The Journal. - Donald Trump’s Meme Stock Moment

Episode Date: March 28, 2024

Not long ago, Donald Trump’s social-media company, Truth Social, seemed like it was on life support. But when the company went public this week, its stock soared. WSJ’s Amrith Ramkumar explains how Truth Social’s valuation shot up despite its weak revenue and user numbers, and what it could mean for Trump’s financial and political future. Further Reading: - Truth Social Stock Price Surges on First Day of Trading, Increasing Trump’s Fortune  - Trump Can Post Smaller $175 Million Bond in Civil Fraud Case  - Dear Donald Trump, Here’s How to Manage Your Stock-Market Fortune  Further Listening: - Trump Needs $450 Million He Doesn’t Have  - Biden vs. Trump: The Rematch Nobody Wants  Learn more about your ad choices. Visit megaphone.fm/adchoices

Earlier this week, Donald Trump's social media company, Truth Social, started trading on the stock market. The planned public listing had been in the works for years. But for a long while, it seemed the deal was on life support. Here's our colleague Amrit Ramkumar. This deal nearly fell apart several times over two and a half years. And at many points, it looked like regulators or investigators might trip it up and it looked like it might not get done. But then last week, investors who support Trump joined together to buy shares of a company that

would take Truth Social public and push the stock price way up. Individual investors all around the country, thousands of them have come together on social media to buy this stock in a way that they have with GameStop and others in the past. And to be clear, the company we're talking about, Truth Social, is a struggling business. They have very little sales, they have very few users, and yet they're valued at something like $8.5, $9 billion seemingly overnight because they have Trump.

The disconnect between the actual business and the stock price is just absolutely bonkers. Trump owns 60% of Truth Social. So the surge in the company's value has suddenly created a possible windfall for him. Just when the former president needs money the most. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, March 28th. Coming up on the show, will truth social actually make Trump a fortune? Attention all soccer fans.

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Get the ball rolling on your soccer getaway. Head to visittheusa.com. In 2021, after the January 6th Capitol attack, Trump was kicked off of Facebook and X, then known as Twitter. He and his allies then announced that they were going to start their own social media company, Truth Social. The idea was to give Trump a home to reach his supporters. And have you used it yourself? I have used Truth Social as a way to try to connect with investors who are buying shares of Trump's company.

And that has not gone very well because they do not like talking to the media. Right. And could you just describe the interface? Like, what's it like on there? The best way to think about Truth Social is sort of a cross between X slash Twitter and Facebook. There's sort of streams of posts that you can look at. A lot of them are tied to Trump and his followers or topics like this company and the stock price if you're interested in that. And there are various groups that you can join. The idea was to get a ton of users and Trump supporters on the platform and then eventually

sell advertising and various products to sort of monetize that. At the time, there was supposed to be this huge migration of conservatives who didn't feel they had a voice that was represented on other social media networks. And so that was the big picture idea. To make that vision a reality, Truth Social needed funds. It sounds so obvious, but any business, any new business, you need money. And the company had called around to its investment bankers and realized that pretty much any Main Street normal bank can't really do business with Trump following January 6th and given all the reputational issues. Not to mention the question of being paid back the money if it's a loan or depending on how the financing is set up. So what did they do?

In October 2021, after setting up the company, a press release goes out that Trump Media and Technology Group, the parent of Truth Social, plans to go public by merging with a shell company or SPAC at a valuation around $1, $1.5 billion. In a SPAC deal, a shell company raises money from investors and trades publicly on a stock exchange. The SPAC's sole purpose is to merge with a private company to take it public. Why did Truth Social want to go public this way?

They realized that, hey, these shell companies, SPACs, they offer startups like ours basically a lottery ticket. Anyone can try to go public through these and reach individual investors. It's an easy way to take advantage of retail investors' enthusiasm. So that's exactly what the company was trying to do. Trump supporters got really excited. Many quickly started buying shares of Digital World Acquisition, the SPAC that was taking Truth Social public. So the stock traded at around $10 when the deal was announced,

and then it reached as high as $175 just a few days later. So there's this frenzy of buying that sort of foreshadowed that if this deal ever could get done, it could be an enormous wealth creator for Trump and others who had the stock. So when did Truth Social actually launch? Like when did people start using the platform? The app became available for people to download and start using in early 2022. And at the beginning, it had a lot of success. It was pretty quick to get 1 million downloads and Trump was on there and people saw it had potential.

Things started to quickly go south when Elon Musk's quest for Twitter began, and Trump began flocking back to other social media platforms. Some investors stayed interested, but the SPAC's stock price dropped to around $20 a share, where it hovered. And for the next two years, True Social existed in a kind of limbo. And a lot of people began questioning, is this deal actually going to get done? At the same time, every other type of SPAC deal pretty much that was trying to go public at this time, a lot of those deals were falling apart. Markets were getting hit hard by the prospect of rising interest rates.

And low share prices in deals like this one mean that investors don't want to be a part of it. So a lot of the speculative forces that had helped the SPAC market were kind of working in reverse. And that led a lot of people, including pundits, investors, people who watch this stuff, to basically write off the Trump SPAC deal. It looked like a loser for a lot of 2022 and a lot of 2023. Yeah, so there was the bigger picture, how people were viewing SPACs in general, like that environment, that climate, and also like a lot of questions were being raised

about Truth Social itself. Exactly. There were a lot of issues for Truth Social as a business to compete in this very crowded, rapidly involving social media landscape. And no one really knew what Trump's business or political aspirations or future held in such a fast changing world. At this time, no one really knew if he was going to be the Republican nominee for 2024, which seems obvious now. But at the time, there were all these

questions swirling around. And even some excitement and support from his supporters and individual investors wasn't enough to keep the stock at truly high euphoric levels. It seemed that the plan to take Truth Social public had stalled. Meanwhile, Trump went on to run for president again, and earlier this month, he clinched the Republican nomination. At the same time, his legal troubles were piling up. In one civil fraud case against him, a judge ruled that Trump was on the hook for $454 million, and he was facing a deadline of March 25th to guarantee that he could come up with the money. Then, investor interest in Truth Social

started surging, and Trump suddenly had a potential lifeline. That's next. Wherever you're going, you better believe American Express will be right there with you. Heading for adventure? We'll help you breeze through security. Meeting friends a world away? You can use your travel credit. Squeezing every drop out of the last day? How about a 4 p.m. late checkout? Just need a nice place to settle in? Enjoy a room upgrade. Wherever you go, we'll go together.

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Available at the LCBO. Must be legal drinking age. Please enjoy responsibly. The pieces finally fell into place for Truth Social to go public on Monday. And on Tuesday, the company started trading under the ticker DJT, Trump's initials. And predictably, it was crazy from the beginning.

Shares in Donald Trump's social media company have soared. It's pretty amazing. Just moments ago, it was up 58%, currently up closer to 30%. Either way that you take a look at it, absolutely soaring on its first day of trading. Shortly after 9.30 a.m. on Tuesday when trading began, the stock surged as much as 59 percent to crazy highs. And Nasdaq had to halt trading because so many people were trying to buy and sell the stock. And so by the end of the day Tuesday, how much is the company worth?

By the end of the day Tuesday, the company's valuation is something like $8.5-9 billion, which puts Trump's roughly 60% stake at about $5 billion. But despite its lofty valuation, Truth Social's financials aren't very strong. Truth Social's business has largely been a bust to this point. So the company has now disclosed that since its 2021 launch through September of last year, it had about $5 million in sales and tens of millions of dollars in operational losses and total losses.

The company hasn't disclosed a ton about its user base or how many people use it, but data from third parties shows that app downloads were at about 7 million over the course of 2022 and 2023, which is a decent number, but well below much larger social media platforms that have similar valuations like Reddit, which also just went public.

For context, Reddit had about $800 million in sales last year and has something like 70, 75 million daily active users. How common is it that a company with the financials that Truth Social had would come out of the gate so hot like this? This is pretty unprecedented where you have a company that's basically disclosed. We don't have a ton of money. Our whole business is basically tied to how Trump does in a lot of ways and his activity on our platform. We're not sure if we can get advertisers. We're not sure how we'll grow, even though we might get a lot of money from this deal. And people want to

own it anyway, and they're pushing up the valuation. So the frenzy is just a bit different. And it's also different because this is an election year. And it's a lot of actually very smart, sophisticated professional traders are now viewing this as a way to trade the election. What do you mean by that? A lot of people think if Trump wins the election and beats Biden, that that would be good for the stock of Truth Social, simply because it has Trump's name on it and the ticker tied to his initials. So the logic is a bit fuzzy and it doesn't make the most sense, but it doesn't need to because it's the upside down world of meme stocks and Donald Trump that we're living in. It's the upside down world of meme stocks and Donald Trump that we're living in. Still, it's not clear how Trump will be able to get the money out of Truth Social or whether he'll be able to at all. The million or billion dollar question in this case is when Trump can access some cash tied to this enormous investment windfall.

And in these deals, typically people like Trump, large investors and insiders are locked up for at least six months. That means they can't sell or borrow against the stock for that period unless they get a waiver and other permissions from the board of directors. And the board includes several people who are very loyal to him, including his son, Donald Trump Jr. Several of the other members were in the Trump administration, the trade representative, Robert Lighthizer, big time national security and intelligence aide, Kash Patel, and the former head of the Small Business Administration, Wendell McMahon. And then Devin Nunes, the CEO of Truth Social, is also a director.

So that's five of the seven members have these really close ties to Trump. But, you know, their stakes in this company and other the stakes of many others are going to be impacted by what they decide. And there's an expectation that if they try to let him sell early or borrow against the stock to pay his legal and campaign bills, that if the stock goes down, we could see lawsuits. So it's a very tricky dynamic that the company and board will have to manage. And as is the case with Trump, it will likely get very messy because there's a lot of money to be made and lost in the next few months.

But Trump can get his windfall in other ways. A lot of people have suggested that the potentially most advantageous outcome for Trump is to try to borrow against the stock. And that would still be really difficult because he'd need a bank or insurance company to basically say, we trust this collateral, which is hard to do when the value is fluctuating by billions of dollars in minutes and hours. But that's one path he could try to take to say, look, I have this investment, I'm going to borrow against it. Or he could try to sell some of his shares over time without disrupting the market too much. So those are a few of the paths people have suggested he might take. What is the takeaway here for you?

I think the big takeaway here is that Donald Trump's company is all of a sudden the ultimate meme stock. It's something we haven't seen in markets, really. And it's something we certainly haven't seen in an election year. So everyone's sort of glued to their screen to see where this thing is trading and where it ends up, because the implications are pretty staggering for everyone. And no one's really wrapped their heads fully around it. And no one knows how quickly he could be able to access this money. But because it's Trump and it's politics, just has so many different layers to it. So I think that's the big thing to take away, that no one really knows how this is going

to end, but everyone is definitely watching. That's all for today, Thursday, March 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Corinne Ramey and James Finelli. March 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Corinne Ramey and James Finelli. Thanks for listening. See you tomorrow.