Truth Social won’t be profitable soon; stock listing date nears

Trump Media & Know-how Group (TMTG), the Donald Trump-backed media group and guardian firm of Reality Social, is on the precipice of going public by way of a particular objective acquisition firm (SPAC) merger this week. It’s anticipated that the corporate will merge with Digital World Acquisition Corp. (DWAC), which is presently publicly traded, and undertake the inventory image “DJT,” Donald Trump’s initials.

Preliminary estimates point out that Trump himself may reap billions from the SPAC transaction. However buyers who could also be seeking to likewise money in on any MAGA-fueled market actions this week would possibly first need to contemplate the observe document of SPAC-related inventory performances. As a result of SPAC returns have, in lots of respects, typically left buyers holding the bag.

SPAC mergers, which act as a kind of backdoor manner for corporations to checklist their inventory on a public alternate whereas eschewing the standard IPO course of, had been immensely widespread in 2020 and 2021. Throughout these two years, greater than 850 corporations went public by way of SPAC mergers, in accordance with data from SPAC Insider. However they’ve since fallen out of favor, with solely 31 SPAC mergers final 12 months, and 5 to this point in 2024.

One of many causes they’ve misplaced steam is that they are usually dangerous investments. An analysis of corporations that went public by way of SPAC transactions by Bloomberg, printed in December, discovered that not less than 21 of these corporations went bankrupt throughout 2023, and shareholders have misplaced as a lot as $46 billion.

The S&P U.S. SPAC Index, a market index that measures 30 SPAC shares on U.S. exchanges, reveals comparable dangerous information for buyers. It’s down 14% over the previous 12 months and eight.6% over the previous three years.

Examine that to the market total: The S&P 500 is up roughly 33% over the previous 12 months and 9.9% over the previous three years.

Whereas this doesn’t essentially imply that Trump Media’s anticipated debut on the Nasdaq goes to burn buyers, the broader observe document for SPAC listings is one thing that buyers might want to bear in mind. Additional, there are some warning indicators in DWAC’s SEC filings. Particularly, one submitting with the Securities and Alternate Fee (SEC) notes that TMTG “expects to proceed to incur working losses and adverse money flows from working actions for the foreseeable future.” 

In different phrases, Reality Social just isn’t worthwhile and will by no means be. That places it in the identical class as one other a lot bigger social community, Reddit, whose guardian firm went public last week regardless of a loss-making steadiness sheet.

Additionally, Trump himself might be a danger for shareholders:

“TMTG’s success relies upon partially on the recognition of our model and the popularity and recognition of its Chairman, President Trump. The worth of TMTG’s model could diminish if the recognition of President Trump had been to undergo,” the submitting reads. “Antagonistic reactions to publicity regarding President Trump, or the lack of his providers, may adversely have an effect on TMTG’s revenues, outcomes of operations and its skill to take care of or generate a shopper base. President Trump is concerned in quite a few lawsuits and different issues that would harm his popularity, trigger him to be distracted from the enterprise or may power him to resign from TMTG’s board of administrators.”

Accordingly, buyers seeking to put money into Reality Social this week following the anticipated SPAC transaction could face compounding dangers: these associated to SPACs themselves and people particular to this specific SPAC.

In the interim, although, buyers appear to be on board. Shares of Digital World Acquisition Corp had been buying and selling up greater than 12% as of noon Monday, they usually’re up greater than 138% 12 months up to now.