Trump Media and Technology Group (DJT 12.40%), or TMTG, has attracted a lot of attention since it went public by merging with a special purpose acquisition company (SPAC) on March 26. TMTG was founded by former U.S. President Donald Trump and owns Truth Social, a social network that launched in February 2022.
In its regulatory filing, TMTG says it created Truth Social to "fight back against the big tech companies" that "curtail debate in America and censor voices." But it didn't disclose any key performance metrics -- such as active users, average revenue per user, or ad impressions -- that investors usually associate with social networks.
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According to SimilarWeb's estimates, Truth Social only serves around 5 million active users today -- making it a tiny underdog in the social media market. By comparison, X claims to have over 500 million monthly active users (MAUs), while Meta Platforms' Facebook served 3.07 billion MAUs at the end of 2023.
In the first nine months of 2023, TMTG only generated $3.4 million in revenue but posted an operating loss of $10.6 million and a net loss of $49 million. Those numbers are tiny for a stock that is valued at $7 billion, but it's likely being propped up by meme stock investors and and short-term traders. Let's see where it might be headed over the next 10 years.
What does TMTG expect to accomplish?
During a pre-merger presentation in November 2021, TMTG claimed it could grow its revenue from an estimated $1 million in 2022 to $3.67 billion in 2026 -- which would represent a staggering four year compound annual growth rate (CAGR) of 678%.
It predicted Truth Social could grow its total users from an estimated 16 million in 2022 to 81 million in 2026, and increase its percentage of monetizable users from 5% to 26%. However, the recent estimates suggest it's trailing far behind that long-term goal. It also said that TMTG+, its upcoming subscription-based streaming video service, could gain 40 million subscribers by 2026 and bring in most of its revenue.
TMTG claims its "unique figurehead and marketing proposition" in the "existing social and political climate" would enable it to grow "at an accelerated pace" relative to other social media platforms. In other words, it plans to leverage Trump's social media followers and capitalize on the political discussions during this election year to gain more users.
What are TMTG's biggest challenges?
But as of this writing, Trump's Truth Social account only has 6.9 million followers. That's a tiny amount compared to his 87.3 million followers on X, 34 million followers on Facebook, and 24.2 million followers on Instagram. So if Trump wants to reach the broadest audience, he still needs to use those competing platforms.
TMTG's balance sheet is also a mess. It ended the third quarter of 2023 with just $1.8 million in cash and a whopping $63.8 million in total liabilities. If the company fails to grow its revenue and continues to lose tens of millions of dollars each year, it could easily go bankrupt within the next few years.
Even if TMTG can achieve its pre-merger target of generating $835 million in revenue this year -- which seems unlikely since it only generated $3.4 million in revenue in the first nine months of 2023 and hasn't even launched TMTG+ yet -- it might not seem terribly expensive at 8 times next year's sales. After all, Meta Platforms also trades at about 8 times this year's sales. But if you lower the bar to a more realistic target of $10 million in revenue in 2024, TMTG would be trading at more than 700 times next year's sales. I believe it's impossible for this stock to support that nosebleed valuation.
To top it all off, Trump still owns at least 58% of TMTG's shares -- and there's a strong chance he'll sell his stake to cover his legal fees and election expenses when the lockup period ends in six months. The company will also likely need to raise fresh cash by issuing more debt or secondary share offerings as its liquidity runs dry.
So where will TMTG stock be in 10 years?
I believe TMTG's stock will be worth a lot less in 10 years. In a best-case scenario, it might carve out a niche in the social media and streaming video markets -- but it still won't grow rapidly enough to justify its market cap. In a worst-case scenario, Truth Social runs out of steam, TMTG+ flops and crumbles under the high costs of running a streaming video platform, and Trump liquidates his stake to raise cash. What's left of the company would likely go bankrupt and be delisted.
Based on what investors already know about TMTG's business model, it seems like the worst-case scenario is more likely. Investors should steer clear of this meme stock and stick with more reliable social media stalwarts like Meta Platforms instead.
