Why Trump's digital media company is different from other money-losing startups | Tech Crunch

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Former President Donald Trump's digital media company is losing money, and a lot of it. But why is this different from other “startups” that struggle to post profits for years, if they ever do?

There are a couple of reasons.

First, as a recap: Trump Media and Technology Group recently merged with Digital World Acquisition Company into a SPAC, which, more often than not, represents a last resort for a significant cash infusion. The company is valued at $DJT on the NASDAQ.

An important part of going public is exposing your financials to the world, and TMTG recently filed its first quarterly financial report with the SEC, which everyone can see and analyze. The financial press had a field day, but the result was that TMTG was losing a lot of money and next to nothing. Specifically, the company lost $58 million on just $4 million in revenue.

Those willing to volunteer for a challenging tech startup — regardless of its “mission” or leadership — might reasonably note that this imbalance is common among early-stage companies with big ambitions. And that's it – who can forget that Uber worked at huge losses for years to disrupt the taxi industry's business model?

TMTG is superficially similar, mainly because it doesn't make money. But that doesn't make it a startup on the verge of explosive growth. There are three big, straightforward reasons:

  • TMTG is not increasing. TMTG's core business, Truth Social, failed to attract more than a few million users. It hasn't demonstrated the traction any startup needs to show to suggest it's the next big thing or really anything (as others have pointed out, Twitter had $665M in annual revenue when it IPOed) . The very low revenue numbers tell us that its only source of revenue, advertisers, is not paying audiences. And there's no real reason to expect this to change.
  • TMTG has no VC runway. Venture capital is a high-risk, high-reward strategy where fundamentally unprofitable businesses are propped up until something changes and they can make money. This gives startups the freedom to do risky things like overhire, charge very little, and take the “business model” down the road, sometimes forever. If investors are convinced and the product has traction — like Uber — they will pour billions into it because they believe they will eventually return. But in his current state of uncertainty, Trump is a risky bet even for a VC. But all that is false because:
  • TMTG is now accountable to its stakeholders. Small startups may have to report to their VC masters occasionally, but compared to public companies they owe a fiduciary duty to their shareholders. While Trump is the largest TMTG shareholder at 60%, the remaining 40% are keeping a close eye on any breach of this duty – such as a fire sale of shares or debt that could seriously undercut the company. But the important point here is that TMTG doesn't have the freedom to throw cash (although they don't have any) and take risks. The basic idea of ​​going public is that you have a business that others want to share – not TMTG.

As a result, as analysts have already pointed out, $DJT is fundamentally and exponentially overvalued. The company is unlikely to turn a profit anytime soon, let alone a profit that would justify its share price and multi-billion dollar valuation. Even the most optimistic scenarios probably consider solvency a distant goal.

On the other hand, due to personal, political, legal and business problems of the majority owner, the whole thing is in danger of blowing up before the end of the year.

The fact is that the share price is completely unrelated to the company's performance, making it essentially a “competition stock” that can be manipulated arbitrarily and possibly by public investors.

While this may make some day traders and short sellers money in the next few days and weeks, it's not the type to hold long-term value, especially given the lack of TMTG assets. By the time Trump sells his shares, the company is likely to be worth something like it is today. The stock is down more than 20% since the market opened and is not even worth it this morning.

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