A look at Trump Media & Technology Group (DJT); A new 'villain' in the chess world
1) Today is the first day of trading for former President Donald Trump's digital-media company, and it's off to a great start... for now.
Trump Media & Technology Group (DJT), which owns social media site Truth Social, was up as much as 59% earlier this morning to $79.38 per share and was just recently around $70 per share.
Trump Media & Technology didn't hold a typical initial public offering ("IPO"). Instead, it went public by merging with a special purpose acquisition company ("SPAC"), Digital World Acquisition, which until yesterday traded under the ticker "DWAC."
This deal has been a long time coming. I have been writing about DWAC since the beginning of the saga, more than two and a half years ago. And we've played it nearly perfectly, as I outlined last month in my February 20 e-mail. Excerpt:
Longtime readers may recall that I first warned about Digital World Acquisition – the SPAC that hopes to merge with former U.S. President Donald Trump's media company that owns Truth Social – more than two years ago on October 22, 2021, when it hit a high of $175 per share.
On that day, I wrote: "This is one of the stupidest things I've ever seen," and "this stock is going to implode, likely within days."
Sure enough, the stock peaked that very day, was cut in half within two days, and continued sinking toward DWAC's cash value of $10 per share through last April.
But then, with the stock at $13.14 per share nearly a year ago, I suggested in my April 14, 2023 e-mail that any readers who were short the stock should cover their position.
As I said at the time, anyone who was short at the time could make only $3 per share if the merger with DJT fell through (as I expected)... but the stock could soar if the deal was consummated (which is what happened). As I said then:
[It] doesn't make sense to risk losing tens of dollars (and possibly more than $100) per share to make $3.
Before I share my view of the stock today, let me be clear that I am approaching this purely from an investment perspective – putting all political opinions aside.
(Failing to put your political opinions aside when it comes to investing – for example, interpreting economic news more negatively if you don't like the president – is a big mistake many folks make, as I've discussed in prior e-mails.)
So... what are my views on DJT today?
Well, to quote my October 22, 2021 e-mail again: "This is one of the stupidest things I've ever seen" and "this stock is going to implode, likely within days."
At around $70 per share with more than 135 million shares outstanding (the actual number won't be known for a while, based on, among other things, how many SPAC shareholders redeemed), DJT would be worth $9.7 billion.
What do investors get for this?
A microscopically small social media site that (I am not making this up – it's from the Digital World Acquisition prospectus) "does not currently, and may never, collect, monitor or report certain key operating metrics used by companies in similar industries."
So investors are supposed to guess at Truth Social's daily or monthly average users – a critical metric.
This website, Search Logistics, says Truth Social has 2 million active users (for comparison, Twitter – now X – had about 250 million daily active users at the time of Elon Musk's takeover). And this CNN article notes that:
[The] social media site is struggling to find a wider audience. It is hemorrhaging users, and its traffic has plummeted. There were roughly 860,000 accounts active on the site as of November – a tiny blip compared with more mainstream platforms...
The site's monthly active users on iOS and Android devices are down 39% year-over-year, according to Similarweb data shared with CNN earlier this month. Visits to the site on mobile and desktop have plummeted as well by nearly 29% during that stretch.
Of course, what really matters is whether a company can monetize its users.
And in this area, DJT's numbers are also grim. This is a portion of the exact income statement DWAC reported in its prospectus:
So in the first three quarters of last year, the company had revenue of $3.4 million (not billion, which is what you would expect for a company worth $9.7 billion) and expenses of about $14 million, resulting in an operating loss of $10.6 million.
Let's be generous and assume that DJT had a blowout fourth quarter and generated $5 million of revenue last year. That means the stock is trading at nearly 2,000 times revenue!
The valuation is only one of many major warning flags. Here's a Barron's article with five of them, straight from the warnings in the prospectus: Trump's New Media Company Has Risks. 5 Reasons You Shouldn't Invest, in Its Own Words. Excerpt:
- The company is losing money...
- The new company is playing for conservative attention. Musk's X may already have eaten its lunch...
- Trump is the big draw. But he can post elsewhere...
- Trump's legal problems could become investor problems...
- The new company will be a public listing, but Trump will be in control.
To this list, I'll add another...
Trump owns nearly 60% of DJT, worth more than $5 billion today. He has just over a week to post a $175 million bond against the $454 million judgment against him in his New York civil fraud case, and his legal bills are running at least $5 million per month.
To repeat, I am not expressing any opinion of whether he's the victim of a politically motivated "witch hunt" or getting his just deserts.
I'm simply pointing out that Trump has extremely strong incentives to sell as much of his DJT holdings as he can, as quickly as possible – which would undoubtedly crash the stock.
Today, of course, he's unable to do so because he's subject to a six-month lockup. But the board can waive this – and there's a good chance it would do so.
And here's a final warning flag...
This isn't the first time Trump has had a public company with the ticker DJT. Here's more from CNN: The last time Trump took a 'DJT' business public, it ended up in bankruptcy. Excerpt:
While Trump Media may be new, its stock ticker is a throwback to Trump's only other publicly traded company. Trump bestowed the same initials on his Atlantic City casino business, Trump Hotels and Casino Resorts, back when that company went public in 1995...
Trump Hotels and Casino Resorts never turned a profit and ended up in bankruptcy in 2004, wiping out shareholders.
Trump's company lost money every single year of its existence, putting it more than $600 million in the red – despite owning premier Atlantic City casinos, including the Trump Taj Mahal, a place so opulent Trump called it “the eighth wonder of the world.”
His second public company didn't fare any better:
Trump's stock holdings were wiped out in the bankruptcy. But he continued to make millions of dollars from the company after it came out of bankruptcy, pocketing $6.1 million from the re-named Trump Entertainment Resorts company, which traded under a new ticker – you guessed it! – TRMP.
The new name and ticker didn't help the company, though. It lost $2 billion over five years and filed for bankruptcy a second time in 2009.
All this said, as bearish as I am on this stock, I would never short it.
I've learned the hard way more times than I care to remember that once a stock becomes completely disconnected from any fundamentals, it can trade anywhere.
And in this particular case, if Trump wins the election in November, there's no reason DJT shares couldn't trade for $100... $200... or even $1,000!
In summary, DJT looks like a meme stock and reminds me of GameStop (GME) in its heyday in 2021. And like with GameStop, the ending seems certain: huge losses for retail investors sucked in by the hype and action.
Don't be one of them.
2) I forgot to send out this story that ran last year in the Wall Street Journal, which I enjoyed immensely: The Chess World's New Villain: A Cat Named Mittens. Excerpt:
Mittens – or technically the chess bot known as Mittens – might look cute. Her listed chess rating of a single point seems innocuous. But her play over the past few weeks, which has bedeviled regular pawn-pushers, grandmasters, and champions who could play for the world title, is downright terrifying. And as it turns out, people are gluttons for punishment...
Mittens has crashed the [Chess.com] website through its sheer popularity and helped drive more people to play chess than even "The Queen's Gambit." Chess.com has averaged 27.5 million games played per day in January and is on track for more than 850 million games this month – 40% more than any month in the company's history. A video that American grandmaster Hikaru Nakamura posted to YouTube titled "Mittens The Chess Bot Will Make You Quit Chess" has already racked up more than three million views.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.