Donald Trump’s social network, Truth Social, went public and almost immediately hit a valuation of almost $8 billion. Despite the company’s revenue during the first nine months of last year being just $3.3 million from advertising and recording a loss of $49 million, the valuation still represented a gain of more than 15% on its initial public offering (IPO) value.
The valuation of a publicly traded company such as Truth Social is a product of multiplying the value of an individual share with the number outstanding. Typically, this value, known as the market capitalization, is kept in check by reference to the “fundamentals” of the company: how much money it makes or loses, and how fast it is growing or shrinking. However, in the case of Truth Social, it seems to be part of a more recent phenomenon: the “meme stock”.
Meme stocks are a small group of publicly traded stocks that have attracted a big proportion of private “retail” investors. These investors typically use zero-commission trading apps to take a much more active role in the markets than has been typical for individuals until recently, and coordinate on social media to share stock tips. This has led to situations where stock valuations become detached from reality due to speculative bubbles.
Despite the questions raised about its valuation, Truth Social’s success in the stock market has made it a part of the ‘meme stock’ phenomenon. This suggests that its current valuation is more a reflection of speculative trading rather than its financial fundamentals.
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