Donald Trump’s venture into the digital media world has hit a major roadblock – the company is bleeding money. But what makes this any different from other startups that struggle to turn a profit in their early years, if they ever do?
There are a few key reasons why Trump Media and Technology Group (TMTG) is facing such financial troubles.
- First, as a quick recap, TMTG merged with Digital World Acquisition Company in a SPAC, a risky financial instrument often seen as a last-ditch effort for a cash infusion. This move landed the company on NASDAQ as $DJT.
- Going public means revealing financial details to the world, and TMTG recently filed its first quarterly report with the SEC for everyone to scrutinize. Unsurprisingly, the financial press is having a field day with it. The bottom line is that TMTG is losing a significant amount of money and generating very little revenue. To be exact, the company lost $58 million while only bringing in $4 million.
As someone with a charitable mindset towards a tech startup challenging established competitors – regardless of the company’s “mission” or leadership – one might argue that this financial imbalance is typical for early-stage companies with ambitious goals. While that may hold true in some cases, there are three clear reasons why TMTG is not simply a struggling startup on the cusp of success.
- TMTG is not seeing any growth. Its primary business, Truth Social, has failed to attract more than a few million users and has not shown any sign of the traction needed to become the next big thing. It’s worth noting that Twitter had earned $665 million in revenue when it went public, underscoring just how far behind TMTG is. The minimal revenue numbers reveal that advertisers are not interested in paying for the current audience. And there’s little to suggest that this will change.
- TMTG is not a typical startup with the luxury of VC funding to sustain it until it turns a profit. Venture capital is a high-risk, high-reward strategy where fundamentally unprofitable businesses are kept afloat until they can find a profitable path. This allows startups to take risks, like overhiring or undercharging, and postpone figuring out a sustainable business model indefinitely. In the case of TMTG, Trump’s precarious personal, political, legal, and business position makes it a risky venture even for VCs. Furthermore, going public means being accountable to shareholders, and while Trump may hold a 60% share, the other 40% are watching closely for any evidence of breaching fiduciary duty. With no cash to spare, TMTG cannot afford to take any risks. After all, the whole point of going public is to attract investors to share in the success of the business – something that TMTG cannot guarantee.
- Unlike smaller startups that only have to answer to their VC backers, TMTG now has a fiduciary duty to its shareholders. This responsibility is not something that can be taken lightly, as it involves making decisions that are in the best interest of the company and its shareholders. TMTG’s current trajectory, along with Trump’s numerous legal and political troubles, makes it challenging to justify the company’s current valuation. As various analysts have pointed out, $DJT is fundamentally overvalued and unlikely to turn a profit anytime soon. Moreover, with no tangible assets, TMTG’s share price is essentially a meme stock that can be manipulated by public investors, and its value is not grounded in actual performance. While this may result in short-term gains for some day traders and short sellers, it’s not a sustainable model for long-term success. By the time Trump can sell his shares, it’s highly likely that the company will no longer enjoy its current inflated valuation. The significant drop in stock price, over 20% since the market opened, is a clear indication of this.
In summary, it’s evident that TMTG’s current share price has no relation to the company’s actual performance, making it a risky venture for both investors and the majority owner. With significant hurdles to overcome in terms of growth and revenue, and with a fiduciary duty to shareholders, it’s challenging to see how TMTG can turn its fortunes around and justify its current valuation. While the stock may see some fluctuations in the short term, it’s unlikely to retain its high value in the long run. Considering all these factors, it’s not surprising that TMTG is losing money, and plenty of it.
