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Posted On: 04/05/2024 2:51:31 PM
Post# of 124260
Trump Media & Technology Group:
The picture looks bad… really bad.
Expect Shares To Fall To The Single Digits
I would not be surprised to see shares fall, perhaps even in excess of 90%.
Apr. 03, 2024 5:45 PM ET
Trump Media & Technology Group Corp. (DJT)
Daniel Jones
Investing Group Leader
Summary
Trump Media & Technology Group has experienced extreme volatility in its stock price, with shares ranging from $12.40 to $79.38.
The company's financials show limited revenue growth and opaque reporting, with a net loss of $58.19 million in 2023.
DJT's market capitalization is unrealistic given its user growth, implying a value per active user of $4,796.72, suggesting the stock is significantly overvalued.
My name is Dan Jones. I have degrees in accounting and economics, and ran a registered investment advisor for nine years. I lead the investing group Crude Value Insights.
If volatility is something you crave, one company that should definitely be on your radar is the newly christened Trump Media & Technology Group (NASDAQ
JT). Over the last year, shares of the business have been between a low of $12.40 and a high of $79.38. To be clear, most of its trading history, including the time during which the stock was lowest, occurred when the entity that was public was actually a separate holding company known as a SPAC (special purpose acquisition company). The then privately-held parent of Truth Social merged with it, essentially taking that parent company public.
Regardless of the reasons, shares immediately rocketed higher. But since then, volatility has reared its ugly head in a way that has been painful for many of its investors. On April 1st alone, shares closed down about 21.5% at $48.66. That's a whopping 38.7% below the 52-week high mark that occurred only days earlier. The bad news that I have for investors is that, while this might seem like a good time to get in at what might be the bottom, that bottom is likely to be significantly lower than most would think. Based on my own assessments, even a generous view of the company suggests a fair value that is lower than $5 per share. And in all likelihood, the stock is worth even less than that in my opinion. Because of this unappealing picture, I have no choice but to rate the business a very ‘strong sell’ that I typically reserve for firms that are either drastically overvalued or that are on their way out of business.
The picture looks bad… really bad
With that disclosure having been made to, let's dive on in. The first thing worth discussing would be the overall financial track record that Truth Social’s parent brings to the table. We only have two years' worth of data for the business. On the positive side, the firm did show rapid growth from a revenue perspective. But that's about the only great news that we can enjoy. In 2022, revenue totaled only $1.47 million. That shot up to $4.13 million in 2023. Unfortunately, management has decided not to provide data involving daily active users or monthly active users. They don't provide much of anything from what I can see. As opposed to many of the other social platforms and other technology businesses out there, they have chosen to operate in a rather opaque manner.
The only thing we know about the revenue picture is that it was driven by higher advertising sales. At the end of the day, that is the sole material source of sales that the company currently is capable of generating. On the bottom line, the small size of the business, combined with its major ambitions, has created a bit of a problem. It is true that the company generated a profit of $50.52 million in 2022. But this was only because of a change in the fair value of derivative liabilities totaling $75.81 million. Its actual operating loss was $23.25 million. Moving to 2023, things don't look much better. The company actually booked a net loss of $58.19 million. Admittedly, the operating loss improved to $15.97 million. However, by only looking at the operating loss, we ignore the fact that the business went from having only $2.04 million in interest expense to having $39.43 million in interest expense. Even with this, company saw some other improvements. As an example, operating cash flow went from negative $24.20 million to negative $9.73 million. If we adjust for changes in working capital, we get an improvement from negative $23.08 million to negative $15.91 million.
The bigger problem though is that the business, as of this writing, has an unrealistic market capitalization of $6.46 billion. It would be one thing if the company was experiencing rapid growth in its user base. But the firm's days of fast growth do appear to be behind it. Since management doesn't provide data for us, we are stuck with third-party estimates. But one source, as shown above, illustrates that, in February of this year, the App Store and Google Play saw combined downloads of the Truth Social app amounting to 97,174. That's only 3.6% above the 93,764 downloads reported the same time one year earlier. Keep in mind that not every month shows an increase on a year-over-year basis. In January, the 86,364 downloads reported ended up being 11.8% lower than the 97,944 downloads reported in January of 2023.
We also don't know how many monthly active users the platform has. One source pegged this number at around 1 million for the US alone. Using other estimates from that same source, I was able to approximate about 1.3 million monthly active users globally. Given the company's current market capitalization, this implies a value per active user of $4,796.72. There are some significant differences from one social platform to the next when it comes to this value. But I don't think I've ever seen a number even remotely close to this. As you can see in the table below, I looked at Facebook parent Meta Platforms (META), Reddit (RDDT), Snapchat parent Snap (SNAP), Pinterest (PINS), and Twitter for the sake of comparison. Meta Platforms provides its own calculation of monthly active users. Snap provides an approximation for its. Reddit is based on third-party estimates. And for Twitter, it was based on third-party estimates at the time the business was taken private by Elon Musk.
For each firm, they compared the number of monthly active users to the enterprise value of the business as it stands today, with Twitter being the sole exception. In its case, I used the $44 billion buyout price paid by its current owner. You can see a wide range of pricing per monthly active user, with a number as low as $5.66 and a number as high as $299.25. It's not hard to imagine why there are significant disparities. Some of these companies are true cash cows, while others have struggled to reach that status. In the case of Meta Platforms, the company is not only the world's largest social platform, it's also one of the most profitable businesses ever. So clearly, the market would offer a premium for it.
Unfortunately for shareholders of Trump Media & Technology, Truth Social is nowhere near the quality that Meta Platforms brings to the table in terms of cash flow generation. It also doesn't have the company’s liquidity and brand value. But even if we make the assumption that Trump Media & Technology were to be worth the same value, on a per monthly active user basis that Meta Platforms is, we would get an enterprise value of around $389 million. That would imply a value for the company of about $4.54 per share. If we use any of the other firms as comparison instead, firms that frankly would be more appropriate given their own cash flow situations, you would end up with a value far lower. It's not hard to imagine shares being worth well below $1.
Takeaway
I tend to be a pretty open-minded person. I also tend to believe that companies rarely deserve significant amounts of pessimism. But every so often, I find a business that I feel very much deserves to fall materially from where it currently is. And this is one of those instances. When it comes down to the numbers, at least in my opinion, there is nothing to justify a valuation anywhere close to where the stock is currently trading. Given all of this, I believe that shares are destined to fall rather significantly. And that has led me to rate the business a very ‘strong sell’. In the months to come, I would not be surprised to see shares fall, perhaps even in excess of 90%.
This article was written by
Daniel Jones
30.62K Followers
Dan Jones has degrees in accounting and economics, and ran a registered investment advisor for nine years.
The picture looks bad… really bad.
Expect Shares To Fall To The Single Digits
I would not be surprised to see shares fall, perhaps even in excess of 90%.
Apr. 03, 2024 5:45 PM ET
Trump Media & Technology Group Corp. (DJT)
Daniel Jones
Investing Group Leader
Summary
Trump Media & Technology Group has experienced extreme volatility in its stock price, with shares ranging from $12.40 to $79.38.
The company's financials show limited revenue growth and opaque reporting, with a net loss of $58.19 million in 2023.
DJT's market capitalization is unrealistic given its user growth, implying a value per active user of $4,796.72, suggesting the stock is significantly overvalued.
My name is Dan Jones. I have degrees in accounting and economics, and ran a registered investment advisor for nine years. I lead the investing group Crude Value Insights.
If volatility is something you crave, one company that should definitely be on your radar is the newly christened Trump Media & Technology Group (NASDAQ
JT). Over the last year, shares of the business have been between a low of $12.40 and a high of $79.38. To be clear, most of its trading history, including the time during which the stock was lowest, occurred when the entity that was public was actually a separate holding company known as a SPAC (special purpose acquisition company). The then privately-held parent of Truth Social merged with it, essentially taking that parent company public. Regardless of the reasons, shares immediately rocketed higher. But since then, volatility has reared its ugly head in a way that has been painful for many of its investors. On April 1st alone, shares closed down about 21.5% at $48.66. That's a whopping 38.7% below the 52-week high mark that occurred only days earlier. The bad news that I have for investors is that, while this might seem like a good time to get in at what might be the bottom, that bottom is likely to be significantly lower than most would think. Based on my own assessments, even a generous view of the company suggests a fair value that is lower than $5 per share. And in all likelihood, the stock is worth even less than that in my opinion. Because of this unappealing picture, I have no choice but to rate the business a very ‘strong sell’ that I typically reserve for firms that are either drastically overvalued or that are on their way out of business.
The picture looks bad… really bad
With that disclosure having been made to, let's dive on in. The first thing worth discussing would be the overall financial track record that Truth Social’s parent brings to the table. We only have two years' worth of data for the business. On the positive side, the firm did show rapid growth from a revenue perspective. But that's about the only great news that we can enjoy. In 2022, revenue totaled only $1.47 million. That shot up to $4.13 million in 2023. Unfortunately, management has decided not to provide data involving daily active users or monthly active users. They don't provide much of anything from what I can see. As opposed to many of the other social platforms and other technology businesses out there, they have chosen to operate in a rather opaque manner.
The only thing we know about the revenue picture is that it was driven by higher advertising sales. At the end of the day, that is the sole material source of sales that the company currently is capable of generating. On the bottom line, the small size of the business, combined with its major ambitions, has created a bit of a problem. It is true that the company generated a profit of $50.52 million in 2022. But this was only because of a change in the fair value of derivative liabilities totaling $75.81 million. Its actual operating loss was $23.25 million. Moving to 2023, things don't look much better. The company actually booked a net loss of $58.19 million. Admittedly, the operating loss improved to $15.97 million. However, by only looking at the operating loss, we ignore the fact that the business went from having only $2.04 million in interest expense to having $39.43 million in interest expense. Even with this, company saw some other improvements. As an example, operating cash flow went from negative $24.20 million to negative $9.73 million. If we adjust for changes in working capital, we get an improvement from negative $23.08 million to negative $15.91 million.
The bigger problem though is that the business, as of this writing, has an unrealistic market capitalization of $6.46 billion. It would be one thing if the company was experiencing rapid growth in its user base. But the firm's days of fast growth do appear to be behind it. Since management doesn't provide data for us, we are stuck with third-party estimates. But one source, as shown above, illustrates that, in February of this year, the App Store and Google Play saw combined downloads of the Truth Social app amounting to 97,174. That's only 3.6% above the 93,764 downloads reported the same time one year earlier. Keep in mind that not every month shows an increase on a year-over-year basis. In January, the 86,364 downloads reported ended up being 11.8% lower than the 97,944 downloads reported in January of 2023.
We also don't know how many monthly active users the platform has. One source pegged this number at around 1 million for the US alone. Using other estimates from that same source, I was able to approximate about 1.3 million monthly active users globally. Given the company's current market capitalization, this implies a value per active user of $4,796.72. There are some significant differences from one social platform to the next when it comes to this value. But I don't think I've ever seen a number even remotely close to this. As you can see in the table below, I looked at Facebook parent Meta Platforms (META), Reddit (RDDT), Snapchat parent Snap (SNAP), Pinterest (PINS), and Twitter for the sake of comparison. Meta Platforms provides its own calculation of monthly active users. Snap provides an approximation for its. Reddit is based on third-party estimates. And for Twitter, it was based on third-party estimates at the time the business was taken private by Elon Musk.
For each firm, they compared the number of monthly active users to the enterprise value of the business as it stands today, with Twitter being the sole exception. In its case, I used the $44 billion buyout price paid by its current owner. You can see a wide range of pricing per monthly active user, with a number as low as $5.66 and a number as high as $299.25. It's not hard to imagine why there are significant disparities. Some of these companies are true cash cows, while others have struggled to reach that status. In the case of Meta Platforms, the company is not only the world's largest social platform, it's also one of the most profitable businesses ever. So clearly, the market would offer a premium for it.
Unfortunately for shareholders of Trump Media & Technology, Truth Social is nowhere near the quality that Meta Platforms brings to the table in terms of cash flow generation. It also doesn't have the company’s liquidity and brand value. But even if we make the assumption that Trump Media & Technology were to be worth the same value, on a per monthly active user basis that Meta Platforms is, we would get an enterprise value of around $389 million. That would imply a value for the company of about $4.54 per share. If we use any of the other firms as comparison instead, firms that frankly would be more appropriate given their own cash flow situations, you would end up with a value far lower. It's not hard to imagine shares being worth well below $1.
Takeaway
I tend to be a pretty open-minded person. I also tend to believe that companies rarely deserve significant amounts of pessimism. But every so often, I find a business that I feel very much deserves to fall materially from where it currently is. And this is one of those instances. When it comes down to the numbers, at least in my opinion, there is nothing to justify a valuation anywhere close to where the stock is currently trading. Given all of this, I believe that shares are destined to fall rather significantly. And that has led me to rate the business a very ‘strong sell’. In the months to come, I would not be surprised to see shares fall, perhaps even in excess of 90%.
This article was written by
Daniel Jones
30.62K Followers
Dan Jones has degrees in accounting and economics, and ran a registered investment advisor for nine years.
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