When Trump Media and Technology Group (DJT -4.07%) went public six months ago, it quickly attained "meme stock" status, attracting a stampede of speculative traders. The social media company went public by merging with a special purpose acquisition company (SPAC), and the stock opened at $70.90 per share on its first day of trading under the DJT ticker symbol.
But today, Trump Media (or TMTG) stock trades at about $13. It plummeted as the company broadly missed its original growth targets, racked up staggering losses, and failed to justify its nosebleed valuation. Some investors might be wondering if TMTG is a contrarian buy at these levels, but it's a screaming sell for five simple reasons.
Image source: Getty Images.
1. Its valuations are detached from reality
Even after falling more than 90% from its peak, TMTG still has a market capitalization of $2.5 billion as of this writing. The company only generated $3.9 million of revenue in the past 12 months, so it's still trading at more than 650 times trailing sales. By comparison, Meta Platforms and Snap trade at 10 and 4 times sales, respectively.
For TMTG stock to trade at a still sky-high valuation of 25 times sales, it would need to decline another 96%. Investors can't even value TMTG based on its future growth potential, since neither the company nor analysts have set any estimates for the current year.
2. It doesn't report any key performance metrics
Meta, Snap, and other social media companies usually report on the state of their businesses in terms of monthly active users (MAUs), daily active users (DAUs), and average revenue per user (ARPU). But TMTG's core platform, Truth Social, doesn't disclose any of those metrics, so it's impossible to tell if its audience is actually growing or shrinking.
Third-party data suggests it's the latter. Truth Social's number of unique users dropped from 3.26 million in its first month (Feb. 2022) to 2.11 million this past June, according to conservative media site TheRighting. SimilarWeb estimates the platform only had 76,463 daily active users in mid-May, compared to 124,852 at the end of March.
For reference, Meta ended its latest quarter with 3.27 billion monthly active people across its family of apps (Facebook, Instagram, Messenger, and WhatsApp). Even the much smaller Snapchat hosted 432 million DAUs last quarter, while X still has 238 million DAUs.
3. It's racking up disastrous losses
TMTG posted a net loss of $58.2 million in 2023, or more than $14 lost for every dollar of revenue it generated that year. But it gets worse: In the first quarter of 2024, it generated just $770,500 in revenue with a net loss of $327.6 million. That's a truly grim situation for a company with no meaningful revenue growth and only $344 million in cash and equivalents on its balance sheet as of the second quarter.
TMTG believes it can ignite its growth by launching a new streaming video platform called TMTG+, but it will take a lot of money to scale up that business. It took Disney's streaming business nearly four years and hundreds of millions of subscribers to finally eke out its first quarterly profit earlier this year, so TMTG+ will likely be another money pit.
4. Its lock-up period just expired
TMTG's six-month lockup period -- which prevented former President Donald Trump, the company's insiders, and other major investors from selling the stock following its public debut -- ended on Sept. 19. That's troubling because Trump, who owns more than half of all shares, could sell portions of his stake to cover expenses like legal fees.
Trump said he had "absolutely no intention" of selling his TMTG shares during a press conference on Sept. 13. However, the company's deteriorating fundamentals and nosebleed valuation indicate it's a great time to sell the stock instead of holding it, and many investors likely suspect Trump will eventually trim his massive stake in the company.
5. It's just a meme stock
TMTG stock might attract more attention as the election approaches. But if you take a long-term view, you'll realize this is just a meme stock being propped up by short-term traders and loyal Trump supporters.
When those two groups lose their interest, TMTG stock could quickly collapse under the weight of its valuation. The lack of revenue and insider sales should only exacerbate its decline.
Investors should avoid this meme stock, and stick with more established social media plays.
