The Truth About Social Loss
The shareholders of Digital World Acquisition Corporation On Monday, it boldly aligned their fortunes with Donald Trump’s Truth Social, ratifying a deal that would award nearly $3 billion in bounties to former and potential returning commanders-in-chief.
This coincidence, especially as the progenitor of Trump Media & Technology Group (Trump Media & Technology Group), highlights a broader story that may not be captured by casual observers. society of truthrevealed that its revenue for the first nine months of 2023 will be just over $3.4 million, on the back of a $49 million loss.
The chatty ranks, always gleeful at anything they consider a black spot on the orange bad guy’s record, were quick to pass off these numbers as a harbinger of trouble for the platform. However, such readings miss the forest for the trees and ignore historical pathways. Technology darlings from Twitter to Amazon—Ventures soaked in red ink while rewriting the rules of their respective fields.
when twitter When the company went public in 2013, it was a very unprofitable company. The company had losses of nearly $400 million before going public, including a $79 million loss in the year before its initial public offering. After the IPO, losses exploded, with the company posting a net loss of $520 million in 2015 alone. It was valued at $11 billion when it went public.
The year after it was established in 1994, Amazon Total sales were $511,000 and net loss was $52,000. In 1996, the year before Amazon went public, it had sales of $15.7 million and a net loss of $5.8 million. In the year of its release, sales soared to $148 million, with losses of $27.6 million. The company did not report annual profits until 2003.
social media platform reddit The company has never made a profit since its founding in 2005. The company’s stock closed its first day of trading this week up 48%. As of Friday afternoon, the stock was trading at about $48, giving the company a market capitalization of about $7.7 billion.
Reddit Co-Founder and Chief Executive Officer Steve, during the company’s initial public offering (IPO) on the floor of the New York Stock Exchange (NYSE) in New York on March 21, 2024. Mr. Huffman is in the center. (Michael) Nagle/Bloomberg via Getty Images)
in fact, Unprofitable tech startups are very common. When Jay Ritter, a finance professor at the University of Florida, looked at unprofitable tech startups in 2013, he said: found 68% were not profitable. In 2018, Ritter found Roughly 83 percent of initial public offerings in the U.S. in the first three quarters of this year lost money in the 12 months leading up to their IPOs.
A lighthouse in a balkanized media world
Digital World Acquisition Corp (DWAC) stock is It has soared 135% since the beginning of the year.Even after factoring in Friday’s slight decline. Some investors appear to view buying and holding DWAC as a way to show support for President Trump’s campaign to retake the White House, or as a bet that Trump will win in November.
The rapid rise in stock prices of special purpose companies meme stock boom who sent the shares of AMC and GameStop Skyward a few years ago. But those comparisons are inappropriate. Rather than proactively investing in the growth potential of emerging media companies, meme stock players were betting on value hidden within mature companies.
(Olivier Drierly/AFP via Getty Images)
The investment theory behind Truth Social isn’t all that far-fetched. The basic idea is political isolation What we’ve seen on TV, radio and newspapers will also tear social media apart.On the right, we have Fox News, conservative talk radio, and new york post On the left is MSNBC, NPR; new york timesSegmentation may also be coming to social media.
Is Truth Social really worth its $6 billion market cap?Merger makes it possible $300 million in cash This means you can invest in the growth of your platform. Perhaps it will become more than a Twitter clone, expand to offer its own video and audio content, and perhaps court celebrities such as: tucker carlson.
If your content is engaging enough, you can also offer subscriptions to access gated content. Will people really pay to subscribe to Truth Social? Well, we know that people were willing to bid up to $40 for shares so they could use, watch, and participate in Truth Social. It makes sense that you would be willing to pay for it. In 2022, national public radio It raised $120 million in donations through a paywall from supporters who didn’t need tickets.
Can Trump use his true social wealth to pay the New York fine?
The big question everyone is asking is whether President Trump will be able to use the roughly $3 billion from the merger to pay for the deal. $464 million in bonds He must post to appeal the sentence against him in New York. As is common in initial public offerings and special acquisition company mergers, Trump’s shares are subject to a six-month lock-up period. The terms of the lockup prohibit him not only from selling the stock but also from using it as collateral for a loan.
but Company can waive or modify lockup. In that case, Trump would only need to grant a partial waiver so he could borrow against the stock. It is no exaggeration to say that it is in the company’s interest that the people supporting the company do not face the disastrous prospect of trying to sell their physical assets to appeal the New York judgment.
Will banks and insurance companies use stocks as collateral to lend President Trump the funds he needs? That’s an even more difficult question. This was announced by Trump’s lawyers. the bank required cash collateral and refused to accept the pledge of his interest in real estate. If they take the same position on stocks, President Trump may be out of luck.
Former President Donald Trump (second from right) departs from Trump Tower in New York on Tuesday, January 16, 2024. (David Dee Delgado/Bloomberg via Getty Images)
However, there is reason to believe that this may not be the case. Valuing the real estate that President Trump likely provided as collateral will be a difficult task.Especially since a large portion of it may already be secured under a mortgage or other financing agreement. Additionally, President Trump just had a New York court declare that he fraudulently inflated the values of some properties when seeking loans, which is sure to cause problems with potential lenders’ compliance officers. It will be.
When it comes to stocks in publicly traded companies, that doesn’t matter. The value of the pledged shares is clear to everyone. Even if banks were wary of the possibility that their stocks might fall in value, it would be reasonable to think that: Trump’s stock is worth at least $500 million.. Remember, once the merger is complete, the company will have about $300 million in cash on its books.
The real problem may be timing. President Trump reportedly has until Monday to post the appeal bond. Could he get a waiver and arrange financing that quickly? We’ll probably find out soon.
