Trump Media & Technology Group(NASDAQ: DJT) has surged higher following former President Donald Trump's victory in the 2024 presidential election. On the surface, that makes sense, as his messages on the company's Truth Social site are likely to attract more viewership as long as he is in the Oval Office.
However, once he becomes president again, his activity on the site will likely reach a certain level and then plateau. That appears to leave the site without an obvious catalyst that can drive growth over the long term. Thus, investors should consider how Truth Social can fare without Trump before deciding whether or not to buy Trump Media stock.
The state of Trump Media as a company
When looking at the parent company of the Truth Social website, one has to wonder whether its concept was flawed almost from the start. Trump created the Truth Social site soon after Twitter banned him following the Capitol riots on Jan. 6, 2021.
Initially, this might look like an appealing concept to certain users. Many conservatives alleged the old Twitter and sites like Meta Platforms' Facebook censored or corrected their content while allowing more left-leaning content to be posted without a similar challenge.
However, Elon Musk's purchase of Twitter likely invalidated the need for a competing site like Truth Social. Musk took Twitter in a different direction, changing the name to X and firing most of the staff that allegedly censored content.
Moreover, X would continue to attract activity without regard to how they felt about Musk. Consequently, it invalidated most of the competitive advantage that could boost Truth Social. But the change in the competitive landscape did not stop Digital World Acquisition Corp., a special purpose acquisition company (SPAC), from buying Trump Media and taking it public in March.
As previously mentioned, Trump's reelection serves as a second chance, as the site's managers have up to four years to broaden the appeal of the site beyond Trump. But with little incentive to leave X (or at least repost to Truth Social), that job becomes more difficult.
Company financials
The company's financials may reflect that difficulty. In the first nine months of 2023, its $2.6 million in revenue (yes, you read that correctly) fell 23% from year-ago levels.
At the same time, the company ramped up research and development costs and its general and administrative expenses. Such spending is not necessarily cause for alarm as the company was private in 2023. Also, the research and development spending could foster a desperately needed business expansion.
Still, the $363 million in losses in the first three quarters of 2024 is far above the $49 million lost in the same period in 2023. About $225 million of the loss involved the change in fair value of derivative liabilities.
Knowing that, its $673 million in liquidity can sustain the company for the foreseeable future. However, with the stock trading at a 1,200 price-to-sales (P/S) ratio and around 8 times its book value, investors could be reluctant to buy the stock without an obvious catalyst.
Should I buy Trump Media stock?
Considering the state of Trump Media, it is probably a stock investors should avoid.
Admittedly, the company is likely to survive as long as Trump is president. Unfortunately, with X now backing away from most censorship, the incentive to leave X for Truth Social has disappeared.
Consequently, revenue levels are scant. Moreover, Donald Trump is the only apparent reason to log on to the site, and the company has from now until the end of his presidency to broaden its appeal. Unless Truth Social can draw considerably more activity unrelated to the past and future president, Trump Media stock is unlikely to drive market-beating returns.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
