I agree with your post. I just want to make the point that this quoted bit sounds like there’s substantial liquidation value to Truth Social, as if its data processing assets were something like the huge NSA data center in Utah. It would not surprise me if it was literally a refurbished Dell server running in somebody’s basement with a consumer-grade broadband connection.
This is also interesting. Here’s the money quote – the reference is to the IPO of Trump Hotels and Casinos:
According to NBC News, Trump’s last attempt to go public crashed and burned relatively quickly, with investors getting soaked even as Trump reaped significant benefits.
He can, apparently, transfer the stock to a trust and then use the trust as collateral. Or at least I’ve seen that written about, I’m not an expert. I don’t know what if any other obstacles that puts in his way.
If he were inclined to fully comply with his financial agreements, that would be true. If he were not inclined to comply with his financial agreements, he could find ways to hedge his stock and take cash out now without actually selling those shares in a way that would be reported to the transfer agent and which might otherwise be invisible to the issuer who ostensibly cares about his compliance. Some of those ways might not be visible to the SEC either unless they are specifically looking at the right people and demanding exactly the right documents.
Social networks aren’t valued based on the price of their computers. Whatever infrastructure they have is an infinitesimally small portion of their value.
I know a little bit about this sort of stuff, given that’s mostly what I’ve been doing at work for the past 3 years.
First of all, he wouldn’t be “generating income”. He would be taking out a loan to get cash, using Truth Social stock as collateral. If that stock drops, he needs to either put up more collateral, pay back the loan, or have the stock sold off in a margin call. Some bank would need to underwrite that loan and decide how much to actually lend him, based on how much they think Truth Social will retain its value. And no bank wants to issue a half billion dollar margin call.
I guess my question is who is valuing Truth Social and underwriting the IPO? It’s not valued at $6 billion just because Trump says so. Some bank is providing a valuation and presumably planning to sell these shares on one of the major exchanges, with an expectation to make money.
Go back to the basics in that a stock is only worth what someone is willing to pay for it, plus any liquidation value.
In this case, when it starts trading Monday under ticker DJT it will be worth the trading share price x number of shares outstanding. Call it $1B market capitalization for illustration
IIRC, Trump owns 60% of DJT. So, on paper, he is worth $600M. But, it’s only worth $600M if he can sell all of it at that price. No rationale investor looking for a non-speculative return would pay that much because
Part of the perceived valuation of the stock is that Trump is a major shareholder and stands behind the company. If Trump sells to a VC or the Saudi’s, then that portion of the “value” calculation goes away.
A bank might be willing to make a loan based on the market capitalization, but only for a fraction of the amount to cover any risk that the share price might fall before the loan is paid off
Trump has a lock up period of 6 months (standard corporate/stock market practice) from Monday to when he could sell
Truth Social is not a transparent company about standard metrics of registered users, and the number of registered (not active) users is a fraction of X or Facebook or WeChat
Truth Social IIRC had $3M in revenue last quarter and $30M in expenses. Not a great business model.
By any standard metric of standard fundamental stock market valuation, Truth Social is effectively worthless. The vast perceived value is in Trump’s personal brand. Over time, when the disconnect between fundamental valuations and speculative valuation, tends to disappear. It could be 2 hours, 2 days or 2 years, but DJT will reflect that it loses $10m for every $1m it currently makes.
This all goes out the window if the investing shareholder base don’t care if the stock becomes worthless. There may be enough investors or nation state actors with enough shell companies that are good with buying all the shares that Trump owns as a gift.
Apparently, aside from the political stuff it’s also attracting eSports gamers. But its size is pathetically small. 2 million monthly active users, 530,000 daily. Compare that to Twitter with over 400 million monthly active users, and over 200 million daily. And facebook is in the billions.
It’s not going to be worth 6 billion. That number came out of the initial price of DWAC in the immediate aftermath and hype of the merger. The stock hit $110, which set the value at that point. Now the stock is already down to $13, making the value of Truth Social no more than $500 million. In this era of severely inflated tech stocks, that’s not a crazy valuation, but it’s completely on hope of growth.
The provision permits a major shareholder like Mr. Trump to transfer shares to a trust. A trust backed by some of Mr. Trump’s shares might be able to use that stock as collateral for a loan.
Which stock peaked at 110 and is now 13? DWAC? I don’t see that high or low listed. Legitimately asking; not trying to argue.
I asked up-thread, but am still unclear where the 5.7B valuation came from? DWAC isn’t worth anywhere near that so it must be TS self-valuation. That means DWAC will convert to DJT at 4:1. Not a great rate.
What will be interesting in the near term is how many investors will exercise their warrants. I think there is the potential for 20% more shares.
Also, there’s a chart in the Pit thread about Elon Musk showing that all the major social media companies are struggling, with X/Twitter down the most in terms of users and daily activity. Truth Social? Doesn’t even rate a mention. And since, as already said, its sole purpose and value is as a platform for Trump’s bloviations, its future value is at best at least as speculative as Trump’s stupid and inherently worthless NFT trading cards.
If anyone is curious about the latter, the first series actually appreciated in value, but one can hardly fathom how something so inherently worthless can maintain that value. The second series tanked and is worth a small fraction of the original issue price.
There is, incidentally, another NFT series in which sufficiently big “investors” will get a piece of fabric allegedly from the suit that Trump wore when arrested and taken for his mug shot in the Georgia indictment. The depth to which that man will stoop to fleece the rubes is almost as incomprehensible as the stupidity of his victims.
I have no idea if this is the right answer but apparently there will be about 136 million shares of DJT after the merger closes and DWAC has been at roughly $40 for the past week so that gets you into the ~5.5 billion range, right? Or is that not how it works?