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Why Trump’s digital media company is different from other money-losing startups

Former President Donald Trump’s digital media companies are losing money, and losing money heavily. But why is this any different from other “startups”? Other “startups” tend to struggle for years to become profitable (if at all)?

There are several reasons.

First, a recap: The Trump Media and Technology Group recently merged with Digital World Acquisition Company in the form of a SPAC, an ill-fated financial vehicle that’s usually the last resort for getting a big cash infusion. As expected, the company is listed on Nasdaq under the ticker $DJT.

An important part of going public is disclosing your financials to the world, and TMTG recently filed its first quarterly financial report with the SEC for everyone to view and analyze. The financial media hyped the situation, but the result was that TMTG suffered heavy losses and almost no profit. Specifically, the company lost $58 million on revenue of just $4 million.

Those inclined to express goodwill toward tech startups that challenge entrenched competitors—regardless of their “mission” or leadership—might reasonably observe that this imbalance is common among ambitious early-stage companies . Here’s the thing – who can forget that Uber has been operating at huge losses for years to disrupt the taxi industry’s business model?

TMTG is superficially similar, mainly in that it doesn’t make money. But that doesn’t mean it’s a startup on the verge of explosive growth. There are three important and direct reasons:

  • TMTG is not growing. TMTG’s main business, Truth Social, failed to attract more than millions of users. It doesn’t show the traction that any startup needs to show to show that it’s the next big thing, or what it actually is (as others have pointed out, Twitter had $665 million in annual revenue at the time of its IPO). The incredibly low numbers tell us that its only source of revenue, advertisers, don’t want to pay for an audience there. There’s no real reason to expect that to change.
  • TMTG does not have a VC runway. Venture capital is a high-risk, high-reward strategy that backs businesses that are fundamentally unprofitable until circumstances change and money can be made. This gives startups the freedom to do risky things like overhire, undercharge, and abandon the “business model,” sometimes forever. If investors are confident and the product is attractive (like Uber), they will invest billions because they are confident they will eventually get their investment back. But in his current precarious state, Trump is a risky bet even for venture capitalists. But it’s all meaningless because:
  • TMTG is now accountable to its shareholders. Small startups may need to report to a venture capital guru from time to time, but they have greater latitude than public companies, which have fiduciary responsibilities to shareholders. Although Trump is TMTG’s largest shareholder with a 60% stake, the other 40% are closely watching for any breach of this obligation, such as stock sales or loans that significantly undervalue the company. But the important point here is that TMTG doesn’t have the freedom to splash out cash (which they don’t have anyway) and take risks. The basic idea of ​​going public is that you have a business that other people want to share, and TMTG simply doesn’t want to.

The result, as analysts have already pointed out, is that $DJT is fundamentally significantly overvalued. The company is unlikely to become profitable anytime soon, let alone the kind of profits that would justify its stock price and multi-billion dollar valuation. Even the most optimistic scenarios may see solvency as a distant goal.

On the other hand, given the personal, political, legal and business woes of the major shareholders, there’s a good chance the whole thing will collapse before the end of the year.

The fact that the share price is completely unrelated to company performance makes it essentially a “meme stock” that will be arbitrarily priced and possibly even manipulated by public investors.

While this may allow some day traders and short sellers to make money in the coming days and weeks, it’s not something that will hold its value long term, especially with TMTG’s lack of assets. When Trump is able to sell his shares, the company will likely be worth what it is today. It’s not even worth this morning’s price, and the stock is down more than 20% since the open.

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