In the highly unpredictable world of internet companies and tech start-ups initiating Initial Public Offerings (IPOs), the introduction of Donald Trump’s Truth Social network last year presents a peculiar situation, even by usual standards. Trump established Truth Social after being ostracised from other known platforms such as Twitter and Facebook in late 2021. Since its inception, Truth Social has been marred by a series of internal disputes among its founders, leading to multiple lawsuits. Interestingly, four of these legal disputes were unveiled weeks before the company went public and another one this week, with Trump pointing fingers at one of his Apprentice co-founders for the dip in stock value.
This level of public disagreement is rare, even for quarrelsome tech founders, as a company aims to go public. But that’s just par for the course at Truth Social.
The perplexity of Truth Social’s launch can be estimated from the fact that the company’s shares surged and provided an initial market capitalisation of $8 billion (£5.86 billion), which continued to rise before eventually dropping significantly, indicating a $6 billion market cap. This is despite Truth Social’s revenue of just $4.1 million in 2023 starkly contrasting with its concurrent company losses of $58.2 million. After these figures were disclosed in a recent earnings report, the company’s shares plummeted by 20%.
US television host Jimmy Fallon made a quip, saying, “Truth Social’s stock plunged so rapidly, they’re considering rebranding it as Twitter.” Other data revealed that Truth Social’s earnings for the last quarter were a mere $750,000, reflecting a 39 per cent drop from the preceding quarter. This income was jokingly compared by US business magazine Fast Company to “slightly higher than average sales of a standard McDonald’s franchise” annually. If Truth Social continues at this rate, the revenue it generates will likely be in line with owning a handful of busy McDonald’s franchises. However, even a group of highly trafficked McDonald’s outlets wouldn’t be valued anywhere between $5.9 and $11 billion, underscoring the discrepancy between selling tangible burgers and speculative hot air.
Truth Social lags behind its competitors in the social media sphere, with analysts suggesting it received between two and five million site visits on its applications and website in February. Active users in the US for that month, according to Similarweb’s calculations shared with CNN, amounted to almost 500,000 across their Android and iPhone apps; such users are deemed the most attractive in terms of potential advertising revenue. However, downloads of the application have seen a dip; despite an initial two million downloads from the Apple App Store in the early part of 2022, this figure dwindled to around 40,000 iOS downloads and 57,000 for Android in February, data from Statista revealed.
This contrasts starkly with the likes of Facebook which boasts three billion active users; TikTok, having two billion and the newbie, Threads, already reaching 130 million. Moreover, established media platform, Reddit, which recently went public, outranks Truth Social by generating $804 million in revenue, which is 160 times more than that of the latter. Reddit enjoys a daily active user base of 52 million and yet the market gave it a value of $6.4 billion. While by no means is it a mild achievement, the chaos of TMTG appears to belittle it.
To comprehend this chaos, one can consider the price-to-sales ratio – a measurement of how much investors regard a company compared to the sales it delivers. Fast Company highlighted that Truth Social’s price/sales ratio has rocketed into the thousands, unanchored from conventional business fundamentals. In contrast, Reddit’s ratio stands at eight post-IPO, Alphabet’s at six, Meta’s at nine and the current stock market darling, chip manufacturer Nvidia, a lofty 25.
To put it differently, each American monthly user of Truth Social, approximately 494,000 in total, could have a potential value of $11,538, modestly based on the lower limit market cap of $5.7 billion as of the previous Monday. Accordingly, each user is theoretically expected to bring revenue to the site worth this sum. This equates to about 192 units of the recently introduced $60 ‘God Bless the USA’ Bibles per US app user. Meanwhile, the depreciation in electric car sales is spiralling at a quick pace.
Despite generating a revenue of $134 billion in 2023, Meta’s each monthly active user equates to a relatively low $367. Comparatively, each individual on Truth Social’s total monthly users of two to five million is valued between $1,200 and $2,850, the equivalent of 24 to 57 official Trump $50 Maga caps. Jay Ritter, a finance professor at the University of Florida’s Warrington College of Business and an expert on IPOs, acknowledges the mismatch between the stock’s value and the company’s financial fundamentals.
The most recent earnings report of TMTG indicated its financial losses, leading auditors to question the company’s long-term sustainability. However, the financial pressure is expected to ease, at least momentarily, due to the $300 million infusion received from its merger with a pre-IPO shell company.
TMTG’s public offering statement included a cautious note, stating that several businesses affiliated with President Trump filed for bankruptcy, and there are no guarantees that TMTG will not follow this path. Analysts predict sizeable financial losses are inevitable for the company, with some expecting the company’s share price, which currently stands at about $50 and once peaked above $73, to eventually drop to approximately $2. Therefore, anyone invested in TMTG should brace for a tumultuous financial journey.