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On bullshit, artistry, and governing (Trump Media version)
Donald J. Trump took one of his private companies, Trump Media & Technology Group, public at the end of March, trading on Nasdaq under the ticker symbol DJT. Key investors, identified in advance, bought the stock on offer. As trading began, more joined in, taking the price to a 16 per cent premium on the first day. That’s not all that big a “bump”, but it left the company valued at $4.6 billion. According to the prospectus, the combined entity’s finances for the nine months to end-September 2023 showed an operating loss of $10.6 million. Its revenues in that period? Just $3.4 million. That’s right: $3.4 million.
The verdict from the investment research firm Morningstar was this: “Cha-ching! Trump makes $4 billion from his election campaign.” It added:
“The company has no reliable financials. Repeat: No financials. Donald Trump is not required to use the company's social-media platform, Truth Social, to communicate with his legions of follows – even if he is elected president in November.”
We’ve seen a lot of surprising valuations in past initial public offerings, especially in technology firms. But even by a generously calculated estimate (i.e., using operating not net earnings, and for only nine months), that is price-earnings ratio of minus 434. Eye-watering. It’s enough to make you cry. Calculate it again for yourself using the net earnings figure: minus $49 million.
The pro forma balance sheet for September 30 suggests that Digital World, the listed special purpose acquisition company that merged with Trump Media, had more than $310 million in assets on its own, and liabilities of $63.8 million. Trump Media had some assets, too: $2.5 million, mainly in cash. But it also had liabilities of $60.5 million. Without what the accounts call “temporary equity”, Trump Media was insolvent.
Its prospectus filed with the US Securities and Exchange Commission gives the full, inglorious detail. Among the risk factors the prospectus cites is this:
“Digital World has not obtained an opinion from an independent investment banking firm or another independent firm, and consequently, you may have no assurance from an independent source that the terms of the Business Combination are fair to the stockholders of Digital World from a financial point of view.” [Boldface and italics in the original.]
Digital World said it had conducted a “Comparable Company Analysis”. It concluded that no company could compare with Trump Media because of its “unique market positioning”, and its “affiliation with former President Trump”.
Moreover, “Given the high profile of President Trump and other proposed directors and officers, the Combined Entity may be the target of similar types of litigation in the future,” the prospectus states.
Until the technology sector burst into prominence in the 1990s, stock exchanges wouldn’t let investors trade in such unproven companies. I’m old enough to remember a time when a company had to have at least three years of profitable income statements before it a stock exchange would touch it. But soon the market came to be dominated by institutional investors, who were deemed intelligent enough not to invest stupidly. They were also big enough to take care of themselves in a (Wall Street) fight.
To borrow a phrase from Ernest Hemingway, listing rules “gradually, then suddenly” relaxed.[*]
The philosopher Harry Frankfurt, who died last year, will probably be most remembered for a 1986, somewhat tongue-in-cheek essay, “On Bullshit”. In this year of elections, and of recurrent corporate nonsense, let’s think about the lessons Frankfurt drew, and the implications when the bullshitter is an artist. To all the sincere investors in Trump Media, he might have said this:
“Facts about ourselves are not peculiarly solid and resistant to skeptical dissolution. Our natures are, indeed, elusively insubstantial – notoriously less stable and less inherent than the natures of other things. And insofar as this is the case, sincerity itself is bullshit” (Frankfurt, 1986, p. 100).
Artists are prized for their imagination, and their ability to convince audiences to imagine along with them. But is this any way to run a social media company? A country?
[Update: A report in the Financial Times says that Trump Media had just $751,500 in revenue in the fourth quarter of 2023, down 25 per cent on the previous three months. The post-IPO froth had at one point taken the value of this company to almost $10 billion. The April Fool’s Day filing with the SEC sparked a sell-off, however, leaving the firm valued at about $4 billion. The auditors of Digital World, Adeptus Partners LLC, signed off the accounts with a warning in a section headed: “Substantial Doubt about the Company’s Ability to Continue as a Going Concern.” The filing further states that “TMTG has suffered negative cash flows and recurring losses from operations that raise substantial doubt about its ability to continue as a going concern.” Here’s where you can read Trump Media’s full 10-K report to the SEC. Adeptus has now been replaced as auditor.]
Frankfurt, H. G. (1986). On Bullshit. Raritan Quarterly, 6(2), 81-100.
[*] Hemingway was writing, in The Sun Also Rises, about how you go bankrupt. Now take a longer look at Trump Media’s accounts for yourself.