Description

You can short a money losing social media company with slowing app downloads at a huge premium to well-established and well-funded peers.  Does that sound interesting to you?

I’m not a political guy and this trade isn’t in any way political (though I am expecting some amazing comments).  The business prospects for Trump Media and Technology Group (DJT) look atrocious and the valuation is nothing short of insane.

Look the truth (Social) of it is this is really a PA trade.  With the GME meme stock trade you knew it would break eventually you just didn’t know when.  I propose buying a bear put spread (buy puts at one strike, sell them at a lower strike) on DJT using 2026 leaps.  This isn’t going to result in a huge win.  If you are right you’ll make 20-30% of what you risk.  Think of it more like a merger arb play, decent return if it works, pretty good larger loss if it doesn’t.  But, you have capped your loss, a squeeze won’t kill you.  The puts are long-term so you should be able to pay taxes on any profits at LT capital gains rates.  Yes, the vol is insane and the options are thin.  That’s why this is a PA trade. I DO NOT RECOMMEND the outright short because, hey, this is a meme stock and losses shorting can be unlimited.  Plus I don't think there is probably borrow (at least not at IB).  I fully expect this thing to trade crazy.  

Ok so let’s talk about the company.  It’s a social media company like Twitter.  Why does it exist?  Because Donald Trump got banned from Twitter.  Donald Trump is now back on twitter FYI.  The platform currently has ~9 million users (that’s total users, not active users).  Let’s put that in context Donald Trump has 87 million followers on Twitter.  So his reach there is much bigger than it is on Truth Social.

Is it making money?  Why no.  It’s not.  $4.5 mil annual rev run rate with a loss run rate of $13 million per year.  Unless this thing scales a lot, there isn’t a lot it can do.  It only has 36 employees, so I’m not sure it will scale.

This also is not some hot growth startup growing virally.  Here are the app store downloads:

Nothing to see here, flat to possibly shrinking although the recent IPO may provide a temporary bump.  I signed up to check it out before doing this post.

From a user perspective this site is almost 100% political.  That’s all I see anyone posting about in my brief time on the site.

Given that 65% of Americans feel exhausted by politics according to this Pew Research poll:

https://www.pewresearch.org/politics/2023/09/19/americans-dismal-views-of-the-nations-politics/

I’d say the market for Truth Social will likely remain niche. 

Valuation

Let’s move on to valuation.  At the time Elon bought twitter they had about 215 mil daily active users.  Elon paid ~$44 billion for Twitter and I think it is widely viewed that he overpaid.  So he paid $204 per active daily user.  I view Twitter as the closest comp as that’s what Truth Social was setup to compete with.

Maybe let’s look at META’s valuation.  In Q4 they had 3.19 billion DAU.  Present enterprise valuation is $1,277 billion.  So $400 per user.  And this is for the biggest most profitable company in the social media world.  

How about Pinterest?  In Q4 they had 498 mil DAU.  Present enterprise valuation is 21,337 million.  So $42 per user.

Snapchat?  In Q4 they had 414 million DAUs.  Present enterprise valuation is 19,522 million.  So $47 per user.

Applying that metric to DJT’s 9 million total users (active is probably 2 million or less but let’s say it’s 9 for giggles) implies that DJT trades for $942 per user.  So way more than all the peers who have much greater scale and profitability.

What are the red flags with DJT?

I’d say the real question is what red flags aren’t there.

Here’s a brief list:

Trump was paid $100 million to use his name by the company.

Digital World’s auditors resigned before this deal.

The former CEO of Digital World is suing for more comp.

Trump owns 58% and has complete control, risk for self-dealing seems high.

Trump Media and Technology Group doesn’t report (and may never) industry relevant metrics like DAUs.

The company’s financials have material weaknesses.

President Trump has a lot of lawsuits against him.

Trump only has a 6 hour exclusivity obligation to Truth Social for “non-political” posts after which he can post to other platforms (If he becomes President again will all posts be deemed political?).

Trump can terminate his exclusivity obligation with 30 days notice after February 2, 2025.

Trump can terminate the agreement if any products or services ever fail to satisfy the highest standards for quality and reputation unless such failure is cured immediately (but not later than 30 days) after notification, regardless of whether TMGT is listed on a public stock exchange.

Trump has complete control and his son is on the board.  Anywhere else that would make you nervous.

Risks to a short thesis:

• Obviously if you buy puts you can lose all your money, so there’s that.
• Meme stock euphoria could happen (although if vol explodes even higher puts might actually go up)
• This thing is going to take some time to return to a real world valuation.
• DJT could use its inflated stock price to buy some real assets.
• Maybe they actually execute and it becomes the platform of choice for Americans that lean republican and are highly political.

Disclaimer: The information contained herein is solely for research purposes and in no way represents a solicitation. Such information represents the views of the author as of the date submitted based on public information published or disseminated by the companies referenced below, including, but not limited to, through SEC filings, investor relations materials and public conference calls, or other third parties as of such date. Securities of the companies discussed herein have been and are currently portfolio holdings of the author or clients of the author’s firm. Such information does not constitute investment advice or a recommendation, and it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or other asset or to participate in any trading or investment strategy. Forward-looking statements reflect the views of the author as of such date with respect to possible future events. Actual results may differ materially from those in the forward-looking statements as a result of factors beyond the control of the author and you are cautioned not to place undue reliance on such statements. 

P.S. For those who didn't take the time to read the prospectus, I hope you found this mildly entertaining.  The capital markets are an amazing place.

Catalyst

1. Lockup expires in six months.  Last time I checked Donald Trump needs some money and this is probably his most liquid asset once the lockup expires.  Plenty of other insiders did better on this than they expected and I expect them to sell too.  

2. Trump loses the election.  Republicans turn on him and he rides off into the night an unpopular loser, not many people care about the platform then.

3. Trump wins the election.  He spends his time running the country instead of doing what Truth Social wants him to do.  He also needs the broader audience other places like Twitter can provide.

4. The company actually provides some metrics and they aren't flattering.