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Truth Social, Don’s new con

As Trump goes on trial, his fans are already paying the price for buying into his social network

Truth Social’s multibillion-dollar valuation masks the reality – which is that only Trump stands to gain while his fans lose. Photo: Megan Varner/Getty

As his hush money trial begins in New York, we will soon see how lucky Donald Trump actually is. But an example of the good fortune that has carried Trump throughout his life came just as the former president needed to find several hundred million dollars as a bond following a multi-million dollar ruling against him over his business practices.

After scrabbling around to find the money, a surprise windfall came in the form of Trump Media & Technology Group Corp, which operates Trump’s social network, Truth Social. In March, it listed on America’s Nasdaq stock exchange via a mechanism known as a special purpose acquisition company (SPAC). This looked like a fittingly Trumpian move of smoke and mirrors.

Usually, becoming a publicly listed company – which means that anyone can buy or sell shares in your business – is done via a lengthy and heavily regulated process (known as an initial public offering or IPO) in which you have to set out the fundamentals of the company in exacting detail.

This scrutiny can prove painful: it was the attempt of the office space company WeWork to IPO that crashed the company, when people saw just how bad its finances really were. Trump managed to avoid that, and Truth Social is now a public company, of which he owns 57%.

Yet Truth Social has, at the most generous of estimates, about one million active users and almost no revenue. The only accounts we have available for it suggest it had revenue of $3.3m over a nine-month period, during which it lost just under $50m – essentially meaning that for every $1 it brought in, it spent $16.

In other words, this is not a company that looks like a good investment. There is no secret or patented technology behind the network, either – it is based on the same open-source code that powers the Mastodon social network, but uses an old version of the code that is still believed to have major vulnerabilities that could be exploited by hackers or scammers.

Truth Social is, in other words, a tiny social network with no unique technology that is burning money at an astonishing rate. For a few weeks after the stock first floated, Truth Social soared to a valuation of $9bn, though it has slumped back markedly since and is now the most shorted stock on US exchanges. When its privé slumped to below $31 last Friday, it meant anyone who had bought into Truth Social at its highest point had lost half their money.

Yet Truth Social was still valued at $4.2bn, leaving Trump in line to collect around $2.4bn. But will he actually be able to do so? To understand why this remains in doubt, it’s important to know a little bit about how share prices work.

In short, a company has X amount of shares, which trade for Y price. So if a company has 1,000 shares and they are currently trading at £1 each, that company is worth £1,000. If suddenly lots of people want to buy those shares, the price might go up to £2, and the company becomes worth £2,000. The calculation that matters is share price multiplied by number of shares – that’s the value of the company.

This works well for big and long-established companies with lots of shares and lots of institutional investors. If you own even a tiny share of Apple and want to sell it – 1% is worth $26bn – there will be enough people who want to buy Apple shares that the stock price will only drop slightly if you sell your whole 1% stake.

Truth Social, though, has failed to attract professional investors or their funds: it is being bought by people who like Trump, and by people who think they can cash in on Trump fans buying stocks for bad reasons. This means that even if Truth Social has – in theory – 135 million shares, very small quantities of those are actually being traded every day. It is these relatively small numbers that let the stock move so much.

It would be easy for someone who bought 1,000 shares in TMTG when they were $35 to have sold them when the stock was at $65 and make a hefty profit. It’s a lot harder for Trump to try to sell a billion dollars’ worth of shares without driving the price down to almost zero, given that most of the people putting money in are small investors. For Trump to cash out even $1m, 1,000 of his supporters have to put in $1,000. For $1bn, 10,000 fans would need to put in $100,000.

This disconnect between theoretical wealth and real wealth plagues many billionaires with their money in just one or two companies – Elon Musk jumps to mind – but Trump is in an extreme version of the situation.

Even with the slump in Trump Media stocks, Trump is worth far more than he used to be, provided that he doesn’t try to cash all that much of it in. That is not to say there aren’t risks here beyond Trump supporters (or traders trying to profit from them) losing their shirts: an overseas entity wanting to funnel money to Trump could do so by arranging to trade hundreds of millions of dollars of his stock, so he could offload it and cash in, with it being hard to trace.

But on the whole, Trump has largely just found a new way to boost his ego and his supposed net worth, without ever having to do the work of actually building a real social network.

Meta – which operates Facebook, Instagram and WhatsApp – is valued at $1,240bn, with about 3.6 billion monthly active users, which is about $344 per user. Reddit, which became publicly listed through an IPO this month, is valued at $8.5bn for 850 million monthly active users – about $10 per user.

By contrast, Truth Social was at its peak worth about $9bn for around one million monthly active users: a massive $9,000 per user. Does anyone on the planet sincerely think Truth Social will manage to monetise its users to that extent?

Truth Social’s new market value is the apotheosis of Trump as a brand. It is a hateful mishmash of stolen and borrowed code, created with little purpose beyond owning the libs. Its value derives solely from the hopes of people to get rich quick, while in reality, Trump will just gain what his fans lose.

And all of it only continues to work while it stays detached from reality.

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