Trump Media Group's market cap is now higher than Elon Musk's Twitter (X), valued at a lower price.

Trump Media Group's market cap is now higher than Elon Musk's Twitter (X), valued at a lower price.

In an unexpected turn of events, former President Donald Trump's social media venture, Trump Media Group, has garnered a higher market capitalization than Elon Musk's Twitter (NYSE: TWTR) [1]. This contrasts the lower valuation of Twitter, which was valued at approximately eight times sales in March 2022 [1].

Truth Social, the social media platform owned by Trump Media, saw its parent company, Digital World Acquisition Corp. (NASDAQ: DWAC), experience a significant surge in its share price on March 25th, 2024. The rally, driven by investor interest in Trump's venture, resulted in Digital World's market capitalization surpassing that of Twitter [1].

However, upon closer examination, the financial statements of Trump Media reveal scant evidence of a company worthy of such a valuation. During the first nine months of 2023, Trump Media booked a mere $3.4 million in revenue and reported a net loss of $49 million [1]. These figures provide little support for the company's multibillion-dollar market capitalization, which, at its peak, was valued at approximately $4.7 billion to $5.6 billion [1].

Furthermore, Reddit Inc. (NYSE: REDD), another social media company, which went public last week and boasts a $8 billion valuation [1], generated 164 times more revenue during the same period as Trump Media [1]. Despite this significant revenue difference, Reddit's price-to-sales ratio is only around 8, significantly lower than the estimated price-to-sales ratio for Trump Media [1].

The concerns raised by financial analysts about Trump Media's lofty valuation are further exacerbated by the potential for selling events from retail investors or insiders. University of Florida finance professor Jay R. Ritter noted that the high price of Trump Media's stock may deter financial institutions from participating in trades, potentially leading to order imbalances and a drop in share price [1]. Additionally, if an insider like Trump decides to sell his stake in the company, there could be little support for Trump Media's valuation, as an increased number of shares hit the public market without a backstop [1].

In conclusion, the surprising market capitalization of Trump Media Group surpassing that of Elon Musk's Twitter highlights the speculative nature of investor interest in the venture. However, the financial statements of the company provide little evidence to support such a valuation, raising concerns about the long-term sustainability of the venture.

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