Truth Social, SPACs and gambling
10 years ago, you needed a off market bookie with cash in their drywall to make bets on sports. Now, everyone has an app and the professional sports leagues that were so afraid to even have teams in Vegas are all in.
Drugs, like marijuana, were mostly illegal. Now, you can mail order mushrooms and walk into stores on virtually every corner.
Stocks…. Well, there have always been peculiar companies but for the most part, the memory of pets.com was still fresh enough in people’s minds that valuations seemed to make sense. Today? Not so much.
As I sit in my hotel in Philly waiting to play my final match in the US Squash Nationals Masters (aka old people) today, I’ve been reading “The Trading Game” by Gary Stevenson. It tells the story of a 22 year old trader, fresh out of the London School of Economics who ended up on the trading floor of Citi Bank in London. Like “Liars Poker” by Michael Lewis, it’s a great first hand account of the insane risks that were being taken by traders during the 2008/2009 financial crisis that ultimately made and lost fortunes. And somehow, today seems nuttier. We’ve looked at Nvidia and Airbnb over the past few weeks, and will continue to evaluate some of the companies that lead this market but, to me, none are more insane than Trump Media and Technology Company. I hope you are sitting down.
In December 2020, Digital World Acquisition Corporation was formed as a Special Purpose Acquisition Corporation (SPAC) and in September 2021, went public for $250 mm. SPACs are an interesting beast. Effectively, they are a shell corporation which raises blank check capital to do a merger with another company. One of my favorite Substack newsletters is Bonner Private Research. This then, from them re: SPACs.
Deal or No Deal
Special Purpose Acquisition Companies (SPACs) are a strange and pernicious creation. Even from the get-go it was obvious that they were one-part fraud, one-part bubble-debris, and one-part wishful thinking. They took in money from public investors... as public companies... even though they had no business, no products, no profits, no sales, and nothing at all that would make them successful companies. The idea was that they would take the money thus raised and buy a real company.
Trouble is, the SPAC guys have no way of knowing a good business from a bad one... no reason to especially care (they can get paid either way), and no reason not to do a deal, even a bad one. That is the most insidious feature of all.
The SPAC organizers take a portion of the business they buy, for themselves. But they only get it if they do a deal within two years. If they don’t do a deal, they have to give the money back to investors, bearing the costs of lawyers, accountants and financiers themselves. So, doing a deal — any deal — becomes more important than doing a good deal.
In October 2021, Digital World decided that Trump Media and Technology, the owner of Truth Social, was the acquisition they just had to have! At the end of March, that deal closed and the combined entity began trading under the symbol “DJT” (of course it did).
So, how about this new incredible technology and media company? How do the financials look? They still matter, right?
At present, the company sports a $5.55 billion market cap, which reminds me of the last real doozy stock I can think of: Nikola, who’s only revenue in 2020 was installing solar panels on the roof of their founders house….
The only thing more absurd than Tesla's valuation is... Nikola
When everything looks like a nail, you have a tendency to be called a hammer... but Nikola sure looks like a nail to me! If you want to understand the absurdity of what's going on in the market, look no further than this company. The company itself has a vision (which is important when you have no revenue):
$5.5 billion in market cap with their only operating asset being Trump Media (Truth Social), which reported slightly higher revenue than Nikola did: $4 mm…. Taken together (Digital World and Truth Social), the new public company has $310 mm in cash from the IPO and an asset that generates $4 mm of revenue.
Trading at $5.55 billion.
Making Donald Trump’s stake worth $3.18 billion on paper.
So. Yeah. That happened.
It’s a casino out there and the YOLO stock gambling would seem to have hit a fevered pitch. I’m not complaining but I’d truly like to know who is buying this stock? The lock up provision for owners like Trump is 6 months meaning he can’t exit the position until the end of September, if there are any buyers for 57.3% of a company with less revenue that 6 months of a single Chick Fil A restaurant.
I don’t get it. I know it ends badly. I just don’t know when. In the meantime, does DJT crack before NVDA? Lord only knows.
I’d buy what I could afford to lose, as a signal of support and an FU to those who are trying to corrupt democracy.
Just along for the ride. He did agree to the merger but many many SPACs followed before and will follow after. Chamath is the spac king.