Trump Media & Technology Group (DJT 3.88%) is the company behind social media platform Truth Social. But its ambitions are greater than that, as it aims to be a much larger player in media in general. And recently, it made a big move in advancing its strategy with the launch of a streaming platform.
By potentially reaching a wider user base, could this be the catalyst the tech stock needs for it to get back to the highs it reached earlier this year?
Why a streaming platform could be both good and bad for the business
On Oct. 14, Trump Media announced it successfully launched its streaming service online. With a wide range of content, including news, entertainment, documentaries, and other categories, the Truth+ TV streaming service has the potential to reach a broader audience than just Truth Social alone. And by using its own servers, routers, and software, the company says its service is "uncancellable by Big Tech," referring to the trend of controversial content getting pulled from other streaming services.
The streaming service may appeal to a niche group of viewers, particularly those who want to see content that may not be available elsewhere. But the challenge is that operating a profitable streaming business is by no means easy. Many top media companies struggle with doing so, finding it difficult to be profitable and growing at the same time. While Netflix proves that it is possible, its strong results aren't typical, and it took years for the company to develop a model that works.
At this stage, there also isn't a price listed for the Truth+ TV streaming service, and all that is required is a Truth Social account to access the content. While that might change in the future and ads could be a source of revenue for the streaming service, it seems improbable at this point to expect this new service to have a positive effect on the company's financials anytime soon.
Trump Media has a cash burn problem
The launch of a streaming platform may only worsen an already significant problem for Trump Media, which is that it doesn't generate much in revenue. It also burns through a considerable amount of cash. During the first six months of the year, the company used up $30.8 million through its day-to-day operating activities. The good news is that with cash and cash equivalents of $344 million as of the end of June, the business isn't in danger of running out of money soon.
But if Trump Media spends a lot of money on the launch of its streaming platform and adding content, that cash burn could accelerate, which increases the risk of future dilution and share offerings. Ironically, it may come down to how aggressively the company wants to grow, which could derail the stock's potential. If Trump Media spends heavily on growth without generating much in the way of revenue (year-to-date net sales have totaled $1.6 million), that could deplete the company's cash balance at a much faster rate in the future, thus making it a riskier investment in the process.
This is a risky and volatile stock to own
Trump Media likely wouldn't be nearly as popular of a stock if it weren't associated with former President Donald Trump. But because it is, many investors have used it as a way to show confidence in the Trump brand, and its potential to disrupt conventional media.
Based on the company's own fundamentals and financials, however, there isn't much of a reason to invest in the business today. It's in a highly competitive space filled with many big tech companies. And while it may appeal to a significant part of the market, particularly people who are fans of Trump, there still doesn't appear to be a realistic path to profitability; whether you like Trump or not, that's what should matter.
The risk is that people aren't investing in Trump Media stock because of its growth prospects but instead because of how likely they think Trump will win the upcoming election, making this a potentially volatile stock to hold. Unless the company is able to start producing some improved results, the vast majority of investors are likely better off steering clear of the stock.
