Since Trump Media and Technology Group (DJT) debuted on the Nasdaq in March 2024, following a long and complex merger with a SPAC, its stock performance has been driven more by speculation surrounding former President Donald Trump — its largest shareholder — than by speculation surrounding the company. Business basics. These fundamentals form the basis of my bearish outlook for DJT.
Given that DJT’s main asset is the social media platform Truth Social, which has annual revenues of less than $5 million, it is difficult to verify an enterprise value of more than $2 billion. While a potential Trump election victory could lead to a very bullish rally in the stock, this remains a highly speculative scenario with a risk-reward profile that I find unwarranted.
DJT: A bet on the Trump brand and Truth Social
Although I maintain a bearish stance on DJT stock, it is important to stress that a significant source of the hype and increased volatility in its stock price stems from President Trump’s image, both as a politician and as a (allegedly) billionaire businessman.
The Trump name is a globally recognized brand, with DJT primarily associated with Truth Social, a social media platform that opposes, among other things, “cancel culture.” While brand recognition is difficult to measure, Trump’s media and technology group is likely to expand beyond Truth Social. One potential growth avenue is the streaming service TMTG+, which aims to promote freedom of expression to a global audience, independent of big tech companies.
Despite the significant implementation risks associated with these ventures, especially Truth Social, it is undeniable that the Trump brand is significantly boosting business. However, Donald Trump’s record as a businessman is mixed. Although he achieved some success, especially in the media field, he also faced setbacks including real estate and casino bankruptcies and major debt problems.
DJT stock fluctuates with election-related developments
Another reason I’m skeptical about investing in DJT is the stock’s high volatility response to news and events related to the upcoming presidential election in November.
Throughout this year, many surprising moves in DJT stock prices have coincided with election-related events. For example, at the end of May, stocks fell due to Trump’s felony business fraud conviction. Following Trump’s dismissal of Florida’s federal case over classified documents on July 15, DJT shares rose 30% the next day, although that momentum quickly faded. DJT shares have seen several 50%+ pullbacks in the past year. Recently, DJT shares fell 12% following Trump’s debate with Vice President Kamala Harris.
History suggests that DJT stock is more closely tied to expectations of Trump’s potential return to the White House than to the performance of Truth Social’s business. While this correlation may not sustain itself over the long term, it creates the fundamental risk in the short to medium term of a bearish thesis. An election win would likely push DJT stock to a peak beyond previous levels.
The disconnect between DJT fundamentals and valuation
The main reason for my bearish stance on DJT is the great difficulty in trying to justify its valuation from business fundamentals.
DJT posted revenue of just $3.4 million over the past 12 months, accompanied by an operating loss of $125.4 million. Despite these weak numbers, the company is valued at $2.2 billion and an impressive price-to-sales ratio of about 500 times. In the most recent quarter (Q2), revenue was minimal, totaling just $837,000. Furthermore, Truth Social’s user base dropped to approximately 113,000 in April, which represents a 19% year-over-year decline based on available data.
On the plus side, DJT has a strong balance sheet, with $344 million in cash and no debt, generating a significant amount of interest income. In fact, interest income made up the majority of the company’s inflows last quarter. The company’s large cash reserve will likely dwindle as the company expands beyond Truth Social, especially with projects like a streaming service planned.
To a large extent, DJT’s valuation and trading are similar to meme stocks. The stock price is primarily affected by volatility generated by momentum traders who trade on thin indicators. The absence of meaningful revenue makes it nearly impossible to estimate the company’s fair value at this time. About 10.7% of DJT shares are currently short, which could leave the stock vulnerable to selling pressure.
DJT’s downward trend is likely to continue
To further support my bearish stance on DJT stock, technical analysis reveals that the stock is trading below its moving averages, providing additional reason for pessimism.
The downward trend in stock prices has worsened in recent weeks, with DJT hitting all-time lows, largely due to the end of the restricted stock lock-up period. The six-month lockup period, after the stock debuted in March, prevented former President Donald Trump and other early investors from selling their shares.
Trump recently stated that he has no plans to sell his stake in Trump Media. As long as this remains the case, a sharp sell-off is unlikely, although DJT stock may continue to slowly lose more of its value.
Conclusions regarding DJT stock
From a business fundamentals and valuation perspective, Truth Social’s current market cap of $2.75 billion is almost impossible to justify. The speculative nature of the stock has attracted significant interest from traders, resulting in volatility primarily related to developments in Trump’s presidential campaign rather than any trading achievements. Given my view that DJT stock movements are mainly caused by speculation, I advise investors not to be tempted to grab this bearish knife.
There are no Wall Street analysts covering Trump Media and Technology Group
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