Since Trump Media & Technology Group (DJT) debuted on the NASDAQ in March 2024, following a long and complex merger with a SPAC, its stock performance has been driven more by speculation surrounding former president Donald Trump—its largest shareholder—than by the company’s business fundamentals. Those fundamentals form the basis of my bearish outlook on DJT.
Given that DJT’s main asset is the social media platform Truth Social, with annual revenues less than $5 million, it’s hard to validate an enterprise value above $2 billion. While a potential Trump election victory could spark an ultra-bullish surge in the stock, that remains a highly speculative scenario with a risk-reward profile that I find unjustifiable.
DJT: A Bet on Trump Brand and Truth Social
Although I maintain a bearish position on DJT stock, it’s important to emphasize that a significant source of the hype and increased volatility in its share price stems from President Trump’s image, both as a politician and as a (allegedly) billionaire businessman.
The Trump name is a globally recognized brand, with DJT primarily tied to Truth Social, a social media platform that, amongst other things, opposes “cancel culture”. While brand recognition is hard to quantify, Trump Media & Technology Group is likely to expand beyond Truth Social. One potential growth avenue is the TMTG+ streaming service, which aims to promote free speech to a global audience, independent of major tech companies.
Despite the significant execution risks tied to these projects, especially Truth Social, it’s undeniable that Trump’s brand greatly boosts the business. However, Donald Trump’s track record as an entrepreneur is mixed. While he has achieved some success, particularly in media, he has also faced setbacks including real-estate and casino bankruptcies and significant debt problems.
DJT Stock Fluctuates with Election-Related Developments
Another reason for my skepticism about investing in DJT is the stock’s high volatility response to news and events linked to the upcoming presidential election in November.
Throughout this year, many abrupt movements in DJT’s stock price have coincided with election-related events. For instance, at the end of May, shares fell due to Trump’s felony conviction for business fraud. Following Trump’s dismissal of the federal case in Florida concerning classified documents on July 15, DJT shares surged 30% the next day, although this momentum quickly faded. DJT shares have seen several 50%+ pullbacks in the past year. Recently, DJT shares fell 12% following the Trump’s debate with Vice President Kamala Harris.
History suggests that DJT stock is more closely correlated with expectations about Trump’s potential return to the White House than with Truth Social’s business performance. While this association may not sustain itself in the long run, it creates the primary short-to-medium-term risk for the bearish thesis. An election victory could potentially propel DJT stock to a peak that surpasses previous levels.
The Disconnect Between DJT’s Fundamentals and Valuation
The primary reason for my bearish stance on DJT is the significant difficulty in trying to justify its valuation from business fundamentals.
DJT reported just $3.4 million in revenue over the past twelve months, accompanied by an operating loss of $125.4 million. Despite these weak figures, the company has an enterprise value of $2.2 billion and an astonishing price-to-sales ratio of nearly 500x. In the most recent quarter (Q2), revenues were minimal, totaling only $837,000. Furthermore, Truth Social’s user base declined to approximately 113,000 in April, representing a 19% drop year-over-year based on the available data.
On a positive note, DJT has a strong balance sheet, with $344 million in cash and no debt, which generates a meaningful amount of interest income. In fact, interest income accounted for the majority of the company’s inflows in the latest quarter. The firm’s large cash reserve is likely to diminish as the company expands beyond Truth Social, particularly with projects like its planned streaming service.
To a large degree, DJT’s valuation and trading resemble that of a meme stock. The share price is primarily influenced by volatility from momentum traders transacting on thin indicators. The absence of meaningful revenue makes it nearly impossible to estimate the company’s fair value right now. About 10.7% of DJT’s float is currently Short, which can make the stock vulnerable to a short-squeeze.
DJT’s Downtrend Is Likely to Remain
To further support my bearish stance on DJT stock, a technical analysis reveals that the stock is trading below its moving averages, lending additional reason to be pessimistic.
The share price downtrend has worsened in recent weeks, with DJT hitting all-time lows, largely due to the end of the restricted share lock-up period. That six-month lock-up period, following the stock’s debut in March, prevented former president Donald Trump and other early investors from selling their shares.
Trump has recently stated that he has no plans to sell his stake in Trump Media. As long as that remains the case, a sharp sell-off is unlikely, although DJT stock could continue to slowly lose more value.
Conclusions on DJT Stock
From a business fundamentals and valuation perspective, it’s nearly impossible to justify the current $2.75 billion market capitalization for Truth Social. The stock’s speculative nature has drawn significant interest from traders, resulting in volatility primarily tied to Trump’s presidential campaign developments rather than any business achievements. Given my view that DJT stock movements occur primarily on speculation, I’d advise investors against the temptation to catch this falling knife.
No Wall Street analysts cover Trump Media & Technology Group
Disclosure
Disclaimer