Despite the eager anticipation and intense media coverage accompanying the recent public launch of Truth Social, the new social media venture from Donald Trump’s Trump Media & Technology Group, it is prudent for potential investors to revisit lessons from the past. Investors, especially those with fresh memories of high-profile tech ventures like Reddit’s IPO or Elon Musk’s rebranded Twitter, dubbed ‘X’, should tread with caution.
Social media is not a pioneering technology. The hype, fuelled by high user counts, should not blind potential investors to the realities of the still challenging task of profit-making. As seen with Reddit, a platform that continues to grapple with profitability despite attracting over 70 million daily users.
Only a few models exist that demonstrate consistent profitability for publicly traded social media companies. Facebook serves as a compelling case, becoming profitable in 2009, primarily from advertising. With its most recent figures showing that 97.2% of Facebook’s revenue comes from advertising, this possibly offers an avenue for Reddit to explore.
However, there are also warnings from negative experiences such as Elon Musk’s ‘X’. After purchasing Twitter and promising an all-encompassing free speech platform, advertisers have pulled back, Musk’s initial promise has fallen short, and the platform faces a potential bankruptcy less than two years after its $44 billion purchase.
Investors should fear a similar fate for Truth Social. Despite going public without an IPO by merging with Digital World Acquisition Corporation and achieving a value of over $5 billion, a rational marketplace might find this valuation questionable. Trump Media incurred a net loss of $49 million in the first nine months of the previous year and only fetched a meager $3.3 million in advertising revenue, while the main attraction of Truth Social, Trump’s posts, are fraught with criminal indictments allegations. Furthermore, its user count is notably lower, with only 494,000 active monthly U.S. users.
Even if the platform manages to capitalize on a possible Trump win in the 2024 elections, it is challenging to escape the unsettling potential of the venture, despite its first day trading surge, to become a loss-making endeavour for investors.
Investors who have learned from past models may attempt to seize early gains, banking on die-hard Trump supporters. However, if we consider a potential financial turmoil, there is sure to be one with time.
This detailed reflection on social media investing trends was provided by Jonathan Wolf, a civil litigator and author known for his roles in legal writing and extensive publications. Jonathan can be reached at jon_wolf@hotmail.com.
For more, read: Like Elon Musk And Twitter Before Them, Investors In Trump’s Newly Public Social Media Company Will Lose Millions.