Breitbart Business Digest: The Truth About Trump's Truth Social Windfall

The Truth About Truth Social’s Losses

The shareholders of Digital World Acquisition Corp on Monday boldly aligned their fortunes with Donald Trump’s Truth Social, ratifying a pact poised to endow the erstwhile and potentially returning commander-in-chief with a bounty verging on $3 billion.

This alignment underlines a broader narrative that eludes the casual observer, particularly as Trump Media & Technology Group, the progenitor of Truth Social, disclosed revenues barely eclipsing $3.4 million in the initial nine months of 2023 against a backdrop of $49 million in losses.

The chattering classes, in their usual glee at anything they think of as a black mark on the record of the big bad orange man, have been quick to herald these figures as omens of the platform’s distress. Yet, such a reading misses the forest for the trees, ignoring the storied path of technological darlings from Twitter to Amazon—ventures that marinated in red ink while rewriting the rules of their respective domains.

When Twitter went public back in 2013, it was a deeply unprofitable company. It had incurred somewhere in the neighborhood of $400 million in losses before going public, including losing $79 million the year before its initial public offering. Following the IPO, the losses exploded upward, with the company recording net losses of $520 million in 2015 alone. It was valued at $11 billion when it went public.

The year after it was founded in 1994, Amazon had total sales of $511,000 and a net loss of $52,000. In 1996, the year before Amazon went public, it had $15.7 million in sales and a net loss of $5.8 million. The year it went public sales soared to $148 million and losses were $27.6 million. The company didn’t report an annual profit until 2003.

Social media platform Reddit has never turned a profit since it launched in 2005. It’s shares ended their first day of trading this week up 48 percent. As of Friday afternoon, shares were trading at around $48, giving the company a market cap of around $7.7 billion.

In fact, unprofitable tech startups are very common. When Jay Ritter, a professor of finance at the University of Florida, looked at unprofitable tech startups in 2013, he found that 68 percent were unprofitable. In 2018, Ritter found that about 83 percent of U.S.-listed initial public offerings in the first three quarters of the year had lost money in the 12 months leading up to their IPO.

A Beacon in a Balkanized Media World

Shares of Digital World Acquisition Corp (DWAC) have soared 135 percent since the beginning of the year, even after accounting for a small decline in Friday. Some investors appear to view buying and holding DWAC as a way of showing their support for Trump’s campaign to reclaim the White House or betting that he will win in November.

The rapid ascent of the shares in the special purpose vehicle have drawn comparisons to the meme stock craze that sent shares of AMC and Gamestop skyward a few years ago. But those comparisons are inapt. The meme stock folks were betting that there was value hidden inside of mature companies rather than making a forward-looking investment in a nascent media entity’s growth potential.

The investment thesis behind Truth Social is not all that outlandish. The basic idea is that the political balkanization that we have seen in television, radio, and newspapers will also rend apart social media. Just as the right has Fox News, conservative talk radio, and the New York Post and the left has MSNBC, NPR, and the New York Times, segmentation is likely coming to social media as well.

Could Truth Social really be worth its $6 billion market cap? The merger will give it around $300 million in cash that it can invest into growing the platform. It’s likely that it will become more than a clone of Twitter, expanding to offer proprietary video and audio content, possibly courting luminaries like Tucker Carlson.

If the content is compelling enough, it could even offer subscriptions for access to gated content. Would people really pay to subscribe to Truth Social? Well, we know people have been willing to bid up the shares to $40, so it is plausible they would be willing to pay to use, watch, and participate in Truth Social. In 2022, National Public Radio took in something like $120 million in donations from supporters who don’t even need a ticket through a paywall.

Can Trump Use His Truth Social Fortune to Pay His New York Fine?

A big question everyone is asking is whether Trump can use the $3 billion or so he stands to make from the merger to pay the $464 million bond he needs to post to appeal the judgment against him in New York. As is quite common in initial public offerings and special acquisition company mergers, Trump’s shares are subject to a lockup period of six months. The terms of that lockup bar him from not only selling the shares but from using them as collateral for a loan.

But the company could waive or modify the lockup. In this case, they would only have to grant a partial waiver allowing Trump to borrow against the shares. It would not be a stretch to say that it is in the interest of the company that the guy whom the company is built around not face the ruinous prospect of trying to sell his hard assets to appeal the New York judgment.

Would a bank or an insurance company loan Trump the money he needs with the shares as collateral? That’s a trickier question. Trump’s lawyers have said that banks have demanded cash collateral and refused to accept pledges of his equity in properties he owns. If they took the same position with respect to the shares, Trump might be out of luck.

But there’s reason to believe they might not. Valuing the real property Trump likely offered as collateral would be an arduous undertaking, especially because much of it is probably already pledged under mortgages and other financing arrangements. What’s more, Trump just had a New York court declare that he had fraudulently inflated the values of some of his properties when seeking loans, which would surely raise issues with the compliance folks at potential lenders.

That’s not a problem when it comes to the shares of a publicly traded company. The value of the shares that would be pledged is plain for all to see. Even if a bank were wary that the shares might drop in value, it would not be outlandish to think that Trump’s shares are worth at least $500 million. Remember, the company will have around $300 million in cash on its books once the merger is complete.

The real problem might be timing. Trump reportedly needs to post the appeal bond by Monday. Can he get the waiver and arrange the financing that quickly? We’ll likely find out very soon.