Trump's Broken Social Media Venture Is Valued At Billions Of Dollars And Its Breaking Experts' Brains
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Last week we wrote a bit about Trump's new planned social media website, Truth Social (which forbids too many capital letters, so I will oblige by not capitalizing the entire "Truth" part of the name, as Trump's branding apparently prefers). We mostly focused on the ridiculous terms of service (forbidding capital letters among other things), and the fact that it was already kicking people off the system (who only got on the system because Trump's coders apparently failed to properly secure the site pre-launch). We also talked briefly about how it appeared to be a reskin of Mastodon, and that's potentially an interesting legal issue, because it certainly appears to be violating the AGPLv3 license for Mastodon.But, perhaps a more interesting story right now... is how the grift behind all of this is combining the whole Gamestonk craze and the NFT craze... and the SPAC craze to make absolutely no sense at all.We had mentioned in passing in the original post that Trump's new company -- Trump Media and Technology Group (TMTG) -- was formed via a reverse merger using a SPAC. Such deals have become a popular sort of backdoor way to take a private company public, though, they're usually combined with some additional private investment (known as a PIPE -- a Private Investment in Public Equity) in order to afford the "takeover" of the private company that is becoming public. SPACs aren't new -- hell we wrote about Apple co-founder Steve Wozniak creating a SPAC back in 2006. But in the last few years, they've been all the rage.But, Trump's SPAC deal is raising some eyebrows -- or frying some brains. My favorite analysis is the one done by the always excellent Matt Levine at Bloomberg where you can basically hear him tearing his hair out at the absurdity of it all and gradually watch as he comes to terms with the fact that nothing at all matters and it's all nonsense. As Levine notes, the real grift here is that it doesn't matter one bit if Trump has a good business plan for Truth Social or TMTG, because he's going to walk away with tons of cash just from the stock deal.
The point is that if you launch a company with the goal of making it profitable, you have to, like, have a workable business plan and execute on it and deal with a million different operational complexities. If you launch a company with the goal of selling a lot of stock, you have to get people to trust you and give you their money. There is some overlap between those things! But they are different things!As Levine explains, this whole thing, is kinda like an NFT of Trump. It's a way for Trump fans to throw money at Trump to be part of the Trump brand.
But I think that a more realistic valuation method here is not to worry about cash flows at all as Trump SPAC clearly does not and treat the stock simply as a token of public interest in Donald Trump. My guess is that the price of Trump SPAC stock will not, for instance, be much affected by its earnings announcements, unless Trump himself does the earnings calls in which case it will go up no matter what he says. My guess is that the stock will not be particularly correlated with the stocks of other media or technology companies. My guess is that the stock will go up when Trump is on television, or if he announces that he's running for president again. My guess is that if something bad happens to Trump if he's sued or arrested or banned by a new tech company or some new scandal comes out then that will also make the stock go up, to own the libs or whatever. My guess is that each day that goes by without Trump news, the stock will go down a bit. My guess is that the stock is essentially a bet on Trump's personal newsiness, on Trump-news volatility.To be clear I have absolutely no corporate finance basis for these guesses; I don't think that, like, getting sued for attacking protesters will be good for Trump Thing's ad revenue or whatever. I don't have some story of public interest in Trump increases the expected value of Trump Thing's cash flows so the stock will go up. I just think that the stock price will have nothing to do with the ad revenue; it will be based entirely on how much attention Trump's fans are paying to Trump.And, of course, since Levine wrote that, we've already seen more evidence that this was true. Indeed, as Levine mentioned in his piece, it wouldn't necessarily just be Trumpists buying into DWAC, the stock for the new TMTG, it would also be those assuming that Trumpists would drive the stock up. It didn't take long for WallStreetBets, the Reddit community responsible for the original GameStonks situation to go all in on the stock.Alex Wilhelm at TechCrunch sums it all up best:
None of this makes sense. Even by the standards of 2021 and the SPAC era, this is all very stupid.Even Matt Levine seems to be about ready to give everything up:
Doesn't it feel like there has been a paradigm shift, a regime change? Doesn't it feel like for the last 80 or so years there has been a dominant view of investing, a first-page-of-the-textbook given, that investments are worth the present value of their expected future cash flows? Doesn't it feel like that world has ended and a new one has begun? I should go buy some Dogecoin.It is a silly feeding frenzy, and someone will get left holding the bag. It's unlikely to be Donald Trump, of course. It doesn't appear he's put any of his own money behind any of this. No one really believes that Truth Social or TMTG is a "unicorn" worth billions of dollars. But there's a lot of people chasing the greater fool right now, and it's kind of amusing to watch from the sidelines -- though it won't be surprising when the whole thing comes crashing down.
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