How to Invest in Truth Social (DJT)

Trump Media & Technology Group (DJT -10.4%), or TMTG, owner of Truth Social, got off to a roaring start as a public company. Shares of the social media platform created by former President Donald J. Trump soared about 50% at one point on its first day of trading in early 2024, valuing the platform at almost $8 billion. As the majority shareholder, Trump's stake in Truth Social was worth about $5 billion shortly after its public debut.

While shares cooled off following the initial pop, Truth Social is still a popular stock. This enthusiasm for the company likely has many of the former president's fans wondering whether it's a good investment. Here's everything you need to know about how to invest in stocks like Truth Social, including how it completed an initial public offering (IPO).

How to buy

How to buy Truth Social stock

Now that Truth Social's parent company, TMTG, has completed its business combination with Digital World Acquisition Corp, anyone can buy shares in the company. However, you'll need to take a few steps before buying its stock. This four-step guide will show you how to add the social media stock to your portfolio:

Step 1: Open a brokerage account

You'll have to open and fund a brokerage account before buying shares of any company. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time researching the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

You don't have to get there on the first day, though. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about its competitors, review its balance sheet, find out how it makes money, and consider other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term.

As noted, an important part of investment research is looking at a company's competitors. Here are three publicly traded Truth Social competitors that investors should also thoroughly research before investing in the social media company's stock:

1. Meta Platforms (Facebook)

Meta Platforms (META -1.61%) is the biggest social media company in the world. Meta owns four of the seven largest social media platforms by monthly active users (Facebook, WhatsApp, Instagram, and Facebook Messenger), led by Facebook at 3 billion. The social media giant generated a staggering $134.9 billion in revenue in 2023 (mostly from advertising) and was highly profitable ($39.1 billion of net income).

2. Reddit

Reddit (RDDT -0.6%) went public shortly before Truth Social. It's a much larger platform with about 73.1 million daily active users and 267.5 million weekly active users. The company generated $804 million in revenue in 2023 (up from $666.7 million in 2022). However, it was not yet profitable, posting a $90.8 million loss in 2023.

3. Pinterest

Pinterest (PINS 1.0%) ranked as the 15th-largest social media platform in early 2024, with about 482 million monthly active users. The platform generated more than $3 billion in revenue during 2023 (up 9% from 2022) but was not yet profitable ($35.6 million net loss).

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (DJT for Trump Media and Technology Group).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at market price.

Here's a screenshot of how to buy a stock with the five-star-rated platform Fidelity (which offers a video tutorial and a step-by-step guide):

Once you complete the order page, click to submit your trade and become a shareholder of the former president's Truth Social.

Should I invest?

Should I invest in Truth Social?

You'll need to determine whether Truth Social is the right investment for your situation. Here are some factors to consider that might lead you to buy its stock:

• You are a big fan of Trump.
• You believe his social media platform will see tremendous user, revenue, and earnings growth in the future.
• You're an active user of Truth Social and prefer it to other social media platforms.
• You understand the risks of investing in IPO stocks, including that they can be very volatile.
• You think advertisers will begin to flock to Truth Social as Trump's election campaign ramps up.
• You believe that if Trump is elected again, it will significantly boost his social media platform.
• You are comfortable with Truth Social's valuation and believe it can grow into its lofty post-IPO value.
• You think Trump's conviction will boost his re-election prospects and Truth Social's growth.

On the other hand, here are some reasons you might opt against investing in Truth Social:

• Trump's values don't align with yours.
• You don't use Truth Social.
• You're concerned about the company's lofty valuation.
• You're worried that Trump's political views could scare advertisers away from the platform.
• You're concerned a Trump election loss could hurt Truth Social's valuation and growth prospects.
• You're worried that Trump's conviction could have a negative impact on Truth Social's growth.
• You think many potential users and advertisers will opt for the much larger X platform that Elon Musk owns.

Profitability

Is Truth Social profitable?

Researching a company's profitability is a crucial step before buying its stock because profit growth tends to drive stock price performance over the long term. Ideally, you'll want to see a company delivering growing profitability -- or at least on the path toward making money.

As of mid-2024, TMTG wasn't profitable yet. Its focus was on long-term product development rather than generating revenue. As a result, it booked only $770,500 in revenue during the first quarter of 2024, mostly from advertising.

Meanwhile, the company posted an operating loss of $12.1 million based on non-GAAP (generally accepted accounting principles) adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). About half that loss was from one-time payments related to its merger with Digital World Acquisition.

Despite its limited revenue and large losses, the company expected to have enough capital to continue operating for the foreseeable future. The merger with Digital World infused the company with cash (it had $273.7 million at the end of the first quarter). That will give it the funds to operate and invest in building products (including its live TV streaming initiative) to drive long-term growth.

However, the company will eventually need to generate significant revenue and profits to fund its operations and justify its lofty post-IPO valuation. If it doesn't, shares could lose much of their value.

Dividends

Does Truth Social pay a dividend?

Truth Social's owner didn't pay a dividend as of mid-2024. The company was still in the early stages of generating revenue and was not yet profitable. Given the lack of revenue and earnings and the need to invest in building out new products, the company likely won't start paying dividends anytime soon.

ETF options

ETFs with exposure to Truth Social

Many people would rather be passive investors than actively invest in specific companies. Exchange-traded funds (ETFs) make that easy. Many ETFs enable you to gain passive exposure to a company or theme.

As a newly minted public company, TMTG was ineligible as of mid-2024 for the indexes that most ETFs track, so you can't gain passive exposure to the social media platform. However, that could change if the company starts to meet the eligibility requirements of indexes that ETFs track.

Meanwhile, investors have some alternative ETF options they could consider. Here are two that stand out as potential options:

• Renaissance IPO ETF (IPO 0.29%): This ETF focuses on newly public companies. It rebalances each quarter, cycling out companies three years after completing their IPOs with newly listed ones. As of mid-2024, it had 53 holdings. The fund enables investors to hold a portfolio of relatively new public companies for a fairly reasonable ETF expense ratio of 0.6%.
• Global X Social Media ETF (NYSEMKT:SOCL): This fund focuses on companies that operate social media platforms. In mid-2024, it held 47 stocks. The fund offers broad exposure to the social media space for a reasonable expense ratio of 0.65%.

Stock splits

Will Truth Social's stock split?

Truth Social's parent company didn't have an upcoming stock split on the calendar as of mid-2024. The company had only recently gone public via a merger with a special purpose acquisition company (SPAC). Meanwhile, it traded at an accessible stock price for most investors (less than $40 a share in mid-2024), so it likely won't need to split its stock anytime soon.

Related investing topics

The bottom line on Truth Social

Truth Social soared in its public market debut in early 2024, driven by its growth potential and the link to the former president. Those catalysts likely have many people interested in the stock.

However, given the controversy surrounding Trump, the platform isn't for everyone. Given the current size of its user base and revenue, the company has a very high valuation. It's also still losing money, so you must carefully consider the risks before investing in its stock.

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