Former President Donald Trump will soon be at the helm of a publicly traded company that will trade under the ticker “DJT,” after his initials, and boast a potential valuation of more than $5 billion — a lofty amount for a business that’s losing money and has scant revenue. 

Trump’s next career move as head of a publicly traded company comes after shareholders of Digital World Acquisition Corp. (DWAC), a so-called blank-check company, also known as a SPAC, approved a merger on Friday morning with the Trump Media & Technology Group. With the nod, DWAC will combine with Trump Media & Technology Group and could soon begin trading under the latter name. 

Typically, investors put their money into companies they believe will provide solid returns for their investment, though time-honored fundamentals such as profit and revenue growth, dividends and share appreciation. But Trump Media’s main business, Truth Social, is a social media platform that is lagging rivals such as Facebook and “X” (formerly Twitter), with scant revenue and mounting losses, according to regulatory filings. 

That hasn’t fazed investors in DWAC, some of whom appear to be supporters of Trump, who are touting the stock on Truth Social. “I am holding and not selling! I believe in TRUTH and MAGA,” one member of a Truth Social group focused on the DWAC stock posted on Friday morning. 

Typically, a company with the financial profile of Trump Media & Technology Group would be hard-pressed to reach a valuation of $5 billion, but the stock does not appear to be trading on traditional financial mileposts like revenue and profit, said Kristi Marvin, chief executive of SPACInsider.com. 

“This has never traded on fundamentals, and I don’t expect it to, going forward,” Marvin told CBS MoneyWatch. “This is almost like a barometer for Trump and how he’s doing in the election.”

The majority of the DWAC shareholders are retail investors, meaning they are individual investors rather than institutional, Marvin noted. Essentially, she added, DWAC, as well as its next iteration as Trump Media, is a “retail meme stock.” 

Meme stocks and SPACs

Special purpose acquisition companies, or SPACs, are shell companies created to take a private business public without conducting an initial public offering. 

In 2021, DWAC announced its intent to merge with Trump’s media group, sending shares of Digital World upward by more than 800%, sparking comparisons with meme stock businesses like GameStop. At that time, SPACs were also drawing outsized attention from small investors after some gained endorsements from celebrities and investors alike.

Investors who own DWAC stock will receive one share of the new company for each share of DWAC they owned, according to a regulatory filing. 

With about 136 million shares outstanding after the merger, the new business could have a valuation of $5.4 billion, based on DWAC’s current price. Trump, who will serve as chairman of Trump Media & Technology Group, will own about 58% of the company, which would value his stake at about $3.5 billion.

To be sure, there’s no guarantee the newly merged company will continue to trade at the same price as DWAC. Companies can sometimes trade lower in the months after a SPAC merger, as some early investors sell their stock, Marvin noted. 

“You have a washing out of the original shareholders,” she said.

But it’s likely the newly merged company will continue to appeal primarily to individual investors, as some institutional investors may shy away from the company based on political concerns, among other issues, Marvin added. 

Risk factors: Bankruptcy, failure and jail 

Investors in Trump Media & Technology Group are buying shares in a fledgling social media business that booked $3.3 million in revenue for the first nine months of 2023, according to a regulatory filing. 

But like many other tech startups, Trump Media is hemorrhaging money, with its losses mounting to $49 million during that same period last year. Of course, a company’s financial struggles aren’t necessarily a hindrance to earning a lofty public valuation, as seen in the case of money-losing Reddit, whose IPO this week gave it an $8 billion market cap.

Truth Social had roughly 5 million active members in February of this year — including mobile users as well as website visitors, according to research firm Similarweb estimates. Truth Social doesn’t disclose its user numbers.

By comparison, TikTok has 2 billion users and Facebook 3 billion. However, in the so-called “alt-tech” space, Truth Social fares better than rivals such as Parler, which just returned to Apple’s app store this week after being offline for more than a year, and Gettr, which had less than 2 million visitors in February.

The question is whether Truth Social can ramp up revenue by attracting new advertisers to a platform that critics say is squarely focused on Trump’s personality and conservative views. Expanding its user base will be key to its success, according to risk factors listed in a regulatory filing related to the merger. 

That isn’t the only risk for the business, according to the filing. Among others are the “death, incarceration or incapacity” of Trump, as well as Trump’s history with some of his earlier businesses, including the bankruptcy of the Trump Taj Mahal in 1991 and the bankruptcy of the Trump Hotels and Casinos Resorts in 2004, among other bankruptcies. 

“A number of companies that were associated with President Trump have filed for bankruptcy,” the filing states. “There can be no assurances that [Trump Media & Technology Group] will not also become bankrupt.”

—with reporting by the Associated Press Board of Directors.