses of $49 million, SEC filings show.
For context, the average McDonald’s restaurant has sales of around $3.6 million.
With a value around 2,000 times higher than its annual sales, Truth Social parent company Trump Media – trading under the ticker DJT – may be among the most overvalued companies currently trading on the Nasdaq.
Typical price-to-sales ratios for companies vary by industry but are 38, 13 and 10 respectively for top tech stocks like Nvidia, Reddit and Meta, according to CNBC.
This week, Trump Media – with a market capitalization of more than $8 billion – had a price-to-sales ratio more than 50 times higher than that of chip maker Nvidia, according to CNBC
Donald Trump’s 58 percent share of Trump Media is now worth more than $5 billion and his net worth has skyrocketed – but he may struggle to access the cash
Trump Media’s astounding valuation has led experts to label it a meme stock – whose value is driven not by the company’s performance but instead by hype and sentiment.
‘The action in DJT certainly rekindles memories of the ‘meme stock’ rallies,’ said Bret Kenwell, an analyst at investing platform eToro.
Trump Media shares had slipped 6 percent Thursday to $62.09 but were still well up over the week. Donald Trump personally owns around 58 percent – worth around $5.2 billion at that price.
He is now among the wealthiest 500 people on the Bloomberg Billionaires Index.
While those shares could serve as a crucial means to fund his escalating legal bills, they may also be a tricky reserve to tap into.
Questions now loom as to whether Trump Media will be able to sustain its enormous valuation and if so, what will come of it.
Why are shares in Trump Media soaring?
Trump Media is valued at $8 billion because as of this week investors are paying around $60 for shares – and there are around 135 million outstanding.
Trump Media’s only real asset is Truth Social, the social media platform created after Trump was removed from X, Twitter at the time, following the January 6 Capitol riot.
But investors aren’t buying the stock because they think Truth Social has a unique or promising business model.
The largely unsuccessful venture only attracts around around 5 million active monthly users. By comparison, Elon Musk’s X sees 550 million.
Nowadays, the platform is mainly used as a way for the former president to issue statements and broadcast messages to his fans.
‘Truth Social also has missed its projected user base by an order of magnitude. It’s not a successful company. It’s not a company that seems to have a plan for success for making money,’ Jordan Libowitz of Citizens for Responsible Ethics in Washington told DailyMail.com.
‘It’s just essentially just a meme.’
What is a meme stock?
Meme stocks became a well-known phenomenon in early 2021 after shares in video game retailer GameStop rallied more than 1,800 percent due to a surge in demand caused not by strong performance but by internet virality.
That historic rally was driven by the online investing community Wall Street Bets, which is hosted on social media platform Reddit.
The group is known for throwing itself with full force behind certain companies, buying up their shares and holding onto those assets through thick or thin.
Sometimes those investments are made for ideological reasons, but in many cases in order to make a quick buck.
On one hand, GameStop held nostalgic value to many members of the community because it was a dying retailer that reminded them of their youth. On the other hand, its soaring share price presented an opportunity to make some money.
GameStop became the quintessential meme stock after its share price rallied 1,800 percent in 2021 after it was endorsed by the Reddit group Wall Street Bets
In the case of DJT, investors similarly appear to be largely ordinary people and not big institutions.
Buyers of the stock are a combination of those wanting to support the Donald Trump brand, but also those who think that if they buy Trump Media shares now they might be able to sell them for profit in the future.
For example, some investors may believe the stock will rally if Trump is re-elected as president later this year. On the Wall Street Bets online forum, the term ‘Pump and Trump’ is trending.
‘It’s not really Truth Social, they’re investing in a potential future president of the United States,’ said Libowitz.
‘His net worth becomes controlled by whether people are buying or selling stock.’
Kenwell of eToro said the volatile stock does offer the possibility of significant returns. ‘For obvious reasons, this is attractive for high-risk, high-reward speculators,’ he said.
Can Trump access the wealth?
Although the former president owns almost 60 percent of the Trump Media shares, his ability to liquidate and access the billions of dollars is limited.
For six months Trump is forbidden from selling his stake due to SEC rules designed to provide investors with confidence that major shareholders won’t suddenly cash out.
However, there is a condition that would enable the six-month rule to be waived with the approval of Trump Media’s board.
On it is his son Donald Trump Jr, as well as two former Trump administration officials Linda McMahon and Robert Lighthizer.
Alternatively, Trump may be able to borrow against his billions of dollars worth of shares, but lenders may not feel particularly assured Trump Media will hold its current value going forward.
Finally, Trump may have the option of selling certain assets, like Mar-a-Lago, to Trump Media, per a column in the Wall Street Journal.
‘Buying assets from the founder [of a company] is one of the things that’s very hard to guard against,’ Dan Davies, a financial analyst and author of ‘Lying For Money’ told the newspaper.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
