By Matt Egan, CNN
New York (CNN) — Reid Hoffman knows it can be achieved by building a social media empire, but the LinkedIn co-founder is stunned by the magnitude of the social media fortune on which former President Donald Trump rests.
Trump’s conservative social media company, Trump Media
“It’s incredibly high,” Hoffman, a Biden donor who is now a Microsoft director and venture capitalist, told CNN. “Truth Social’s numbers are so absurdly outside the realm of business. “
Shares of Trump Media (DJT) jumped more than 20% on Monday, their second-best day since they began trading on the Nasdaq in late March. Shares of Trump Media rose another 9% on Tuesday.
Unlike the social network LinkedIn, which struck a deal to sell it to Microsoft in 2016 for $26 billion, Trump Media generates little profit and remains a small player in the industry.
Truth Social’s number of users is dwarfed by Reddit, Elon Musk’s X (formerly Twitter), and even Instagram’s Threads.
In 2023, Trump Media generated just $4. 1 million in revenue. This means that Wall Street assigns an astronomical price-to-sales ratio of more than 1,400 to existing revenues.
By comparison, Wall Street values social media leader Meta Platforms, which owns Facebook and Instagram, with revenue just times lower.
Hoffman, who has been a vocal critic of Trump, noted that if Meta were to publish a price-to-sales ratio like Trump Media’s, it would be more than $150 trillion (instead of its current $1. 3 trillion market).
“Trump Media is probably more valued at about $40 million than it is in billions,” Hoffman said. “Truth Social spends heaps of millions of dollars without looking like anything in terms of user engagement, user growth, or even potential revenue. “
Trump Media responded to CNN’s request for comment.
Trump Media’s stock value began to fall sharply after May 30, when Trump, the company’s president and largest shareholder, was found guilty of 34 counts in a secret trial. The company’s market price partially plummeted between May 30 and last week before recovering on Monday. .
In a filing with the SEC, Trump Media revealed Monday that it expects to raise more than $69 million in profits from investors exercising warrants to acquire non-unusual shares.
Hoffman is the first to express his explicit disbelief at Trump Media’s assessment.
Some experts have described Trump Media as a “meme title,” such as GameStop and AMC (the meme stock industry relies more on social media hype and sentiment than fundamentals).
Jay Ritter, a finance professor at the University of Florida who has studied capital markets for four decades, told CNN last week that the value of Trump Media’s stock is still “extremely overvalued. “
Billionaire media mogul Barry Diller, who participates in the Expedia, Coca-Cola and MGM Resorts International forums, told CNBC that Trump Media is a “scam” and that the other people buying his shares are “doped. “
And yet, the market has been valuing Trump Media at billions of dollars.
This peak valuation catapulted the network of Trump, the company’s dominant shareholder.
Based on Monday’s percentage, Trump’s 114. 75 million percent in Trump Media is valued at just about $4 billion. This is down from $6 billion on May 30, but more than the $3 billion at the end of last week.
Hoffman has a few theories as to why some investors “hold onto the stock despite the obvious shortcomings of the underlying company. “
He told CNN that the value of Trump Media’s stock is likely due to “gullible cash investors that Trump personally” and a “bet that Trump will win the White House, causing the stock to rise. “
In fact, in the past analysts have told CNN that Trump Media has a way of betting on Trump’s political fortunes and the concept that early next year, Truth Social could be the president’s number one communications platform.
Hoffman hypothesized that “deep pockets,” such as wealthy Americans or even governments, are holding on to their Trump Media shares to “artificially back” the price of Trump’s stake.
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