Trump Media & Technology Group (DJT -7.21%), often shortened to Trump Media, is a controversial firm that's difficult to value. Analysts aren't exactly lining up to assign price targets to Trump Media stock, and there's no price-to-earnings (P/E) ratio to speak of since the company remains unprofitable.
However, at least now there's a quarterly financial report to pore over. It's the first one since Trump Media officially went public under the DJT stock ticker, and it's a must-read for any current or prospective Trump Media shareholder.
This is a good-news, bad-news situation as it was unclear whether investors would actually get a quarterly report from Trump Media in a timely manner. So, it's good news that the financial information is available, but then, there's less-than-ideal news to be found in the details of Trump Media's quarterly report.
Moving past the "massive fraud" allegation
In case Trump Media didn't already have enough headaches stemming from former President Donald Trump's legal battles, the Securities and Exchange Commission (SEC) recently accused Trump Media auditor BF Borgers CPA with "massive fraud." Gurbir Grewal, the SEC's enforcement-division director, alleged that BF Borgers and its owner, Benjamin Borgers, were "responsible for one of the largest wholesale failures by gatekeepers in our financial markets."
That's not good "optics" for Trump Media as public relations experts would say. Nevertheless, Trump Media stock held up fairly well in the days following the early-May disclosure of the SEC's charges against BF Borgers and its owner. Indeed, the stock remained substantially above its mid-April low of $22 and change.
Trump Media promptly appointed a new auditor, Semple, Marchal & Cooper, LLP. Not long after that, the company filed a Form 12b-25 indicating that Trump Media's required first-quarter 2024 financial report would be filed late.
This flurry of developments undoubtedly left some investors wondering when Trump Media would release its quarterly data. However, the company did finally report its results on May 20, so perhaps the shareholders can move past the former auditor's "massive fraud" allegation (for the time being, at least) and focus on Trump Media's fiscal facts.
Trump Media downplays its revenue (or paucity thereof)
After combing through Trump Media's first-quarter financials, some shareholders might actually long for the not-too-distant past when this information wasn't available. At least then, there was a glimmer of hope to go along with the opacity.
The price of transparency is the stark reality that Trump Media's sales aren't stellar. As it turns out, the company generated $770,500 in Q1 2024 revenue versus $1.12 billion in the year-earlier quarter. During that same time frame, Trump Media's cost of revenue more than doubled to $93,400 from $41,300.
Furthermore, Trump Media's operating expenses increased significantly across multiple categories (research and development, sales and marketing, and general and administration). Consequently, the company incurred a Q1 2024 net loss of $327.6 million, or $3.61 per share.
Trump Media attempted to downplay its meager quarterly revenue, stating, "At this early stage in the Company's development, [Trump Media] remains focused on long-term product development, rather than quarterly revenue." Investors, current and prospective, will have to decide how long they'll allow Trump Media to use that explanation/excuse.
As for Trump Media's capital position, the company had cash and cash equivalents totaling $273.7 million as of March 31. However, Trump Media's balance may have been zero or negative if it hadn't been for $280.5 million worth of "aggregate cash proceeds from the Business Combination" (i.e., the special-acquisition company merger with Digital World Acquisition Corp.) and the "issuance of Private TMTG Convertible Notes." Still, at least Trump Media has a capital runway for the near term, assuming the company doesn't aggressively bleed money via operating expenses.
That's a big assumption, though. There wasn't talk of cost cutting in Trump Media's quarterly press release or in the company's Form 10-Q. Moreover, investors will (or at least, should) only accept the company's revenue downplay for so long.
Prudence trumps bravery
Ultimately, only time will tell whether Trump Media's free speech-focused platform, Truth Social, will generate meaningful revenue. In the meantime, one can hope for a concrete cost-cutting plan from Trump Media's management -- but don't hold your breath.
From that perspective, it's not too late to buy Trump Media stock but too early. It's a volatile stock representing a controversial business with debatable financials (to put it politely).
Therefore, it's prudent to wait for the share price to fall to, say, the $20s in order to achieve a more favorable risk-to-reward balance. Along with that, maintain a very small position if and when you do decide to jump into the trade.
