The Truth About Trump's Truth Social

🌈 Abstract

The article discusses the valuation and financial metrics of Truth Social, a social media platform owned by former US President Donald Trump. It highlights the disconnect between the company's valuation and its actual financial performance, and the two types of investors in the stock - gamblers and Trump fanatics. The article also covers Trump's ownership stake, the company's auditing issues, and the challenges he may face in cashing out his shares.

🙋 Q&A

[01] Truth Social's Valuation and Financials

1. What are the key issues with Truth Social's valuation and financial metrics?

• The company's valuation of $8 billion is extremely disconnected from its financial reality, with only $770,000 in revenue in Q1 2024 and a net loss of $328 million.
• The valuation is over 8,200x the company's annual revenue, which is completely insane compared to other social media companies at their IPOs.
• Truth Social's daily active US user base has declined by 19% year-over-year, indicating a lack of growth and user engagement.
• The company's cash burn of $9 million in the quarter is much lower than the massive accounting loss, due to non-cash charges related to the SPAC merger and stock-based compensation.

2. How does Truth Social's valuation and metrics compare to other social media companies?

• Compared to other major social media platforms like Facebook, Twitter, Snapchat, and Reddit at their IPOs, Truth Social's valuation and user metrics are vastly disproportionate.
• For example, Reddit had over 500 million monthly active users and nearly $1 billion in revenue when it went public, yet was valued lower than Truth Social.

3. Why does Truth Social not want to disclose traditional key performance indicators?

• Truth Social claims that disclosing metrics like signups, average revenue per user, ad impressions, and active user counts could "potentially divert its focus" and may not align with the best interests of the company and its shareholders.
• This suggests the company is trying to avoid transparency around its poor performance and user engagement.

[02] Trump's Ownership and Potential Challenges

1. How much of Truth Social does Donald Trump own?

• Trump owns 65% of Truth Social's outstanding shares, which are currently worth around $5.2 billion on paper.

2. What challenges does Trump face in cashing out his shares?

• There is a 6-month lockup period after the company's public listing, during which insiders like Trump cannot sell their shares.
• Even after the lockup period, any significant selling by Trump would likely cause the stock price to crash, as the company's valuation is heavily dependent on his involvement.
• Trump may not be able to realize the full $5.2 billion value of his shares, as the stock price would drop significantly if he tried to cash out a large portion of his stake.

3. What other issues has Truth Social faced?

• The company's previous auditor, BF Borgers CPA, was charged by the SEC with massive fraud and banned from performing audits of public companies.
• Truth Social had to quickly hire a new auditor, Semple, Marchal & Cooper LLP, which raises questions about the company's oversight and governance.