{"id":259938,"date":"2024-03-26T11:43:05","date_gmt":"2024-03-26T16:43:05","guid":{"rendered":"https:\/\/mathewingram.com\/work\/?p=259938"},"modified":"2024-03-28T23:06:41","modified_gmt":"2024-03-29T04:06:41","slug":"donald-trump-throws-a-hail-mary-pass-with-truth-social","status":"publish","type":"post","link":"https:\/\/mathewingram.com\/work\/2024\/03\/26\/donald-trump-throws-a-hail-mary-pass-with-truth-social\/","title":{"rendered":"Donald Trump throws a hail mary pass with Truth Social"},"content":{"rendered":"\n
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Last week, Donald Trump looked to be in dire straits, both legally and financially. He owed four hundred and fifty million dollars in legal penalties after a New York judge found that he fraudulently inflated<\/a> the value of his assets in order to get bank loans, on top of the eighty-three million dollars he owed after losing a defamation case brought by the writer E. Jean Carroll, who has accused Trump of sexual assault<\/a>. (He also faces several smaller judgments for defying a subpoena, disparaging a law clerk, and contempt of court.) Despite Trump’s repeated claims to be a billionaire, his legal team told the court that<\/a> he didn\u2019t have enough cash on hand to resolve the first judgment, and that he had been unable to find anyone to lend him the money or finance a bond until he could pay. In the end, the court allowed him to post a smaller<\/a> bond, but only gave him ten days to come up with the full amount. If he does not, then Letitia James, New York’s attorney general, will be able to<\/a> start seizing his assets.<\/p>\n\n\n\n

This week, though, Trump appeared to be handed a lifeline: Trump Media and Technology Group\u2014the social media company through which he owns Truth Social, a Trumpian clone of X\u2014merged with Digital World<\/a> Acquisition Corporation, a special-purpose acquisition company, or SPAC. (A SPAC is an investment vehicle created for the purpose of buying other companies and taking them public.) The combined entity, now known as Trump Media and Technology Group, went public on Tuesday and quickly hit a market value of around eight billion dollars<\/a>. Since Trump owns about 60 percent of the shares, his net worth has suddenly risen by more than four billion dollars. <\/p>\n\n\n\n

So, is Trump on easy street now, with such vast resources that he no longer needs to worry about his legal penalties? Not exactly. Both he and Trump Media must clear a number of roadblocks before that happens. Success is by no means assured. And either way, business appears to be tied up here, to an unusual extent, with politics.<\/p>\n\n\n\n

Note<\/strong>: This was originally published as<\/a> the daily email newsletter for the Columbia Journalism Review, where I am the chief digital writer<\/em><\/p>\n\n\n\n\n\n\n\n

While the market value of Trump\u2019s shares in Trump Media (which trades under the stock symbol \u201cDJT\u201d) stands around four billion dollars, he can\u2019t simply sell those shares or even use them as collateral on a loan to pay his legal bills, at least not right away. Under the terms of the merger<\/a> involving Truth Social, Trump\u2019s shares are locked up for six months, which means that they can\u2019t be sold and can\u2019t be used to backstop a loan either\u2014in theory, anyway. Could Trump get around this block? It\u2019s technically possible: the board of directors could waive the lockup restriction and allow Trump to sell some shares or borrow against them. And the board includes some close<\/a> Trump confidants, including his son Don, Jr., and three former members of the Trump administration, who might look favorably on such a request.<\/p>\n\n\n\n

It\u2019s not quite that simple, though. If Trump were to sell enough of his shares to raise the money he needs to pay off the four hundred and fifty million dollar judgment, it could cause the market value of the company\u2019s shares to plummet<\/a>\u2014that\u2019s the reason why lockups exist in the first place. And Trump Media likely won\u2019t want to make investors or the market any more nervous about the stock price than they already are\u2014because, while the company has had a strong debut, its underlying finances are precarious. Truth Social\u2014the company\u2019s only real operating asset\u2014had just over five million visitors last month, according to one estimate<\/a>. (For comparison, X, hardly in rude health under Elon Musk, had more than two hundred and fifty million visitors a day.) According to Digital World\u2019s regulatory filings, the company made just over three million<\/a> dollars in advertising revenue in the first nine months of this year. It recorded a loss of almost fifty million dollars.<\/p>\n\n\n\n

As the New York Times<\/em> put it, somewhat dryly, \u201cby most traditional measures, Trump Media\u2019s valuation is inordinately high\u201d\u2014indeed, it is trading at a thousand times its estimated<\/a> annual revenue. Even in the world of so-called \u201cmeme stocks\u201d<\/a>\u2014which trade more on hopes, dreams, vibes, and virality than on business fundamentals, appealing to dubious belief or gambling impulse on the part of mostly neophyte investors\u2014this is a stratospheric proportion. Reddit\u2014the online community that just went public (as I wrote in this newsletter two weeks ago<\/a>), and is also perceived to have had a relatively strong start on the stock market\u2014is trading at around ten times its annual revenue, which seems tame by comparison. Nvidia, which makes the chips that are used in everything from cryptocurrency to artificial intelligence engines, has soared in value by<\/a> almost 300 percent in the past year alone and is now worth two trillion dollars. But even that company is only trading at twenty-five times its revenue.<\/p>\n\n\n\n

So why is Trump Media selling at such astronomical prices? Investment experts say that it is not merely a meme stock but a political<\/em> meme stock, which combines the dice-rolling aspect of regular meme stocks with the Trump-promoting fervor of MAGA acolytes. Jay Ritter, a finance professor at the University of Florida who has long studied IPOs, told Vanity Fair<\/em> that meme stocks<\/a> often depend on the \u201cgreater fool theory of investing,\u201d whereby rational investors expect that a stock will rise and so bet that they can sell their shares to \u201ca fool\u201d willing to buy them at a higher price. In the case of Trump Media, Ritter said<\/a>, \u201cyou\u2019ve got ideology involved [and] my suspicion is most of them have bought the stock as a show of political support.\u201d<\/p>\n\n\n\n

With the merger and public offering, Trump may have come up with a way to raise money not only for his legal bills, but for his presidential campaign. Both of these strategies, however, will rely on the stock continuing to do well in the public markets, and this remains<\/a> an open question. Apart from Trump Media\u2019s money-losing status and lack of any real sources of revenue growth, it\u2019s not clear that the MAGA cohort alone will be enough to sustain the share price. And as the Times<\/em> noted, going public means that Trump Media will draw more<\/a> scrutiny from regulators, who will now be able to pore over its quarterly financial reports and look for irregularities.<\/p>\n\n\n\n

Even before the merger, Trump Media was on the radar of regulators: the deal was significantly delayed, and almost derailed, by a Securities and Exchange Commission investigation into discussions that<\/a> the company held with Digital World. (SPACs aren\u2019t supposed to have a specific acquisition lined up before they go public, and securities regulations prohibit them from engaging in any \u201cmeaningful\u201d merger talks with a specific entity.) According to federal prosecutors and the SEC, some insiders allegedly made trades knowing that Truth Digital was the target of the merger<\/a>. Digital World eventually settled with the SEC and paid a fine of eighteen million dollars. It revised its public filings before the IPO was completed.<\/p>\n\n\n\n

No meme stock would be complete without some attendant conspiracy theories, and Trump Media is no different. In this case, one popular theory<\/a> revolves around Jeffrey Yass, a billionaire Wall Street financier and prominent donor to the Republican Party. Susquehanna International Group, a trading firm controlled by Yass, was the largest institutional shareholder of Digital World prior to the merger and is also a major investor in ByteDance, the Chinese company that owns TikTok. This month, the House of Representatives passed a bill aimed at forcing ByteDance to sell TikTok. According to the Times<\/em>, the conservative Club for Growth<\/a> has been lobbying Republicans in Congress to oppose an outright TikTok ban. Yass has reportedly helped to fund that effort.<\/p>\n\n\n\n

When Trump was president, he mounted a campaign to force ByteDance to sell TikTok to a US company and even issued an executive order banning the app, which I wrote about at the time<\/a>. TikTok, he said, was a “national emergency.” This month, however, Trump reversed course and essentially took the Club for Growth line. (Banning TikTok, he says now, <\/a>would only help Facebook\u2014which has been “very bad for our country, especially when it comes to elections\u201d\u2014and its owner Mark Zuckerberg, or as Trump calls him, Mark “Zuckerschmuck.”) Given Yass’s stance on TikTok and his investment in Trump Media, some observers wondered whether a quid pro quo was at issue here. Trump has said that he met recently with<\/a> Yass, but that the subject of TikTok didn\u2019t come up in their meeting. Susquehanna, Yass\u2019s firm, has said that it has \u201czero economic interest in Trump Media,\u201d the merged entity, pointing out that its \u201clong position is offset by short positions of the same size.\u201d<\/p>\n\n\n\n

Whatever Yass\u2019s involvement, questions remain, both political and financial. Will Trump Media somehow become the kind of business that justifies an eight-billion-dollar market capitalization, or will its price ebb and flow based on the whims and obsessions of the MAGA crowd and meme-stock traders looking for a greater fool<\/em>? Or will we see a repeat of what happened the last time<\/a> there was a stock with the symbol DJT? The ticker was last used for Trump Hotels and Casino Resorts, which went public on the New York Stock Exchange in 1995. That company lost money every year that it was in business. In 2004, it filed for bankruptcy protection. Recently, it\u2019s been tempting to gauge Trump\u2019s financial ups and downs in terms of weeks, even days. But the correct metric might be years.<\/p>\n

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Last week, Donald Trump looked to be in dire straits, both legally and financially. He owed four hundred and fifty million dollars in legal penalties after a New York judge found that he fraudulently inflated the value of his assets in order to get bank loans, on top of the eighty-three million dollars he owed … <\/p>\n

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