Donald Trump is richer than ever (at least on paper)

Donald Trump began the week fearing that Trump Tower, the crown jewel of his real estate empire, would be repossessed because he could not raise enough cash to pay for a bond. He is ending it as one of the 350 richest men in the world, with a fortune valued at almost $7.5 billion, according to the Bloomberg Billionaires Index. Trump has never been as rich as he is now.

At the same time, his fortune has never been so uncertain and volatile. Most of his wealth — concentrated in shares of his social network, Truth Social — cannot be cashed in, and there is a risk that it will vaporize as quickly as it has appeared, before he can even take advantage of it.

To the delirium of Trump’s supporters, in addition to the wealth that the former president has racked up (at least on paper), there is the irony that it comes as a consequence of his rejection on social media for inciting violence on the eve of the attack on the Capitol. He was suspended from both Facebook and Twitter in January 2021. In May of that year, he made a failed attempt to launch his messages through a website, which he dubbed From the Desk of Donald J. Trump. He then embraced a plan put forward by two former contributors to his TV show The Apprentice to create a replica of Twitter.

This gave rise to Truth Social, the stock market valuation of which is financially absurd. It defies logic. The profit of TMTG, the company that owns the social network, between January and September 2023 was only $3.4 million, while its losses were $49 million. The company has historically incurred operating losses and negative cash flows and expects to continue to do so for the foreseeable future, it admits in the placement prospectus. However, it is worth $8.4 billion on the stock market (and up to $12.7 billion if unissued shares are taken into account).

With approximately 58% of the capital, Trump is by far the largest shareholder. The former president officially declared his stake in the company on Thursday to the U.S. Securities and Exchange Commission (SEC). In his notification, Trump reports that he is the direct holder of 78.75 million shares. These shares closed the last session at $61.96 per share, so his shareholding is valued at $4.879 billion. But not only that: the former president also gave notice that he is entitled to receive another 36 million shares as a reward if certain milestones are met with the listing that are on track to be met. So, in a matter of weeks, Trump could get those additional 36 million shares, valued at market price at another $2.23 billion.

But that wealth has a huge asterisk next to it. In the deal, Trump signed on to a commitment not to sell the shares for a six-month period that began on Tuesday. The board, which is in the hands of people close to the former president, could authorize him to sell earlier, but the mere announcement could trigger a crash, as could the exit of abundant stock to the market. In six months, a month and a half before the presidential election, no one knows the price at which the company will trade or the price at which part of its shares could be sold.

Trump is also the star of his social network, where he has 6.9 million followers (compared to the 87 million he retains on X, where he is inactive). The company’s chairman and largest shareholder has an agreement to prioritize Truth in his social media posts.

TMTG is worth more than The New York Times Company, which achieved revenues of $2.426 billion and a profit of $232 million in 2023. Trump’s social media defies any metric. It trades at more than 1,500 times its revenues. Nvidia, the stock market’s star stock thanks to artificial intelligence, trades at 38 times its revenue. Facebook went public at a valuation of about 12.5 times its revenue when its growth was in the midst of ramping up.

When comparing users, the nonsense is repeated. The social network was launched in the first quarter of 2022 and in its IPO prospectus, filed last month, the company claims to have achieved “a total of approximately 8.9 million registrations on Truth Social across iOS, Android and the web.” Overlooking the fact that not all registrations imply active users, Truth Social’s valuation exceeds $900 per registered user, compared to Reddit’s $147 per active user, X’s $80 and Snapchat’s $46, according to Reuters data.

Meme stock value

Although that price does not stand up to financial analysis, the fact is that the share price has been sustained for days with considerable trading volume on the stock market, so no one dares to guess what will happen to the share price in the short term. It is a stock that moves on irrational impulses, often transmitted by social media itself. For months, the stock price of GameStop, which survives deflated, defied financial fundamentals, but so did other stocks like AMC and Bed, Bath & Beyond, which ended up in bankruptcy, ruining their shareholders. Those stocks were dubbed meme stocks, and Trump’s company is the latest addition to the group.

In Truth Social’s case, the fact that Trump is a Republican candidate for president — and a tentative favorite in the polls — spices up the menu. “Trump’s investors may be betting that he’ll win election in November and use Truth Social as a White House mouthpiece, drawing more users and advertisers to the platform. It’s not a crazy bet as polls show Mr. Trump beating President Biden,” the Wall Street Journal argued.

Truth Social’s publisher, called Trump Media & Technology Group (TMTG), merged with a company that was basically a $300 million cashier’s check. It was Digital World Acquisition Corp (DWAC), a Special Purpose Acquisition Company (SPAC), that is, a company created specifically to undertake a merger or acquisition. After years of obstacles and stumbling blocks, the U.S. Securities and Exchange Commission (SEC) approved the prospectus for the deal in February. DWAC’s board approved the merger last Friday and the merger became effective on Monday, when the company adopted its new name and the registration was executed.

Although it was already listed as a merged company on Monday, per convention the stock market debut honors were reserved for Tuesday, when the trading code for the company’s shares became DJT, the former president’s initials. Trump Hotels and Casino Resorts, which went public in 1995, used that same code; in 2004, it filed for bankruptcy and was delisted, but that is another story.

With each step, the stock price has been soaring. DWAC/DJT shares have appreciated 374% in the past 12 months; 302% in six months; and 255% year-to-date. In the opinion of Dan Coatsworth, an investment analyst at AJ Bell (as quoted by Reuters), “Today’s price action and valuation are completely out of kilter with the underlying business and its prospects.”

“TMTG aspires to build a media and technology powerhouse to rival the liberal media consortium and promote free expression,” the IPO prospectus asserts. “TMTG was founded to fight back against the big tech companies — Meta (Facebook, Instagram, and Threads), X (formerly Twitter), Netflix, Alphabet (Google), Amazon and others — that may curtail debate in America and censor voices that contradict their woke ideology,” it adds, using a disparaging tone to describe progressive ideas.

The company acknowledges that it needs to attract Republican voters to its network to be viable and admits that if Trump’s popularity decreases or new controversies arise that damage his credibility or people’s desire to use a platform associated with him, operating results will suffer.

“TMTG’s future success will depend, to a significant extent, upon the continued presence and popularity of President Trump,” the cautionary section stresses. “If President Trump were to discontinue his relationship with TMTG due to death, disability, or any other reason, or limit his involvement with TMTG due to becoming a candidate for political office, TMTG would be significantly disadvantaged,” it warns.

The document also summarizes some of Trump’s business history, including the bankruptcy of several of his companies (“There can be no assurances that TMTG will not also become bankrupt,” it says) and other past scandals.

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