Trump Media & Technology Group: Shares Are Nearly Worthless

seekingalpha06-28 23:56

Trump Media & Technology Group has weak revenue and deteriorating bottom line results, with little transparency for shareholders to assess.Recent data shows declining revenue and net losses, with ...

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href=https://seekingalpha.com/article/4701517-trump-media-and-technology-group-shares-are-nearly-worthless><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Trump Media & Technology Group has weak revenue and deteriorating bottom line results, with little transparency for shareholders to assess.Recent data shows declining revenue and net losses, with ...</p>\n\n<a href=\"https://seekingalpha.com/article/4701517-trump-media-and-technology-group-shares-are-nearly-worthless\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0208291251.USD","symbol_name":"FRANKLIN MUTUAL U.S. VALUE \"A\" (USD) 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BluIz60/iStock Editorial via Getty ImagesI don't think anybody would disagree with me when I say that one of the most interesting and controversial stocks on the market right now is Trump Media & Technology Group (NASDAQ:DJT). Even if we ignore all of the political aspects of the company and focus solely on fundamentals and valuation, I think this statement would still be correct. This controversy centers around the fact that we are looking at a company with a market capitalization of around $7 billion. And yet, the company has almost nothing fundamentally to show for it. Recently, revenue has been weak and the firm's bottom line results have showed continued deterioration. The business is one of the most opaque players in the social media industry, electing to publish almost no relevant data for shareholders to make an assessment with. On top of this, there are other things about the company that could be a cause of concern. For whatever reason, the market continues to reward its shareholders by keeping the stock price elevated and the market cap around $6 billion. I would argue, instead, that the market capitalization of the business should be worth only a little more than the net cash on the firm's books. This is not the first time that I have sounded the alarm on Trump Media & Technology Group. Back in early April of this year, I wrote an article about the firm, ultimately rating it a ‘strong sell’. As I specified in that article, I don't care about the political side of things. This was based solely on our understanding of the company's fundamental condition. Since then, shares have plummeted, dropping by 28.8% at a time when the S&P 500 is up 4.1%. But this, to me, is not enough to change my assessment. Even in the best case, based on what data is currently available, I would argue that shares deserve to fall at least 90% from where they are today. Until that happens, or unless something else changes, I think that keeping the business rated a ‘strong sell’ is only logical. From bad to worse Since I last wrote about Trump Media & Technology Group roughly three months ago, management has come out with some additional data. This data covers the first quarter of the company's 2024 fiscal year. Those who are bullish about the business likely hoped that the company would be exhibiting some attractive growth. But if anything, the opposite is occurring. During the first quarter of the year, the business generated only $770,500 worth of revenue. This was down from the $1.12 million management reported for the same time one year earlier. Author - SEC EDGAR Data At first glance, this is really surprising. After all, we are in an election year. And there could be no company better positioned to benefit from increased spending on political campaigns than a business that is majority owned by one of the two main candidates running for the Presidency. Forecasts vary, but according to one source, total spending for social media advertising in the US will be around $80 billion this year. That's 14% higher than it was in 2023. And a sizable portion of that increase will be driven by $15 billion of political ad spending. If anything, we should see Trump Media & Technology Group benefit during this time. For a company that generates essentially all of its revenue from advertising, the parent of Truth Social should be thriving. And yet, what actually occurred should be incredibly worrisome for investors. But this is not the only problem. In fact, a specific statement made in the firm's quarterly report should also be eyebrow raising to some. As you can see in the image below, management stated that a significant portion of the decline in revenue was driven by a change in the revenue share that it has with one of its advertising partners. This alone would not be surprising. But it's what comes next that is disconcerting. Trump Media & Technology Group Management revealed that advertising revenue generated last year was inflated for the goal to \"improve the company's short term, pre-merger financial position.\" In essence, this reeks of inflating the numbers in the hopes of having a more successful IPO. I am not an attorney and I will say that it's good that management has revealed this to be the case. So I'm not sure if there is anything illegal here. But at a minimum, it gives you insight into how management is viewing Trump Media & Technology Group. The bottom line for the business has also suffered. The firm went from generating a net loss of $210,300 in the first quarter of 2023 to generating a net loss of $327.6 million the same time this year. To be perfectly clear, the vast majority of this change, $225.9 million in all, was the result of a change in fair value liability. Because of this, it would be more appropriate to gauge the company's performance by looking at cash flow figures. Unfortunately, this doesn't work well either. Operating cash flow went from negative $3.77 million to negative $9.32 million. If we adjust for changes in working capital, we get a worsening from negative $3.83 million to negative $13.73 million. Meanwhile, EBITDA for the firm went from negative $3.8 million to negative $13.8 million. One positive thing for the company is that, on June 21, management announced that holders of some of its warrants decided to exercise those, bringing in proceeds for the enterprise amounting to $69.4 million. If the rest of these warrants are ultimately exercised, total proceeds will end up being $247 million. For the purpose of analyzing the company, I have decided to assume that this will eventually be the case. Obviously, I have adjusted the firm’s cash position, share count, and market capitalization to conform with this eventuality. Trump Media & Technology Group Unfortunately, one of the things that makes Trump Media & Technology Group incredibly difficult to understand is the fact that management is very vague in the details that it provides. As you can see in the image above, the firm has no interest in revealing commonly used metrics like monthly active users, daily active users, etc… Using third party sources, in my last article, I estimated that monthly active users for the business came in at around 1.3 million. However, we do need to make some other adjustments. For starters, one of the firms that I have decided to compare it to, Facebook parent Meta Platforms (META), no longer reports monthly active users. Instead, it only focuses on daily active users across its family of apps. For the purpose of this analysis, this encouraged me to make the shift over to analyzing Trump Media & Technology Group utilizing daily active users as opposed to monthly active users. Unfortunately, one of the other companies that I compared it to, Pinterest (PINS) does not reveal this information. So I have had to drop it from the comparison list. The other firms, however, Reddit (RDDT) and Snap (SNAP) both disclose daily active user figures. And as part of the analysis, I continue to use the valuation of Twitter before it was taken private by Elon Musk. At that time, it regularly reported monthly active users and daily active users. There aren't very many reliable sources that we can use in order to estimate daily active user counts when it comes to Trump Media & Technology Group. However, in late May of this year, CNBC published an article discussing the US user base of the platform. At the time, they detailed how, in the trailing 4-week window, ending on May 19, the number of daily active users on Truth Social came in at roughly 90,850. Given that I calculated in my initial article on the business that approximately 76.9% of the platform’s user base was in the US, and extrapolation from that would give us about 118,105 daily active users globally. Given that no other reliable data exists, from what I can tell at least, that is the figure that I will use for the purpose of analyzing this prospect. Author - SEC EDGAR Data The results of my analysis can be seen in the table above. As you can tell, the company is being valued, on an enterprise value basis, at $55,451 for each daily active user that it has. If this sounds astronomical to you, it's because it is. Even Facebook parent Meta Platforms, which is undoubtedly the most valuable social network on the planet, is priced at $378.40 for each of its daily active users. On the low end, we have Snap at $61.87. This gives us a good understanding of how shares of Trump Media & Technology Group might be priced. Even if we give the business the benefit of the doubt and assume that fair value would match what Meta Platforms is currently trading out, this would imply an enterprise value of $44.7 million. When we add back in the net cash, this brings us to a valuation on the high end of $515.3 million from a market capitalization perspective. That translates to roughly $2.60 per share. Considering that the stock is currently trading at $35.42 per share, this implies downside of 92.7%. If we take the low end of the spectrum with Snap, we are looking at an enterprise value of only $7.3 million. That would translate to a market capitalization of $477.9 million, for a share price of $2.41. That translates to downside of 93.2%. Author - SEC EDGAR Data A case could be made that, unlike these other platforms, Trump Media & Technology Group is worth even less. As such a small platform, it's unlikely that it has truly hit the Allee Threshold. In fact, the data provided by another third-party source suggests that use of the platform is shrinking rapidly. In the month of May, for instance, traffic was 12.9% lower than what it was the prior month. In April, meanwhile, traffic was down 15.8% month over month. This, combined with the falling revenue and growing cash outflows, shows a business that is in distress in every respect other than from a cash perspective. Takeaway  Fundamentally speaking, I don't think I can describe Trump Media & Technology Group as anything other than nearly worthless. In addition to having fundamental problems from a revenue, profit, and cash flow perspective, management is extremely vague in what it shares with investors. Yes, the company now has access to a good deal of cash. But its valuation is ridiculous. Absent a miracle, I see no reason why the stock shouldn't be trading well below $5 per share. And in fact, it should probably trade below $3 per share. At this point in time, I feel very confident about making this my highest conviction ‘strong sell’ candidate. 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