The IPO of Donald Trump's social network, Truth Social, has a clear path. The shareholders meeting of the company Digital World Acquisition Corp (DWAC) approved this Friday the merger with Trump Media & Technology Group (TMTG), the company that owns Truth Social. With the price skyrocketing, this means that Trump will score, at least on paper, a latent profit of more than 3,000 million dollars, although it seems very difficult for him to be able to make it effective.
The success of the operation comes when the former president is running out of time to provide bail of $454 million to face his responsibility in the civil fraud case in which he was convicted in New York. Trump assured this Friday on his social network that he has almost 500 million dollars in cash. He has also said that he planned to use them in his campaign to beat Joe Biden in the presidential election. In reality, until now, more than putting money out of his own pocket into the campaign, what he has done has been to use tens of millions of dollars in donations from his supporters to pay his legal expenses for the different civil and criminal proceedings against the that he is subjected.
The merger prospectus indicates that former President Trump would own 58.75 million shares, controlling at least 58.1% of the voting rights of New Digital World, the merged company. At the current price of about $40 per share, that package would be valued at $3.15 billion. The IPO could become effective next week, but Trump has a commitment not to sell his shares in six months. It will be necessary to see if the price is maintained by then.
The valuation that the market gives to the company taking as a reference the current price, of about 5.5 billion dollars, defies logic and it is very difficult for the former president to materialize those profits. DWAC has become a meme stock, moving on impulse rather than the company's economic fundamentals.
The transaction prospectus revealed last month that Trump's social network company has minimal revenue and large losses. TMTG's turnover between January and September 2023 was only $3.4 million, while its losses were $49 million.
TMTG has primarily used bridge financing, in the form of convertible notes, to create Truth Social. Now it intends to use the funds it achieves from the merger to boost its growth. The company has historically incurred operating losses and negative cash flows and expects to continue to do so for the foreseeable future, it admits in the prospectus. “TMTG's ability to be profitable and generate positive cash flow depends on TMTG's success in growing its user base, platform partners and advertisers,” he says.
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The company recognizes that it needs to attract Republican voters to its network to be viable and admits that if Trump loses popularity or new controversies arise that damage its credibility or people's desire to use a platform associated with him, the results of operations They will resent it.
Trump founded Truth Social when he was expelled from Twitter and Facebook for messages that content moderators of those networks considered incited violence in relation to the assault on the Capitol on January 6, 2021.
Elon Musk's purchase of Twitter has allowed Trump to return to the network. The billionaire has given free rein to misinformation on his network, to which many spreaders of conservative hoaxes have returned. That takes away some of the appeal of Truth, whose main hook is that it has the exclusive of the former president's messages on social networks. Truth has never caught on with the general public. Trump himself, the most successful profile, has far fewer followers there (6.7 million) than he gained on Twitter and still retains, despite not publishing new messages there (87.5 million).
The final pamphlet maintains the warnings that appeared in previous drafts, particularly the one regarding the possibility of Trump ending up in jail. “The death, incarceration or incapacity of President Trump, or the interruption or limitation of his relationship with TMTG, may adversely affect TMTG's business,” says one of the sections of the risk warnings. The company “depends greatly on the popularity and presence of President Trump,” who heads it and is its main shareholder.
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