Reddit, Truth Social, and media platform IPOs: How to put a fair valuation on media stocks?

By Conrad Egusa Published: 27 March, 2024


Donald Trump is a figure that always divides opinion. While this narrative has focused on Presidential politics in recent years, this week the conversation has come back to his roots as a business tycoon. 

The former President launched Truth Social, owned by the Trump Media & Technology Group, in February 2022 and the brand is already going public. This marks the first time in almost 30 years that part of his business empire is being floated on public markets. 

So far, not normal. The controversy here stems from the eye-watering valuation of $9 billion that Wall Street placed on Trump Media. Given that the company generated just $3.4 million of revenue in the first nine months of 2023 and was down $49 million over that span, experts are questioning how this valuation was reached and what turbulence this could lead to down the road. 

Social media companies and IPOs 

Trump Media isn’t the only social media company making headlines for going public at the moment.  The infinitely popular community site Reddit priced its recent IPO at $34 a share. It now has a total valuation of $6.4 billion. 

This figure is significantly lower than the Trump Media valuation, even though the platform has a historical track record of being profitable. In 2023 Reddit was able to generate $804 million in revenue whereas Trump Media closed the year at $5 million.

Even so, just a week later Reddit’s global user base and enduring popularity helped to ensure its share price soared by 30%

Said Plexo Capital founding managing partner and Reddit shareholder, Lo Toney, Reddit’s debut was “a positive sign not only for Reddit, but I think also the tech industry and what it might mean for future IPOs.”

The investor told CNBC, “One thing we know with certainty is that there [was] a lot of investor appetite during the roadshow for Reddit, and we see that it’s continuing to hold up well,” Toney said. 

“Clearly the market is signaling there’s an appetite for more companies to come to the public markets.”

In contrast, Trump Media’s current track record and business performance has experts wondering how these stock prices will hold up. 

Trump Media and Truth Social performance 

Trump founded Truth Social after being booted off leading social apps like X (formerly Twitter) and Facebook. The social media platform leverages AI, including to automatically censor posts. To date the newcomer is still struggling to gain market share against the legacy brands.

Truth Social had just 494,000 monthly active US users on iOS and Android combined in February, according to Similarweb stats provided to CNN. That’s a small fraction of the 75 million on X and 142 million on Facebook.

“At these levels, it appears untethered to its underlying business results,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital.  “Eventually, valuations tend to fall back on fundamentals. That means this stock is definitely at risk of plummeting back down to earth.”

“Stocks that trade on momentum are subject to falling rapidly,” he said. Jonathan Macey, a law professor at Yale, told CNN last week that the Digital World stock price is “clearly a bubble.”

Even so, trading during its first day on NASDAQ has been eventful. Shares rose by 16% during the first day overall. Tuesday’s closing price of $57.99, meant that Trump Media had a market cap of around $8 billion.

The stock surged about 56% at the open, to $78, and trading was briefly halted for volatility.