As Trump Media's stock plummets, and Truth Social looks like a loser, small retail investors (like the MAGA types) could be left holding a smelly, worthless bag

(Business Insider)

Former President Trump's net worth fell by about $1 billion yesterday as shares in his social-media company plummeted, according to a report at Axios

Bottom line: Having Trump as your president is bad; having Trump as owner of a company in  which you invested might be even worse -- at least on an individual level. That's especially true when you consider that the SEC-fueled deal that helped create Trump's public social-media company emitted an overwhelming stench of corruption from the outset.

Under the headline "Truth Social faces harsh reality as a public company," Dan Primack and Sara Fischer write:

Truth Social — the Trump-owned social-media platform that started trading yesterday — currently has far fewer users and less income than any social network that has gone public before.

Why it matters: While the app does sell some ads, its business is practically nonexistent.

• Truth Social earned $3.4 million in revenue for the first nine months of 2023 and it lost around $49 million.
• By comparison, Facebook (now Meta) earned $3.71 billion in revenue the year before it went public and was profitable.

Between the lines: Truth Social's user base is still very small, niche and not very global compared to its publicly traded social media rivals.

Trump Media and Technology Group, the company that owns Truth Social, carries all kinds of negative baggage that might have eluded the everyday, casual investor, such as Trump's MAGA followers. What will happen to those types of investors. Online observers have a variety of answers to that question, so it's probably too early to say. This much seems clear, at least to folks who are not totally detached from reality: Following Donald Trump, either politically or financially, can come with repercussions that are damaging, even ruinous. At the moment  it appears MAGA investors, who probably just wanted to give a financial boost to their "Orange Idol," will be left holding the proverbial bag -- with no sign that Trump is able, or willing, to bail them out.

Today's harsh lesson in reality: Follow Donald Trump at your own substantial risk -- and brace yourself for bad news that likely is coming right around the corner.

How does Trump Media compare to its social-media competitors? The answer is not pretty, as Axios makes clear: 

Between the lines: Truth Social's user base is still very small, niche and not very global compared to its publicly traded social media rivals.

• SimilarWeb estimates it had 5 million monthly website visits globally in February 2024 and roughly 1 million monthly active app users in the U.S.
• The company has not reported the actual metrics, which is unusual for a social-media company going public.
• Facebook had 845 million monthly active users (MAU) at its IPO in 2012. Twitter (now X), had 215 million when it went public in 2013.

In other words Truth Social, is a lousy business, like most every venture Trump touches -- including the presidency. No one in his right mind would invest in such a shaky business -- unless, perhaps it was on a "quick, in and out, basis." Then again, perhaps Trump knew many MAGAs are not in their right minds, and he was counting on that to reel them in.

More bad news could be on the horizon. Trump Media now holds the designation of a "meme stock," and that should not provide comfort to investors.  Axios explains: 

Zoom in: For now, Truth Social is trading like a meme stock, meaning its market value is completely divorced from its financial reality.

• But once retail investors tire of the penny stock, its fate will be left to institutional investors who want to see high-growth opportunities and profit margins.
• Meme stocks like GameStop and AMC that soared during the pandemic-era retail investor bump have since crashed. In short, the future looks anything but bright for Truth Social investors. From the Axios report;

Reality check: Truth Social has yet to outline to investors its latest product plans or business strategy. The company has been plagued by business and legal challenges since it went public, including a now-settled SEC investigation and a lawsuit from former employees.

• Ahead of its launch, the company touted grand plans to start a subscription streaming service and a technology arm that would provide alternatives to internet services like Stripe and Amazon's AWS. Neither of those ideas has materialized.

Between the lines: Social media firms haven't always had their financials in order before going public. But their user bases were compelling enough to entice institutional investors for years until they started making real money.

• Twitter only ever turned a profit for two of the eight years it was public, but it had 215 million monthly active users at its IPO. Snapchat has yet to post a full year of positive net income, but it went public with 158 million daily active users and posted revenues of $4.6 billion last year.

Truth Social is nowhere near that level, and the chances it ever will join that league appear iffy -- at best.