Trump Media & Expertise Group: Actuality Is Beginning To Set In (NASDAQ:DJT)

Trump Media & Expertise Group Corp., or TMTG (NASDAQ:DJT), has lived as much as expectations after closing the SPAC deal a number of months previous. The social media firm nonetheless hasn’t delivered any significant enterprise updates, however the enterprise has introduced numerous share dilution and future share gross sales. My funding thesis stays ultra-Bearish on the inventory, with no enterprise to match the big inventory valuation.

Share Dilution

Trump Media entered public life with a few main points: restricted money and no actual enterprise. With the inventory buying and selling above $50 in Might, the logical final result was for warrants and different shares to be cashed in to offer additional money for the enterprise, whereas different SPACs have not essentially confronted diluted returns from warrants being exercised.

The media firm not too long ago introduced the train of warrants price $105 million in cumulative proceeds. The corporate now has a money stability of $350 million, however the quantity is a drop within the bucket of robust stability sheets for different social media platforms.

The one precise marketing strategy introduced by the operator of Fact Social is the plan to function a CDN community for streaming of linear TV. The corporate introduced a deal to accumulate the belongings of WorldConnect Applied sciences to acquire the worldwide non-exclusive licensing rights for the CDN expertise from Notion Group.

The settlement is financed by 5.1 million shares of DJT inventory price ~$150 million, at present inventory costs. The inventory may have buying and selling restrictions limiting quick gross sales, whereas Trump Media may even pay $17.5 million in money over a 3-year interval.

On high of those share dilutions, TMTG introduced a plan with Yorkville Advisors to promote as much as $2.5 billion in shares of widespread inventory over 3 years. The inventory can be offered to Yorkville at a 2.75% low cost to the market worth.

The excellent news is that Trump Media is definitely elevating capital at nearer to $30 now than the $10 of the SPAC worth. The dangerous information is that the excessive share worth allowed the Founder Shares to be granted, giving Donald Trump and others 40.0 million extra shares regardless of the corporate having no actual marketing strategy.

The corporate reported a Q1 share rely of 137 million following the enterprise mixture. As a part of the Yorkville S-1, TMTG lists 190 million shares excellent, plus a further 19 million shares associated to warrants and shareholder disputes.

In essence, the totally diluted share rely will probably be round 210 million shares relying on the extra warrants being exercised, the disputed shares and the current 5 million share deal. Any shares offered to Yorkville will add to the whole excellent share rely, however these shares are extra fascinating resulting from Trump Media acquiring $30 per share in money.

The inventory has a completely diluted market cap of ~$6.3 billion, with out the outcomes to match this valuation.

One other Weak Quarter Forward

The prime bearish thesis was that after Trump Media began reporting weak quarterly outcomes, the inventory would begin to slip. The corporate reported horrible Q1 ’24 outcomes on Might twentieth, and the inventory has been all downhill from the $48 stage earlier than the earnings report.

Trump Media did not even attain $1 million in quarterly revenues regardless of launching Fact Social again in 2022. The brand new TV streaming platform does not actually seem to drive the needle, and the corporate hasn’t truly defined the product plans.

The corporate nonetheless studies shareholder totals and never Fact Social lively consumer totals. Whereas the 621K shareholder counts sounds spectacular and signifies some stage of loyal customers sooner or later, the quantity is not helpful for evaluating the enterprise.

Fact Social will want 100+ million day by day lively customers to scale. A shareholder base below 1 million is a drop within the bucket of the DAUs wanted for the enterprise to thrive.

Rumble (RUM) has seen its inventory plunge after preliminary pleasure surrounding the SPAC transaction. The net video platform has signed up quite a few content material creators to the platform and reached a peak of 80 million month-to-month lively customers, but the market worth is listed at solely $1.6 billion, a fraction of the Trump Media valuation now.

Traders ought to anticipate Trump Media to report one other quarter of sub-$1 million revenues for Q2. The corporate had an adjusted EBITDA lack of $12.1 million within the prior quarter.

An enormous key to the Q2 report anticipated in mid-August is that the losses will probably be cleaner. Trump Media had extreme prices for stock-based compensation, or SBC, and adjustments in honest values of derivatives impacted by the SPAC shut that will not repeat to this stage throughout the June quarter.

The market may have a much more clear image of the corporate not having an actual enterprise but, and administration must tackle how the live-streaming TV idea will advance. Trump Media must ramp up prices to assist a product launch and the rubber normally hits the street when traders not deal with pie-in-the-sky enterprise ideas and need to take care of a dose of actuality that Fact Social launched over 2 years in the past and revenues are nonetheless minimal whereas the corporate is not offering any metrics on customers and utilization.

Takeaway

The important thing investor takeaway is that Trump Media & Expertise Group Corp. inventory is beginning to roll over because the market is hit with a dose of actuality of the shortage of an actual marketing strategy. The corporate is doing job of elevating money to offer a protracted runway to discover development alternatives, however TMTG wants an annual income run fee of $1 billion to justify the present valuation, and the corporate hasn’t offered any marketing strategy supportive of such a plan.

The inventory is not essentially nugatory, however the valuation must be assigned beneath the money stability.