Donald Trump is set to become the US president in 2025. Questions have been raised about the future of Truth Social and the parent company, Trump Media & Technology Group.
Trump’s recent move to transfer his ownership stake into a revocable Trust, which gives Donald Trump Jr. sole voting rights over the shares but makes him an indirect shareholder of the stock has raised questions about possible conflicts of interests.
Investors and analysts are also struggling with the valuation of companies and questioning their growth strategies.
Trump’s trust arrangement raises ethical questions
Trump’s indirect ownership in TMTG, valued at more than $4.2 billion, has been criticized for its lack of transparency.
Donald Jr. can still vote alone, even though he has transferred all of his shares to a trust. This arrangement raises concerns about potential conflicts.
Dennis Kelleher CEO of Better Markets said in Barron’s that “This isn’t a blind trust, with an independent trustee where people can be confident the conflicts are actually removed.”
It looks like President Trump has his son acting as trustee.
Although US presidents do not have to follow conflict of interest laws, they often place their assets in blind trusts that are completely independent to prevent any perceptions about impropriety.
Trump’s decision not to take such steps has fueled skepticism about whether public and private roles are separate.
Truth Social: is it worth the price?
TMTG’s $7.8 billion valuation is being closely scrutinized due to its lackluster financial performance.
Many questioned the fundamentals of this stock after it reported $1 million revenue for Q3 2020 and $19.2 millions in net losses.
Unlike many publicly-traded companies, TMTG does not have brokerage coverage. This makes its financial forecasts speculative.
Institutional investors, such as Vanguard, BlackRock, and others, hold small shares in the firm, mostly through index funds. This may indicate that they are not confident in its prospects on a long-term basis.
TMTG appears to be in a weak position when compared with social media giants such as Meta Platforms or ByteDance.
Meta’s Market Capitalization is $1.5 trillion. This figure comes from robust metrics on revenue and engagement.
ByteDance is the parent company of TikTok and its estimated value is $300 billion.
TMTG’s valuation, on the other hand, appears to be based primarily on Trump’s brand, rather than his operational accomplishments.
DJT’s strategy for growth: crypto and streaming services
TMTG’s ambitious growth plans extend well beyond Truth Social.
Truth+, the company’s streaming video service, is growing in popularity. It can be accessed on iOS and Android.
TMTG also explores opportunities to diversify revenue streams in the cryptocurrency and fintech industries.
Reports surfaced that TMTG was considering acquiring Bakkt. This is a crypto-platform with a public market cap of approximately $200 million.
A move of this nature would be feasible financially, considering TMTG’s cash reserves of $673 millions and its debt-free financial position.
Devin Nunes has stressed the commitment of TMTG to grow through mergers and potential acquisitions.
“We continue to explore additional possibilities for growth such as potential mergers and acquisitions…including in the realm of fintech,” he said in a recent earnings release.
These strategies can provide new revenue sources, but they are also fraught with risk.
In November of last year, the company registered a trademark “TruthFi” for its possible cryptocurrency payment and trading platform.
A misstep could further undermine investor confidence. The crypto market is known for its volatility.
Investor enthusiasm for retail investors wanes
Investors, who were once the main drivers of DJT’s stock performance, seem to have lost interest.
After Trump’s victory at the November election, trading volume for this stock has steadily declined.
JJ Kinahan is the CEO of IG North America. He stated that “retail investor demand has dropped since the elections.”
According to him, many Trump supporters may have viewed their purchase of shares as an expression of politics rather than financial decisions.
Steve Sosnick, Chief Strategist at Interactive Brokers, shared this opinion. He noted that DJT’s popularity has declined among traders since its peak on Election Day.
Sosnick said, “There is no influx of buyers in DJT. We’re also not seeing a lot of selling.”
DJT stock’s performance in recent months shows a lack of momentum for retail.
Although shares are up a little since the beginning of November, they still remain 30 percent below their peak in October of $55 as well as over 50 percent lower than their highs of March of $80.00.
Opportunities and Risks: Possible Catalysts
Even though the stock is facing challenges, it still has the potential to spike suddenly, if unexpected events occur.
Investors may be interested in a buyout, a partnership with fintech or a launch of a brand new product.
But such catalysts are still speculative. The risks of insider trading or regulatory scrutiny may temper the optimism.
The uncertainty created by insider ownership is a new layer. TMTG is owned by several key members of Trump’s Administration, such as Attorney General Pam Bondi.
Insiders selling their shares could cause a steep decline in the stock price.
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