Trump Media & Technology: Political Power Won't Fix Declining Revenues

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Trump Media & Technology: Political Power Won't Fix Declining Revenues

seekingalpha10-15 01:06

Trump Media & Technology Group's shares have fallen due to insider selling and weak core operating data despite Trump's potential reelection.The company faces declining revenue, wide losses, and a ...

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Investment Thesis Majority owned by Donald Trump, the Trump Media & Technology Group Corp. (NASDAQ:DJT) has seen its shares fall by 15.76% since July 10, the last time I wrote on the right-leaning social media company. DJT Shareprice Performance (Seeking Alpha) Shares have fallen off mainly due to two reasons: insider selling (one major insider sold off almost all of their 7 million shares) and because core operating data at the social media company is coming in weaker than where it should be for their nearly $5 billion market cap. The entire bull thesis is based on the main shareholder: after all, this is the former President's social media company. With some polls beginning to indicate that he could win this year's presidential election, some investors believe that the company could be exposed to more advertising. If elected, Trump will likely make many major announcements regarding global policy and executive orders on his social media company, Truth Social (this is compared to how he used to make these announcements on his Twitter account). I understand the bull thesis, but I disagree. Even if Trump is elected, I don't think it would be meaningfully beneficial to the social media company. As Trump gained momentum in the primary, revenue did not pick up and in fact went down. With this, I continue to be a strong sell on the Trump Media & Technology Group. Disclosure: this article is not meant to be a political statement or political opinion about the former President or his policies. Rather, this is an analysis of how his potential reelection could impact this stock. Why I'm Doing Follow-Up Coverage One of the main reasons for the follow-up coverage is because as Trump's odds of winning the election re-approach the probability highs he briefly had when President Biden was in the race, investors (even if they are not overall bullish) have increasingly cited him holding the Oval Office as part of the potential bull thesis. I disagree. Over the summer the big risk was the major dilution that was set to hit Trump Media & Technology shares. This turned out to be a real risk and shares sold off. The biggest reason for this follow-up coverage is because I disagree with the core of this bull thesis. I don't think the company is going to do well if Trump is elected. Current State Of The Election Based on current polling data, this is shaping up to be potentially one of the closest elections we've seen in recent years (polling is even closer than it was in 2016 or 2020). He is also winning all but one state's polling averages according to data from RCP. Trump is now out-polling where he was on this day in 2016 against former Secretary of State Hillary Clinton, and where he was polling in 2020 against now President Joe Biden. RCP Polling Averages (RCP) Currently, Polymarket, an online election betting website, is showing Trump has a 54.6% chance to win the 2024 election. Please keep in mind, this is not a political article. The goal of this article is to dissect the business fundamentals of Trump Media & Technology. It's clear that polling is currently showing that the policy side of the current bull thesis is on track to play out (albeit just barely). I am here to argue that the business side of it will not. The Company Has Operational Issues For investors watching the former President's social media company, it's already been reported that the Trump Media & Technology Group is struggling to grow revenue and narrow losses. From a Seeking Alpha news article in September: In its most recent earnings, reported in August, Trump Media & Technology Group Corp. (DJT) saw net sales slip 30% year-over-year to $836,900, and operating loss swelled to $18.7M from a year-ago loss of $3.8M. The company said cash and equivalents came to $344M. Companies are not advertising enough on the platform, despite Truth Social allegedly sporting over 2 million active users. At the core of the website's declining revenue is their declining web traffic. CNBC did an excellent analysis on this. They have less active users because traffic is declining. Truth Social Web Traffic (CNBC) If we overlay political betting market odds of Trump being president next to this, we can see that as it becomes more likely that Trump will become the 47th president, this hasn't translated to user growth. Market Betting Odds Of A Trump Win 1H 2024 (Polymarket) In the spring and early summer as his odds of him becoming President rose, traffic declined (per CNBC). I really think his presidential appeal is not translating to more users. Anecdotally, there are plenty of people that I know personally that plan on voting for the former president that are not Truth Social users. A lot of his target users and biggest fans don't even use his own platform which is a big issue for the company trying to achieve product-market fit. Valuation While the company's revenue is declining, many of his potential voters do not use the platform, and the company faces large insider sales, the Trump Media & Technology Group's Price/Book (TTM) ratio of 14.17 is over seven times the sector median Price/Book of 1.93. To me, this feels incredibly expensive for a company that, as I have already reported, has declining revenue and wide losses compared to revenue (10-Q). Quarterly Performance (10-Q) In essence, the company's expensive Price/Book is effectively justified by goodwill in a company that is dependent on the former president's ability to leverage his brand to bring in ads and dollars to the platform. As I have implied already, I just can't see Trump being able to leverage this effectively, even if he is elected as president. Besides the obvious (there would be a lot of conflicts of interest based on US laws), I just think it's clear that companies do not like to be associated with his brand (for example Macy's cutting ties with the former president after he announced his first election campaign). With this, I think the Trump Media & Technology Group shares should be trading much closer to the sector median Price/Book ratio. If shares were to trade at even a 25% premium to the sector median, this would represent roughly 82.97% downside in shares. While I am using the trailing 12-month (TTM) price-to-book ratio, the company is going to lose money for the foreseeable future which means its price-to-book ratio is likely higher on a forward basis. Bull Thesis The biggest bull thesis (as I alluded to) is the former President himself. Trump is obviously incentivised to and will attempt to drive a lot of key traffic to the platform by making announcements and posting breaking news on Truth Social (regardless if he wins the election or not). Theoretically, if the only way to be able to see these posts and announcements was to create an account with the company, this could cause their user base numbers to jump. On October 10th, the company announced the launch of the Truth+ streaming app, which will be available only on Android devices. Truth+ will focus largely on airing content that is at risk of cancellation and cannot find a home. The goal here is to play off the former President's brand to be the place for content.  We've reached another milestone in our goal of creating an uncancellable safe harbor for free speech - TMTG CEO Devin Nunes. Starting from scratch, in a few years we've launched both a free-speech social media platform and a TV streaming platform for content that's at risk of cancellation or cannot find a home due to the biases of TV networks-and we successfully launched our own content delivery network to do it.  On the surface, this feels like a positive development for Trump Media & Technology because it gives them another opportunity to generate revenue, but I don't think this is enough on its own to grow into the expensive valuation the stock trades at. Again, the biggest problem is that some of Trump's biggest supporters are not using Truth Social while they continue to use other platforms (this means they are not in the Trump Media & Technology content ecosystem to even know about the Truth+ launch). Partly driving this is the fact that many of former President Trump's Truth posts are retweeted on X (formerly Twitter) meaning much of his reach does not even benefit his own app. On the streaming side, the company is battling with conservative streaming sites like Rumble Inc. (RUM), which has a much larger content library than Truth+ at this point. Takeaway Trump's social media site Truth Social and recently released streaming service Truth+ on the surface have the potential to be potential winners if Trump is elected President, but neither platform is showing the data to indicate traffic will jump if he is successful at retaking the White House. At this point, Trump Media & Technology is decreasing in revenue, traffic is down, and its new ventures are in a competitive, niche part of the streaming market.  In my opinion, Truth Social (Trump Media & Technology) simply doesn't have a clear path to growing into the valuation that it currently trades at. Insiders are selling, and I am not bullish. I think shares continue to be a strong sell.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}