5 Reasons You Shouldn’t Invest in Trump’s New Media Company, in Its Own Words
https://www.marketwatch.com/articles/trump-spac-truth-social-investors-e941e584
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Former President Trump will own 58.2% of the voting shares in the new publicly traded media company.
Investors interested in former President Donald Trump’s brand will have a new place to put their money next week now that shareholders have backed a so-called SPAC merger.
The merger, approved Friday morning, will unite Trump Media & Technology Group, which owns Trump’s social-media network Truth Social, with an already listed company called Digital World AcquisitionCorp. The company will list on the Nasdaq as DJT as of Monday.
The new company’s value proposition is straightforward: Trump knows media like no one else. His fluency in social media helped propel his rise to the presidency in 2016. He launched his own network, Truth Social, in 2022, to attract like-minded users. DWAC, which went public in 2021 in anticipation of a future merger, was trading at just under $43 Thursday, up 150% this year.
The risks are more complicated. The finalization of the SPAC, or special purpose acquisition company, was delayed due to legal and accounting concerns.
Like all publicly listed companies, Trump’s new media brand is required to explain potential problems to investors. Across 84 pages—plus amendments—the merger prospectus lays out how investors could lose their shirts. To be sure, all investing comes with risk, and if investors walked away from companies with risks in their prospectuses, there would be no money in the markets.
Nonetheless, investors in this new company—like all new companies—should take its risks seriously.
Here, in the company’s own words, are five selected risks investors could face. The Trump presidential campaign and the company didn’t respond to requests for comment.
1. The company is losing money.
Or, as the prospectus puts it, “TMTG expects to incur operating losses for the foreseeable future.” TMTG, recall, is Trump Media & Technology Group, the company that operates Truth Social and is merging with the SPAC vehicle, DWAC. TMTG brought in only $3.3 million in revenue in 2023 and incurred operating costs of $10.6 million. TMTG’s profitability problems are so severe, the prospectus says, that it isn’t clear the company can “continue as a going concern.” The merger with the cash-rich SPAC would solve this problem—it has some $300 million on hand—but the new company would need to find revenue quickly.
As the prospectus points out, plenty of tech companies have gone public without having made a profit. But making comparisons may be difficult, because, the prospectus says: “TMTG does not currently, and may never, collect, monitor or report certain key operating metrics used by companies in similar industries.” It doesn’t, for instance, monitor its daily or monthly average users—standard metrics used to judge the success of tech firms. Twitter had about 250 million daily active users at the time of Elon Musk’s takeover.
2. The new company is playing for conservative attention. Musk’s X may already have eaten its lunch.
TMTG was founded to oppose what it calls censorship by Big Tech. Its origin story specifically cites the 2021 ban of Trump by Twitter, which was then a public company. But times have changed. “As a private company under new ownership, X may demonstrate a sustained commitment to free speech principles that will heighten competition for users who prioritize such principles.”
Alternatively, other tech platforms could go un-woke. “There is nothing preventing big tech from ceasing to cancel different voices,” the prospectus says.
3. Trump is the big draw. But he can post elsewhere.
TMTG has taken some steps to bind Trump to the platform, since without his posts it would be far less appealing to its users. But the prospectus acknowledges that its efforts don’t constrain him much. Trump’s license agreement requires him to make any of his personal social-media posts on Truth Social first and to wait six hours before posting to Facebook, X, or elsewhere.
But, crucially, that exclusivity clause only applies to his personal posts, not his political content. Trump decides what is personal or political—and that could include everything. “As a candidate for president, most or all of President Trump’s social media posts may be deemed by him to be politically related,” the prospectus says.
4. Trump’s legal problems could become investor problems.
If you’re looking for a concise, just-the-facts rundown of Trump’s legal problems, the prospectus obliges. It notes, “Donald J. Trump is the subject of numerous legal proceedings, the scope and scale of which are unprecedented for a former president of the United States and current candidate for that office.” The company’s success depends on his “popularity and presence,” and it would be damaging if he were to limit his relationship because he was incarcerated or otherwise legally incapacitated.
The prospectus notes the long history of litigation against Trump, including some “3,500 legal cases in U.S. federal and state courts” involving him and his businesses over the years. TMTG “is not a party to any of the above-referenced matters,” the prospectus says.
But Trump’s posts on Truth Social have come up in court. In 2023, Trump was found liable for battery and defamation against the writer E. Jean Carroll. The defamation claim, the prospectus notes, “arose from a 2022 post by President Trump on Truth Social.”
Trump is appealing that judgment.
5. The new company will be a public listing, but Trump will be in control.
As in many other SPACs, the company’s early shareholders, including Trump, are prohibited from dumping or lending their shares during a six-month lockup period. The company’s directors could waive that decision.
As the prospectus notes, Trump will control 58.2% of the voting shares of the company after the merger. This gives him power over the directors who control the lockup period on his $3 billion-plus in stock. As the prospectus puts it: “President Trump may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.”
Invest as you please. But understand the risks.
Write to Matt Peterson at matt.peterson@dowjones.com
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