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Donald Trump’s social media platform Truth Social appears to have achieved ‘meme stock’ status after reaching a staggering $8 billion valuation following its public listing this week.
This despite generating just $3.4 million in revenue in the first nine months of last year and incurring losses of $49 million, SEC filings show.
To put it in context, the average McDonald’s restaurant has sales of around $3.6 million.
Worth roughly 2,000 times its annual sales, Truth Social’s parent company, Trump Media, which trades under the symbol 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 high-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 that of chipmaker Nvidia, according to CNBC.
Donald Trump’s 58 percent stake in Trump Media is now worth more than $5 billion and his net worth has soared, but he may struggle to access cash.
Trump Media’s astonishing valuation has led experts to label it a meme stock, whose value is driven not by the company’s performance but by hype and sentiment.
“The action in DJT certainly rekindles memories of the ‘meme stock’ rallies,” said Bret Kenwell, an analyst at investment platform eToro.
Trump Media shares had fallen 6 percent on Thursday to $62.09, but were still holding up well for the week. Donald Trump personally owns about 58 percent, which at that price is worth about $5.2 billion.
He is now among the 500 richest people on the Bloomberg Billionaires Index.
While those shares could serve as a crucial means of financing your growing legal bills, they can also be a difficult reserve to tap into.
Questions are now being raised about whether Trump Media will be able to maintain its huge valuation and, if so, what will come of it.
Why are Trump Media shares soaring?
Trump Media is valued at $8 billion because as of this week investors are paying around $60 per share 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 riot at the Capitol.
But investors don’t buy shares because they believe Truth Social has a unique or promising business model.
The company, which largely failed, only attracts about 5 million monthly active users. In comparison, Elon Musk’s X sees 550 million.
Today, the platform is primarily used as a way for the former president to issue statements and convey messages to his fans.
‘Truth Social has also not reached its projected user base by an order of magnitude. It is not a successful company. It’s not a company that seems to have a successful plan to make money,” Jordan Libowitz of Citizens for Responsible Ethics in Washington told DailyMail.com.
“It’s essentially a meme.”
What is a meme stock?
Meme stock became a well-known phenomenon in early 2021 after shares of video game retailer GameStop rose more than 1,800 percent due to a surge in demand caused not by strong performance but by the virality of Internet.
That historic rally was fueled by the online investment community Wall Street Bets, which is hosted on the social media platform Reddit.
The group is known for supporting certain companies with all their might, buying their shares and holding on to those assets through thick and thin.
Sometimes these investments are made for ideological reasons, but in many cases in order to make quick money.
On the one hand, GameStop had nostalgic value for many community members because it was a dying retailer that reminded them of their youth. On the other hand, its skyrocketing stock price presented an opportunity to make some money.
GameStop became the quintessential meme stock after its share price rose 1,800 percent in 2021 after receiving backing from the Reddit group Wall Street Bets.
In the case of DJT, the investors appear to be largely ordinary people and not large institutions.
Stock Buyers They are a combination from those who want to support the Donald Trump brand, but also from those who think that if they buy Trump Media shares now they could sell them for profits in the future.
For example, some investors may believe that stocks will rebound if Trump is re-elected president later this year. On the Wall Street Bets online forum, the term ‘Pump and Trump’ is trending.
“It’s not really about Truth Social, they’re investing in a possible future president of the United States,” Libowitz said.
“Your net worth is controlled by whether people buy or sell stocks.”
eToro’s Kenwell said volatile stocks offer the potential for significant returns. “For obvious reasons, this is attractive to high-risk, high-reward speculators,” he said.
Can Trump access wealth?
Although the former president owns almost 60 percent of Trump Media shares, his ability to liquidate and access the billions of dollars is limited.
For six months, Trump is prohibited from selling his stake due to SEC rules designed to give investors confidence that major shareholders will not suddenly pull out.
However, there is a condition that would allow the six-month rule to be waived with the approval of Trump Media’s board.
It includes his son Donald Trump Jr, as well as two former Trump administration officials, Linda McMahon and Robert Lighthizer.
Alternatively, Trump could borrow against his billions of dollars in stock, but lenders may not feel particularly confident that Trump Media will maintain its current value in the future.
Finally, Trump may have the option to sell certain assets, such as Mar-a-Lago, to Trump Media. according to a Wall Street Journal column.
“Buying assets from the founder (of a company) is one of the things that is very difficult to protect against,” Dan Davies, a financial analyst and author of “Lying For Money,” told the newspaper.