New York
CNN
—

Trump Media & Technology Group is losing money, generating very little revenue, and its main product Truth Social remains a relatively small player in social media.

Yet Wall Street values ​​former President Donald Trump’s social media company at $9 billion, a price tag that has more than tripled in just five weeks.

Since Trump Media’s share price fell to a low on September 23, the price has skyrocketed. Market veterans say this monstrous comeback is driven almost entirely by bets that Trump will win the White House.

Trump Media is not a normal stock. It’s essentially a meme stock, meaning it doesn’t trade on fundamentals, but on hype and momentum tied to the Republican candidate’s political fortunes. The stock is essentially an indication of how traders think the election will go.

“I’ve never seen anything like it. The value of this company is almost entirely based on the outcome of elections,” Gene Munster, managing partner and co-founder of venture capital firm Deepwater Asset Management, told CNN in a telephone interview.

After rising 32% last week, Trump Media climbed another 16% on Monday morning.

Munster said there is “nothing” about Trump Media’s fundamentals that can justify its $9 billion market value.

The company’s second-quarter revenue was just $837,000, a small amount normally associated with a company valued in millions, not billions, of dollars.

And yet, Trump Media’s stock price is up more than 200% since September 23.

“It sounds crazy, but that move is justified to me because it is a binary outcome,” Munster said. “It’s pretty simple: If Trump wins the election, it will be worth more than the $8 billion it is currently worth. And if he loses, it will be worth significantly less.”

In a sign of how closely traders are following the election, trading app Robinhood on Monday launched presidential election contracts, allowing customers to bet on which candidate they think will win the White House.

Trump is the dominant shareholder of the company that bears his name. His stake of 114.75 million shares is now worth about $5 billion, up from $1.4 billion on September 23. Of course, these are paper profits and Trump would have a hard time selling shares without sending the stock price plummeting.

The fact that Trump has pledged not to sell his shares – and that he has not announced any stock sales – has helped push the stock price up.

George Kailas, CEO of Prospero.ai, a research platform that helps retailers get better market information, told CNN that Trump Media is trading like a classic meme stock.

“Social sentiment takes off, reaches a fever pitch, increases the value of the stock and then people keep betting on it more and more,” Kailas said.

But Kailas said the huge rally in Trump Media means it now trades at more than 1,600 times its enterprise value (a measure of a company’s total value, including debt and cash). He described that valuation ratio as “crazy” and noted that other popular stocks are trading at just a fraction of that.

“We see people gambling with their hearts,” Kailas said. “There’s no good story about how they’re going to justify that valuation.”

Polls show that the race for the White House remains incredibly close.

Trump Media’s stock price suffered a sharp decline in July after President Joe Biden ended his re-election bid. Polls at the time showed Trump faced an uphill battle to defeat Democratic candidate Vice President Kamala Harris. But now Trump and Harris are in a dead heat in the latest national polls.

“There’s a case to be made that if Trump wins the election, the company’s prospects will increase dramatically,” said Steve Sosnick, chief strategist at Interactive Brokers.

If Trump returns to the White House, Sosnick said that Truth Social could become an important platform for presidential communications.

“The market is saying this will be a proprietary platform for the most influential person in the world – and there is some value in the fact that they will find ways to make money,” Munster said.

For now, Truth Social remains relatively small compared to major social networks.

Although Truth Social is larger than some right-wing social networks like Gettr, Facebook has 200 times more monthly active users on iOS and Android in the United States, according to Similarweb data shared with CNN.

The user base of X, the social media network formerly known as Twitter, is more than 100 times larger than that of Truth Social. According to Similarweb, Even Threads has twenty times more users than Truth Social.

Trump Media’s already volatile stock price could experience even more turbulence in the coming days and weeks.

Munster expects Trump Media can remain committed to the election and then perhaps pull back a bit if he wins in a classic buy-on-the-rumor, sell-on-the-news situation. kind of movement.

Analysts say a Trump loss could trigger a steep sell-off.

“It’s going to be in free fall,” Munster said. “If he loses, I suspect it’s a multi-billion dollar company.”

Sosnick agrees that Trump would give Media back most of its profits if the election doesn’t go in Trump’s favor.

“If he is not elected, what will be left? A company that is a few years old, has modest revenue and is essentially making no profit,” he said. “If this were called Joe’s Media Company, we wouldn’t even talk about it and it wouldn’t have any value even close to this. The value is completely tied to the former president.”