With the U.S. presidential election nearing, the perception regarding Republican candidate Donald Trump's chances of winning has boosted shares of Trump Media & Technology Group (DJT -4.07%) in recent weeks. This is to be expected since company officials admit its success depends in part on Trump's popularity.
Despite the gains, Trump Media stock trades well off its 52-week high of $79.38 reached on March 26, the day of its initial public offering (IPO) after merging with a special purpose acquisition company (SPAC). But it also trades well up from when it still traded as a SPAC at the start of 2024. Does this mean now is a good time to buy shares? A lot depends on your perception of what constitutes a good stock.
For instance, according to Trump Media, the majority of shareholders are retail investors. This means individual stockholders have a greater voice than is often possible among companies with significant market capitalization, such as Trump Media with its $6 billion market cap at the time of this writing. Contrast this to Microsoft, in which institutional investors own over 70% of its stock.
To assess whether Trump Media is a good long-term investment, let's look into the details of the company.
Trump Media's business focus
A key consideration with evaluating Trump Media is how it generates revenue. Currently, all of its income is produced from advertising appearing on Truth Social, the company's social media platform. To attract advertisers, Trump Media needs to offer a sizable audience.
The company seeks to draw in users who espouse Trump Media's goal, which CEO Devin Nunes described by stating, "From the beginning, it was our intention to make Truth Social an impenetrable beachhead of free speech, and by taking extraordinary steps to minimize our reliance on big tech."
Truth Social was launched in 2022 and is a competitor to several of the big tech companies Trump Media professes to battle. These rivals include Meta Platforms-owned Facebook and Instagram, and privately held X, formerly known as Twitter.
In an attempt to continue building its audience, Truth Social implemented a video streaming service called Truth+ in August. Trump Media assembled its own cloud-computing data center to allow it to have uncensored control over the content it delivers to users.
Trump Media's financial performance
In terms of its financials, in its brief history as a public company, Trump Media has produced scant revenue in comparison to its social media rivals. In the second quarter, the company generated sales of $837,000. Contrast this to, say, Snapchat owner Snap's second-quarter revenue of $1.2 billion.
Not only that, Trump Media's second-quarter sales were a 30% drop from the prior year's $1.2 million. The company attributed the decline to a change in an advertising agreement with a partner, and the testing of new ad initiatives.
With its minimal revenue, the company is far from profitable. Trump Media reported a second-quarter net loss of $16.4 million.
Although Truth Social's capacity to grow its user base is a crucial factor in Trump Media's ability to boost income, management said it doesn't track user metrics, such as how many sign-ups it obtains or its number of active users over time. Trump Media said it believes tracking such metrics "could lead to short-term decision-making at the expense of long-term innovation and value creation."
Despite the company's rationale, business metrics are necessary to understand if management's decisions are producing the desired results. For example, user metrics would reveal if Trump Media's efforts to increase Truth Social adoption are attracting users or losing them.
To buy or not to buy Trump Media stock
Trump Media's absence of useful business metrics for relevant evaluation coupled with its grim financial situation are not the only factors investors should be aware of before making a decision on its shares. Another consideration is that, as of June 25, Donald Trump owned nearly 60% of the company's shares. As the majority shareholder, Trump has enormous power to make decisions about the company, such as who should be on the company's board of directors.
Moreover, Trump Media's share price is currently affected by his perceived chances of winning the presidential election. This has contributed to the stock's outsize volatility, which is evident in its high beta of nearly 6. A beta coefficient greater than 1 indicates shares are more volatile than the broader stock market.
Because of Trump Media stock's election-driven volatility, any decision to invest should be put aside until after the election. That brings us to another concern, which is how the company will perform over the long term. To assess this, examine Trump Media's results for a few quarters after the election is over. Since the company doesn't provide business metrics beyond what's required by the Securities and Exchange Commission, you're looking for a trend of rising revenue and a steady reduction in its net losses over time.
But for now, given the stock's volatility, and the limited insight into the company's long-term performance, it's best to avoid investing in Trump Media shares at this time.
