The controversial social media company remains a volatile investment.
Trump Media & Technology Group (DJT 1.76%), which owns the social media platform Truth Social, went public by merging with a special purpose acquisition company (SPAC) on March 26, 2024. Its stock opened at $70.90, sank to an all-time low of $12.15 on September 23, but now trades at about $34. Let’s see where this volatile stock could head over the next year.
How does Trump Media make money?
Trump Media’s core asset is Truth Social, but it doesn’t disclose its monthly active users (MAUs), its average revenue per user (ARPU), or any other growth metrics which social media companies like Meta Platforms actually use.
Image source: Getty Images.
According to Similarweb, Truth Social had 76,463 daily active users (DAUs) in the U.S. as of May 19, 2024 with an average of 4 million monthly visits from May 2023 to April 2024. Meta ended its latest quarter with 3.29 billion daily active people (DAP) across its entire family of apps (Facebook, Instagram, Messenger, and WhatsApp).
Like Meta’s Facebook and Instagram, Truth Social generates most of its revenue from digital ads. But in 2023, Trump Media generated just $4.1 million in revenue and racked up a net loss of $58.2 million. In the first nine months of 2024, it generated $2.6 million in revenue as its net loss widened more than seven times to $363.2 million.
Trump Media ended the third quarter of 2024 with $372.1 million in cash and equivalents, but it will likely pour a lot of that cash into its new Truth+ streaming video platform. Building a streaming video service is an extremely capital-intensive business, and that expansion should burn its cash at an even faster rate while widening its net losses.
With barely any revenue and massive losses, it might seem shocking that Trump Media still has a market cap of $7.4 billion — a staggering 1,850 times last year’s revenue. So for now, it looks like a meme stock which is being mainly driven by the political headlines instead of any fundamental improvements to its business.
Why are investors still propping up Trump Media’s stock?
Trump Media’s valuations seem unsustainable, but three types of investors are still likely trading the stock. First, short-term traders are buying and selling its wild swings. Second, some of President-elect Donald Trump’s supporters — who already bought the stock in the months leading up to the election — are still buying or holding the stock to express their support for his incoming administration. These investors will point out that Trump still holds a massive $4 billion stake in the company.
Lastly, some speculative investors might believe Trump Media can expand and evolve into a major social and streaming media platform. Some of those investors are even dreaming about a potential merger between Truth Social and Elon Musk’s X. It was previously interested in merging with the controversial social media platform Parler and the right-leaning streaming media platform Rumble, and it reportedly held talks to buy the crypto-trading platform Bakkt.
However, Trump recently transferred all of his Trump Media shares into a revocable trust of which he is the sole beneficiary. Trump previously said he wouldn’t sell any of his personal shares, but that move removes Trump as the company’s top individual shareholder — and it might be a hint of some planned stock sales in the future.
Where will Trump Media’s stock be in a year?
Trump Media’s stock will likely remain volatile over the next 12 months. But I expect the election-driven, meme-stock euphoria will dissipate, especially after Trump takes office and investors focus on the macro issues and elevated interest rates again.
When that happens, Trump Media’s stock could experience a deep and painful drawdown. It could easily lose more than 90% of its value and still be considered expensive relative to its revenue. So while the stock might experience some wild swings over the next year, I believe it will lose its momentum and burn a lot of investors who chase its post-election gains.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
