Unless Donald Trump is a modern-day King Midas, able to create wealth with a mere touch, the speculative fever over his digital media venture is hard to justify.
Trump unveiled his new Trump Media & Technology Group on Oct. 20 and agreed to merge it with a public shell company, Digital World Acquisition Corp. DWAC’s shares hit the stratosphere, jumping from under $10 to as high as $175 in the two days following the announcement.
They’ve come down since, but as of Friday the shares were worth $67.75 apiece, valuing the enterprise at $2.6 billion. That’s a lot for a company whose only assets are $293 million in cash — and the hype that comes with Trump’s name.
In an investor slideshow, Trump Media says it plans to launch a social network that would compete with Twitter and Facebook, both of which have banned Trump from their platforms. It also plans to compete with Netflix and Disney+ by offering a streaming service full of “non-woke entertainment.”
If that’s not enough giants to slay, Trump Media hints that as a “long term opportunity” it will compete with Amazon, Google and Stripe in cloud services and payments.
As far as investors know, however, the company hasn’t hired any executives with digital media experience, developed any proprietary technology or lined up any content for its streaming service.
“This is David taking on Goliath and he doesn’t even have a slingshot,” said Juli Niemann, an analyst at Smith Moore in Clayton.
Special purpose acquisition companies, or SPACs, have become a popular way for early-stage firms to go public. Most firms taking that route publish full financial statements, allowing investors to value the business based on its revenue and profits.
Trump Media has provided no such information. At some point, it will have to submit more details to the Securities and Exchange Commission, which has stepped up scrutiny of companies involved in shell-company mergers. It should become apparent whether the emperor has any clothes.
Joe Terril, who runs Terril & Co. in Sunset Hills, said he’d want answers to several questions before putting money into such a venture (which he has no plans to do). “How are you going to offer your services to people?” he asked. “How are you going to get paid for it, and how are you going to finance the growth of it?”
Other surprises may loom. Most SPAC deals raise additional money through a private-placement offering. Trump and DWAC haven’t announced such an offering, but they presumably need more capital to go head-to-head with Twitter and Netflix.
If institutional investors buy in at DWAC’s original price of $10, as is common, other shareholders may wonder why they paid several times as much to join the joyride.
The SPAC market caught fire last year after several shell companies announced mergers with speculative businesses, such as electric vehicle startups. Most such stocks have since given up their early gains.
“This particular SPAC has a lot of similarities to the stuff we saw in 2020 and early 2021,” said Norman Conley, chief investment officer at JAG Capital Management in Ladue. “There are a lot of aspirational business plans, and they’re aspirational in the sense they are probably unlikely to come to a fruitful conclusion.”
Warren Buffett likes to say the stock market is a voting mechanism in the short run, but a weighing mechanism in the long run. Trump’s base has turned out to vote for his latest venture, but he hasn’t yet given investors anything substantial to put on the scales.