Trump Media & Technology Group (TMTG) is majority-owned by former US president Donald Trump.
In order to become a publicly traded company, it worked with a Shanghai-based investment advisory firm called Arc Capital, which specializes in backing shell companies with little or no revenue, few or no customers, and office addresses that go to P.O. boxes.
While it is legal to take shell companies public, the US Securities and Exchange Commission requires them to be clearly listed as such so that investors are not deceived. In 2017, the SEC accused Arc of misleading investors about the extent of business operations it listed, their locations, and the people running them.
In comments regarding one listing, “Go EZ,” the SEC wrote that the Delaware corporation was “purportedly headquartered in Miami Beach, Florida” claiming to be an e-commerce and mobile technology business selling smartphone accessories, including a “GO EZ smartwatch,” with one former sole officer and employee named Cinta, who lived outside the United States. Through a series of confusing events and a slippery cast of characters, assets went into Glophone, a wholly owned subsidiary of Go EZ, with “one retail store, of approximately 700 square feet, located at 6782 Collins Avenue, Miami Beach, Florida 33141.” However:
“The store’s operator, Ernesto Guerra, testified that he initially operated the store for Glophone, but quickly realized that the individuals in China to whom he was reporting his revenues were unwilling to provide any funds, inventory, or other assistance to the store. … Cinta told the Division in April 2016 that he did not know where the new store was and had never visited it. … Finally, the registration statement lists the 6782 Collins Avenue address as Go EZ’s ‘principal executive offices,’ but Cinta operates out of Shanghai.”
If you take nothing else from this report, at least strike “GO EZ smartwatch” from your wishlist.
Arc Capital, the same company that took Go EZ public, created a special purpose acquisition company (SPAC) called Digital World Acquisition (DWAC) to raise $1.2B and merge with Trump Media for the purpose of taking it public.
Here’s how that works: SPACs offer a backdoor way for companies to go public without listing their own shares directly on a stock exchange. Instead, they get acquired by a company that’s already listed but has no assets other than cash. Ta-da! Just like that, the acquired company is now a listed stock.
DWAC acquiring Trump Media and turning it into a publicly traded stock was intended to improve Donald Trump’s financial situation, which had deteriorated in recent years, due in part to running up legal fees averaging more than $90,000 per day since leaving the White House in 2021. A Florida-based securities lawyer described the DWAC acquisition to the Washington Post as “a shell company basically merging with another shell company.”
The melded shells changed their ticker symbol from DWAC to DJT, for Donald J. Trump, and DJT began trading on the Nasdaq at $70.90 per share on March 26, a 42% spike from DWAC’s previous close at $49.95. Three trading days later, it had returned to its pre-DJT price.
Trump Media was founded in 2021 by Trump on the advice of Andy Litinsky and Wes Moss, former contestants on Trump’s TV show, “The Apprentice,” and is headed by Devin Nunes, a former Republican congressman from California.
The company filed a lawsuit against Moss and Litinsky in Florida state court two days after its shareholders agreed to go public, accusing them of harming the company through “reckless and wasteful decisions.” Moss and Litinsky claim that Trump Media is trying to dilute their stake, which is worth more than $500M.
CEO Nunes said in a statement before Trump Media’s first day of trading:
“As a public company, we will passionately pursue our vision to build a movement to reclaim the Internet from Big Tech censors. We will continue to fulfill our commitment to Americans to serve as a safe harbor for free expression and to stand up to the ever-growing army of speech suppressors.”
The company’s primary business is advertising on its “Truth Social” platform, created nine months after Trump was banned from Twitter for his role in the January 6 Capitol insurrection. At the time, Trump said in a statement: “We live in a world where the Taliban has a huge presence on Twitter, yet your favorite American President has been silenced. This is unacceptable.”
A secondary Trump Media business will be TMTG+, described on the investor relations page as a “non-woke” streaming service featuring news, podcasts, documentaries, and other content beyond the grasp of “Big Tech’s” influence. According to the company’s Form 10-K filed on April 1, the platform will provide “a ‘home’ for cancelled content creators, and which TMTG is exploring with the aim to incorporate into its product offerings and/or services as soon as practicable.”
DJT does not hold up to traditional security analysis.
The company wrote in another SEC filing that it “expects to incur operating losses for the foreseeable future.” Total revenue last year was $4.1M, compared with Twitter’s $5B in 2021, its last full year as a public company before Elon Musk bought it. According to Dave Pell at NextDraft, this means that:
“Twitter was roughly 1,200 times bigger than DJT when it was acquired. But at a $44B valuation paid by Musk (which everybody now agrees was too high), Twitter was valued at less than 9x more than DJT right now. On that $4.1M in Revenue, Trump’s company had a net loss of $58M. … The company paid $39.4M in interest on loans in 2023. This means that the company paid more than $9 in interest on the debt for every dollar that it generated.”
On a price-to-sales basis, DJT makes no sense. Meta’s P/S is 9, Twitter’s was 8 before it went private, but DJT’s is over 1,000 — after eclipsing 2,500 in its opening frenzy. Paul La Monica at Barron’s wrote that, compared with social-media companies like Meta or Snap, DJT’s revenue is a rounding error.
But was this ever about investment value? To me, DJT looks like a new form of campaign financing, for which the nation’s laws were not prepared.
When DJT went public, Trump’s 58% ownership of the company boosted his net worth by more than $4B. Most buyers of the stock undoubtedly bought it for this purpose, to support their preferred presidential candidate, not because they considered it to be a compelling investment opportunity. According to Public, an online brokerage with more than three million users, demand for the stock was led by customers in the “red states” of Idaho, Florida, Oklahoma, South Dakota, and Wyoming.
Trump and other company insiders are in a six-month lockup period, but even if they wait the whole six months before extracting value, they would still be able to use the money in the election’s critical final phase from the end of September.
Plus, Trump could appeal to the seven-member board of directors for a waiver, and because the company is all about Trump he would likely receive one. Board members include Nunes, Trump’s eldest son (Don, Jr), Robert Lighthizer (US Trade Representative under Trump), Kash Patel (defense advisor under Trump), and Linda McMahon (administrator of the Small Business Administration under Trump) — not a tough crowd for the former president.
DJT is a way to place election bets using the stock market.
Therefore, it would be highly risky to short it, shaky fundamentals notwithstanding. It’s a meme stock, akin to GameStop, driven more by emotion than analysis. Because DJT the stock is inseparable from DJT the man and his media machine, it’s even less predictable than a typical meme stock driven by fans on Reddit. To see how nutty meme stocks can become, read the 2021 book The Antisocial Network by Ben Mezrich or see the 2023 film Dumb Money starring Paul Dano, both about the 2021 GameStop short squeeze — then on top of that add Trump amplification for an idea of how unmoored DJT is likely to be. Fervor minus fundamentals equals utter unpredictability.
Bidding up the price of DJT is a way to:
Bypass limits on campaign contributions, which are set at $3,300 for an individual to a candidate in this year’s federal elections. There is no limit on how much a person can invest in a stock.
Get on Trump’s good side. Harvard law professor Jack Goldsmith, who served in President George W. Bush’s Justice Department, told the New York Times: “This will be a very easy vehicle for foreign governments that want to curry favor with the president to throw money at him in a way that benefits his financial bottom line.”
If Trump is reelected, he might be able to bid up the stock price himself, not by purchasing shares of DJT but by making Truth Social his official communication platform. Overnight, it would go from fringe to mainstream, and its competitors would find themselves at a disadvantage. According to Similarweb, Truth Social had 5 million website visits in February, compared with 104 million at X and 3 billion at Facebook, indicating a great deal of catch-up potential compressed into DJT. For Trump, releasing it would be a satisfying revenge served cold four years after he was banned. Nobody would be able to cancel him this time.
More broadly than this candidate and this election cycle, politics and finance have become more intertwined than ever, and risk crossing a Rubicon. We may enter an era in which every presidential candidate floats a stock with his or her initials as its ticker symbol, and Americans disenchanted by policy-free politics tune in again merely for financial speculation.
Voting for governance? Who cares. Buy the stock of the candidate you think will win, short the other, and hope to profit off the charade.
If that’s where this goes, we will be securitizing cynicism.
Sources
The Washington Post
Trump’s newest business partner: A Chinese firm with a history of SEC investigations
US Securities and Exchange Commission
Release No. 10400 Regarding Go EZ
The New York Times
How Trump Moved Money to Pay $100 Million in Legal Bills
CNBC
Truth Social owner Trump Media will begin trading under DJT ticker Tuesday
Nasdaq
DJT SEC Filings
USA Today
Trump Media sues Truth Social founders Andrew Litinsky, Wes Moss for ‘reckless’ decisions
NextDraft
Trump and Dump
Barron’s
Trump’s DJT Stock Is Riding a MAGA Wave. It Could Crash.
The Antisocial Network (2021 book)
by Ben Mezrich
Wikipedia
Dumb Money (2023 film)
Federal Election Commission
Contribution limits
The New York Times
Trump’s Social Media Company Opens New Avenue for Conflicts of Interest