Former US President Donald Trump's Truth Social platform reached an impressive valuation of nearly $8 billion shortly after its IPO. The Guardian reports that this represents an increase of more than 15 percent compared to the original market value. The value of a publicly traded company, also known as market capitalization, is calculated by multiplying the price per share by the number of shares outstanding.
Truth Social reports $49 million loss
Normally, this value should be determined by certain company metrics, the so-called “fundamental” ones. These include factors such as the amount of profit or loss and the growth of the company. However, things are different in Truth Social. In the first nine months of last year, the company generated just $3.3 million in advertising and had a loss of $49 million.
Meanwhile, Trump faces significant legal costs. Recently, a $454 million bill was reduced to a still-impressive $175 million. With this in mind, many are wondering if Truth Social's IPO will allow Trump to convert his paper assets into cash.
Officially, the answer is no: the contract for the initial public offering, the so-called IPO agreement, requires that insiders hold onto their shares for at least six months after the company goes public.
Board options: Trump's asset conversion
However, that rule can be overturned by a vote by the company's board of directors, which also includes Trump's son Donald Trump Jr., Linda McMahon and Robert Lighthizer, two former Trump administration officials. Even if they decide against a sale, they could offer a workaround by rewriting the deal so Trump can use his stock as collateral for a loan.
Despite the bad numbers, investors seem to be ignoring the fundamentals. As The Guardian explains, this is usually a sign of a speculative bubble. That is, investors buy shares at a high price in the hope of being able to resell them later at an even higher price.
Are investors investing in Trump?
However, unlike other stocks, investors see Truth Social more as an opportunity to invest in Trump or simply show their support for the former president.