Why Trump’s digital media company is different from other loss-making startups

Former President Donald Trump’s digital media company is losing money, and a number of it. But how is this different from other “startups” that usually struggle to show a profit for years, in the event that they manage to achieve this in any respect?

There are several reasons.

First, as a summary: Trump Media and Technology Group recently merged with Digital World Acquisition Company, making a SPAC – a financial instrument that is most frequently a final likelihood for a major money injection. The company is listed on NASDAQ, as you may expect, $DJT.

An necessary a part of going public is revealing your funds to the world, and more recently TMTG submitted its first quarterly financial report from the SEC that anyone can view and analyze. The financial press is having quite a lot of fun, however the result is that TMTG is losing quite a lot of money and generating no profits. Specifically, the company lost $58 million on just $4 million in revenue.

Those inclined to indicate charitable support for a tech startup difficult entrenched rivals – no matter its “mission” or leadership – might reasonably note that this imbalance is common amongst early-stage firms with big ambitions. And that is right – who can forget that Uber has been making huge losses for years to undermine the taxi industry’s business model?

TMTG is superficially similar, primarily since it doesn’t earn a living. However, this doesn’t mean that it is a startup on the verge of explosive growth. There are three big, easy reasons:

• TMTG is not growing. Truth Social, TMTG’s most important business, has not attracted greater than just a few million users. It hasn’t shown the traction that any startup would have to indicate to suggest it’s the following big thing or anything in any respect (as others have noted, Twitter had $665 million in annual revenue on the time of its IPO). . Incredibly low revenues tell us that the one source of income, advertisers, don’t want to pay for the dimensions of the audience. And there is no reason to expect this to vary.
• TMTG doesn’t have a VC runway. Venture capital is a high-risk, high-reward strategy through which essentially unprofitable firms are supported until something changes they usually can earn a living. This gives startups the liberty to take dangerous actions like overstaffing, undercharging, and throwing the “business model” out of the way in which, sometimes without end. If investors are confident and the product has traction – like Uber – they’ll pump billions into it because they’re sure that they’ll eventually pay it back. But in his current precarious state, Trump could be a dangerous selection even for VCs. But this is all moot because:
• TMTG is now accountable to its shareholders. Small startups could have to report back to their VC principals from time to time, but they’ve leeway in comparison with public firms which have fiduciary duties to their shareholders. Although Trump is TMTG’s largest shareholder with a 60% stake, the remaining 40% is closely awaiting any violations of this obligation – akin to a stock sale or a loan that drastically reduces the company’s value. But the necessary thing is that TMTG doesn’t have the liberty to throw across the money (it doesn’t have any anyway) or take risks. The basic idea of ​​going public is that you could have a company that others wish to share – TMTG just doesn’t do this.

As a result, as analysts have already noted, the DJT dollar is fundamentally and wildly overvalued. The company is unlikely to show a profit anytime soon, let alone enough profit to justify its share price and multi-billion dollar valuation. Even probably the most optimistic scenarios likely include solvency as a distant goal.

On the other hand, given the bulk owner’s personal, political, legal and business problems, there is a really real risk that the entire thing will collapse before the tip of the 12 months.

The fact is that the stock price is completely unrelated to the company’s performance, making it essentially a “meme stock” that will likely be priced arbitrarily and possibly manipulated by public investors.

While this may increasingly earn a living for day traders and short sellers over the following few days and weeks, it is not the form of thing that holds value over the long run, especially within the absence of TMTG assets. By the time Trump is in a position to sell his shares, the company’s value will likely be much like what it is today. That’s not even price what it was this morning, when shares dropped greater than 20% for the reason that market opened.