Where will Trump Media (Truth Social) stock be in 10 years?

Trump Media and Technology Group (D.J.T. 6.04%)TMTG has received a lot of attention since it was listed through a merger with a special purpose acquisition company (SPAC) on March 26. TMTG is a company founded by former US President Donald Trump and owns the social network ‘Truth Social’, which was launched in February. 2022.

TMTG said in a regulatory filing that it created Truth Social “to fight against big tech companies” that “reduce debate and censor voices in the United States.” However, it did not disclose key performance indicators that investors typically associate with social networks, such as active users, average revenue per user, and ad impressions.

Image source: Getty Images.

According to estimates by SimilarWeb, Truth Social currently serves only about 5 million active users, making it a small underdog in the social media market. In comparison, X claims to have over 500 million monthly active users (MAU). meta platformFacebook had 3.07 billion MAUs available as of the end of 2023.

In the first nine months of 2023, TMTG generated revenue of $3.4 million but posted an operating loss of $10.6 million and a net loss of $49 million. Although that number is tiny compared to the $7 billion worth of the stock, it is likely to be backed by meme stock investors and short-term traders. Let’s take a look at where the next 10 years will take us.

What does TMTG expect to achieve?

In a pre-merger presentation in November 2021, TMTG claimed revenue could increase from about $1 million in 2022 to $3.67 billion in 2026. This is an impressive 678% compound annual growth rate (CAGR) over four years.

It predicts that Truth Social’s total users will increase from approximately 16 million in 2022 to 81 million in 2026, and the percentage of monetized users will increase from 5% to 26%. However, recent estimates show that we are falling significantly behind our long-term goals. It also said its upcoming subscription-based streaming video service, TMTG+, could reach 40 million subscribers by 2026 and bring in the majority of its revenue.

TMTG claims that its “unique persona and marketing proposition” in an “existing social and political environment” allows it to grow “at a rapid pace” compared to other social media platforms. In other words, the plan is to leverage Trump’s social media followers and leverage political discussions during this election period to gain more users.

What is TMTG’s biggest challenge?

However, as of this writing, Trump’s Truth Social account only has 6.9 million followers. This is a very small number compared to his 87.3 million X followers, 34 million Facebook followers, and 24.2 million Instagram followers. So if Trump wants to reach the broadest audience, he will still have to use competing platforms.

TMTG’s balance sheet is also a mess. It ended the third quarter of 2023 with $1.8 million in cash and $63.8 million in total debt. If the company fails to grow sales and continues to lose tens of millions of dollars each year, it could easily go bankrupt within the next few years.

Even if TMTG could achieve its pre-merger goal of generating $835 million in revenue this year (which seems unlikely, as it will only generate $3.4 million in revenue in the first nine months of 2023 and has not yet launched TMTG+). I don’t think next year’s sales will be 8 times more expensive. In the end, Metaplatform is also trading at about 8 times this year’s sales. But lowering the bar to a more realistic target of $10 million in 2024 sales would see TMTG trade at more than 700 times next year’s sales. I believe it’s impossible for this stock to support its nosebleed valuation.

Moreover, Trump still owns at least 58% of TMTG shares and will likely sell his stake to cover legal and election costs once the lockout period ends in six months. Additionally, the company will need to raise new cash by issuing more debt or through a secondary stock offering as its liquidity dries up.

So where will TMTG stock be in 10 years?

I believe TMTG’s stock will be worth a lot more in 10 years. In the best case scenario, it could carve out a niche for itself in the social media and streaming video markets, but it still wouldn’t grow fast enough to justify its market capitalization. In a worst-case scenario, Truth Social loses steam, TMTG+ fails and collapses due to the high costs of operating a streaming video platform, and Trump liquidates his holdings to raise his cash. The company’s remaining assets are likely to go bankrupt and be delisted.

Given what investors already know about TMTG’s business model, the worst-case scenario seems more likely. Investors should avoid these meme stocks and instead stick to more trustworthy social media like meta platforms.