Trump Media & Technology Group Corp.

Moat: 1/5

Understandability: 1/5

Balance Sheet Health: 2/5

A social media and technology company aiming to create a platform for free speech and expression, positioning itself as an alternative to existing social media giants.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview Trump Media & Technology Group (TMTG), operates Truth Social, a social media platform designed to provide a “free speech” alternative to mainstream platforms, where users can share opinions without fear of censorship. Additionally, TMTG is engaged in developing the TMTG+, a streaming service for entertainment and news content. The company was formed by the merger of TMTG (formely Trump Media & Technology Group) and Digital World Acquisition Corp. (DWAC). The merger was completed in March 2024, which resulted in public listing of the company on Nasdaq under the ticker “DJT”.

TMTG’s primary focus is on creating a technology and media ecosystem centered around Truth Social. The business has very limited financial disclosure due to its very new existence as a publicly traded company.

Revenue Distribution:

TMTG’s revenue sources include advertising, subscription revenues from Truth Social and TMTG+, technology platform licensing and TMTG’s partnerships for content creation, and various other sources related to the company’s social media and digital media platform. The company has not provided a specific breakdown of the different revenue streams but given its current state, it would be difficult to provide this level of granularity.

TMTG’s most recent 10-Q filing states that it generated revenue from Truth Social of $1.1 million and $3.7 million in the first quarter and three months ending March 31, 2023 and 2024 respectively and no revenue from its digital media production.

Trends in the Industry:

The social media landscape is highly competitive and dominated by a few large players with established network effects. These platforms also operate in different market segments and have developed different monetization strategies, often using algorithms and AI-based tools to create compelling user experience. There is no indication that there is a high barrier to creating or establishing an online presence or alternative platforms, however, creating a sustainable platform that users utilize over a long period of time and is able to generate significant revenue is a more difficult undertaking.

There is intense competition from existing social media platforms such as X (formerly Twitter), Meta (Facebook, Instagram, Threads), Tiktok, and YouTube. The user base and engagement rate of Truth Social and related TMTG products are still significantly smaller than their rivals.

Margins: The company is not profitable and the cost of operations is high. While gross margins are very high (~80%) this will have no impact if operating expenses remain high. In Q1 of 2024, expenses were approximately $26 million compared to $19.2 million in the same period last year, even though revenue only grew to $1 million for the quarter.

The company has yet to reach profitability and have a high operating expense.

Competitive Landscape:

TMTG positions itself as a free-speech alternative to existing platforms. The goal is to attract users who are seeking a less censored experience. However, the free speech stance is also controversial and may lead to limitations on how advertising revenues can be generated. The company also has a lot of competition that may offer better user experience and features. Further, attracting a loyal user base is proving to be quite challenging.

TMTG operates within a space occupied by major tech firms which have been developing their technology for much longer and have already amassed large, loyal user bases. Given the large scale of these existing competitors and network effects, it will be difficult to create a long lasting moat.

What Makes the Company Different

TMTG aims to offer a social media experience centered around free speech and uncensored content. The company’s close ties with former U.S. President Donald J. Trump and the promotion of alternative media are some unique factors that help in differentiating the platform. However, these very same elements are proving to be controversial and are limiting its appeal to wider audiences.

TMTG aims to capitalize on its ties to the former president to develop a loyal user base among his supporters and fans.

Financials In-depth:

The latest financial information shows a company with limited revenues compared to its operating costs, a heavy debt and a strong connection with President Trump. It also carries a significant contingent liability, relating to its ongoing legal obligations.

Liquidity & Cash: As of March 31, 2024, TMTG has approximately $273 million in cash and cash equivalents.
Revenue: TMTG generated total revenue of $1.1 million and $3.7 million for the three months ended March 31, 2023 and 2024 respectively, primarily from Truth Social. The lack of revenue has been a long term concern.
Operating expenses: Total operating costs and expenses totaled approximately $26 million for the three months ended March 31, 2024. This is more than 20 times revenue from Truth Social, which is a big problem.
Net losses: The company incurred net losses of $327.6 million for the year ended December 31, 2023 and $121 million and $311 million in the three month ended March 31, 2023 and 2024, respectively. These numbers are quite concerning.
Debt: TMTG has a lot of convertible debt with a fair value of ~$373 million. This debt does not include other convertible notes, warrants, or other equity equivalents, but those are less significant than these convertibles. The conversion of these convertibles will increase share count drastically. The company is also responsible for paying $57.1 million of obligations relating to the Trump Agreement, with a minimum annual license fee of $15.3 million.
Stockholders’ Equity: At the end of March 2024, the total stockholders’ deficit was approximately -$275 million. The share count is ~130 million with a par value of $0.0001.
Valuation: TMTG is currently valued at more than $7 billion in equity and has a P/S ratio of over 1,500, which is very high relative to similar companies that have proven business models and profitability.

The company does not have any positive metrics, and is not profitable. Also, TMTG is dependent on the success of Truth Social. The high debts coupled with low cash flows increase the risks for investors.

Recent Concerns / Controversies and Problems:

There has been ongoing concerns about the financial viability and operational model of Truth Social and TMTG. Also, the high debt levels, low user base and engagement, combined with a number of legal problems facing the company, including the recent accounting fraud investigation, indicate that risks in investing are high. In previous reports, the company’s independent auditors raised concerns about its ability to continue as a “going concern”.

The management stated on the latest earnings call that “We believe our 2023 financial statements are not indicative of the financial health and prospects of TMTG.” The management also stated that they are confident that the new platform Truth Social will be a success and the long term vision of the company will be achieved. They also noted that revenues are expected to grow substantially over the coming years.

Moat Rating: 1 / 5

Lack of Network Effects: While TMTG aims to build a network, its user base is substantially smaller than competitors and its platform does not offer a compelling network effect.
Low Switching Costs: It is very easy for users to switch to other social media platforms; no significant switching costs are involved for users.
No Real Brand Power: While the brand is associated with President Trump and is well-known, its brand equity does not give the company pricing power or loyalty from wider audiences.
No Cost Advantages: TMTG does not have any significant cost advantage because there are no barriers to setting up competing platforms.
No Intangible Assets: The company does not have any significant patents or trade secrets that prevent others from competing with it.

Understandability: 1 / 5

While the platform’s basic concept is easy to understand, its technology, legal, accounting and finance is very complex for a normal investor to understand. Also the lack of transparency makes it hard to estimate the financial performance of the company. There is also a high dependence on the popularity of President Trump to make the company business model a success.

Balance Sheet Health: 2 / 5

The company has high levels of debt and negative stockholders’ equity, which is a concerning situation. Further, there is very low cash in hand compared to operating expenses and negative operating profit. The company is also reliant on new financing to continue its operation which can be dilutive to the shareholders.

Conclusion: Investing in DJT stock comes with several challenges and risk. The company has not reached profitability and there is a lot of uncertainty surrounding its future and operations. There is a lack of a sustainable moat and negative economic earnings. Hence, it would be best for investors to avoid TMTG because risks of permanent capital loss and bankruptcy are quite significant.