How much is Donald Trump's social media company, Truth Social, really worth? It's never made money, so you can't judge it that way. But lots of startup companies are unprofitable in their early years, and venture capitalists figure out values for them anyway.
The most common alternative is to look at net sales. Generally speaking, a startup with slow growth might be valued at about 3x revenue while a startup with faster growth would be around 7x or so. A skyrocketing startup might command 15x.
Truth Social only has three years of results with inconsistent growth. In 2022 growth was negative and in 2023 it grew 200%. Investors are hoping that Trump will win the presidency and growth will continue at a high rate. Based on that, you might aggressively but plausibly value Truth Social at 15x revenue, or around $70 million. If you're a real true believer you might push that as high as $100 million. That's kind of crazy, but social media is a crazy kind of space.
Now, pay attention to some arithmetic. Today Truth Social will merge with a vehicle called DWAC, which currently has $300 million in cash and nothing else. So it's worth $300 million. Truth Social is worth (at a stretch) $100 million.
After the merger DWAC will have 188 million shares of stock outstanding. This means the cash is worth $1.60 per share and Truth Social is worth about $0.53 per share, for a total share value of $2.13. And yet the stock is currently trading at nearly $50 per share:
Question: Since the value of the cash is $1.60 per share no matter what, this means that Truth Social is being effectively valued at $49.95 - $1.60 = $48.35 per share. This is nearly 100 times its maximum plausible value. Why?
Once you figure that out, you know who's being scammed in this deal. The answer is: anyone who buys stock in DWAC.
UPDATE: After DWAC stock began trading on Tuesday morning under the DJT ticker symbol, the price soared above $70. In other words, Truth Social is now trading at an implicit value of 131 times its maximum plausible value.