Trump shrugs off a guilty conviction to financial success
Fortunes aren’t made overnight.
Unless you’re Donald Trump, that is.
As of the time of writing, Trump Media stock (with the bombastic ticker NASDAQ:DJT) is selling at $49.09. Overall, that’s an estimated market cap of $8.67 billion. That’s almost 30% down from its peak in late March, but still ludicrously expensive.
In the past week alone, it’s up 11%. And that’s when factoring in Trump’s guilty conviction at his hush money trial two days ago. The stock barely budged, shrugging off 4% since the previous day. That may sound like a lot, but it’s nothing compared to the +115% run it just had since mid-April.
In 2023, Trump Media had $4.1 million in revenues, with $58 million in losses. Even ignoring those losses, the sales figures by themselves are pathetic.
Unprofitable companies are typically valued on the price/sales ratio (market cap divided by revenue). For Trump Media, at a $8.67 billion valuation, that’s a price/sales ratio of 2114.
Most companies typically trade between a price/sales range of 1–5. For extremely hyped up tech companies, that figure can hit the low double digits. In Tesla’s 2010 IPO, where revenues had increased 17-fold over the past three years, its price/sales ratio was 23. When Google IPO’ed in 2004 with year-on-year revenue growth of nearly 150%, its price/sales ratio was 14. Even Nvidia, one of the hottest stocks in the market today, only has a PE ratio of 36.
If Trump Media would be valued as highly (or lowly, depending on your perspective) as Nvidia is today, it’ll be valued at about $150 million (reflecting a 98.3% drop in price).
Maybe a better consideration would be to compare Trump Media to other meme stocks, such as AMC, Blackberry, and GameStop. But those companies’ price/sales ratios only peaked at about 5 to 16.
Neither does Trump Media have any clear turnaround plan. Trump Media says that it has no intention of reporting, and doesn’t even collect, data like Truth Social’s number of new users registering, number of monthly active users, and number of ad impressions.
The company’s books not only aren’t impressive, they’re also dirty. The company’s actual financials and operations that no one, not even the Wall Street Journal, has managed to calculate how many outstanding shares there are (typically information that’s extremely easy to access). Also, the company’s independent accounting firm reported that Trump Media’s “operating losses raise substantial doubt about its ability to continue as a going concern.” Not exactly the stuff of a corporate turnaround waiting to happen.
That’s not all. Digital World Acquisition Corp (DWAC), the special purpose acquisition company that merged with Trump Media and took it public, says in its prospectus that Trump Media did not provide it with “complete financial information.” Before this, DWC postponed its merger with Trump Media several times, had to change its accounting firm, and was forced to pay the SEC $18 million due to errors in previous filings.
Valuations are so untethered to reality that no turnaround of any sort will be able to warrant Trump Media’s current valuations. In that sense, stockholders aren’t buying stock to invest — they’re buying it for nonfinancial reasons. I.e., holding Trump Media stock may be their way of displaying loyalty to Trump, of committing to the righteous mission to return him to the white house, maybe even a grand gesture to help him grow his wealth.
Trump is certainly enjoying the show. Previously, his stake in Trump Media was estimated to be worth around $22.5 million. Now, based on market prices, his 58% stake in the company should be worth around $5.0 billion. That’s a 146x increase.
For a man who was facing a looming deadline to post a $175 million bond for an unrelated fraud case, that certainly comes in handy.
Thus far, the show has been remarkably persistent. The stock price previously halved from late march to mid-April, but it has made a solid recovery since then, rising 115%.
Financial markets work on the principle that reality will prevail eventually. But as John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent”.
For now, the markets are doing so.
