Why Trump's Victory Could Spell Trouble for Truth Social

November 7, 6:55 am

President-elect Donald Trump's media company experienced a significant stock market plunge on Thursday, with shares of DJT dropping 20% to trade at $30 per share. This sharp decline erased the gains from the previous day's rally, which was triggered by his election victory.

The stock had initially seen a 6% jump on Wednesday after Trump was elected the 47th President of the United States, set to return to the White House for another four years.

A Disconnect Between Stock Performance and Business Fundamentals

DJT has been one of the most volatile stocks in the market, often treated by investors as a proxy for Trump's political fortunes. Now that he has won the election, that proxy is gone, leaving behind a company facing substantial challenges.

And the company, Truth Social, tells a less optimistic story. The company reported a revenue of $836,900 in the third quarter, marking a 30% decline year over year, yet it maintains a staggering market capitalization of $5.7 billion. This disparity highlights a paradox: while Trump's victory has been beneficial for the stock in the short term, it poses significant hurdles for Truth Social's actual business operations.

Truth Social was envisioned as a platform where Trump's supporters could hear from him directly, without media filters. To solidify this unique value proposition, Trump agreed - and the company disclosed to the Securities and Exchange Commission (SEC) - that he would not post the same content on any other social media platform for at least six hours after posting on Truth Social.

This exclusivity clause has been crucial to Truth Social's appeal. However, it does not apply to explicitly political messaging. Now that Trump is president, nearly all his communications are political, effectively rendering the exclusivity agreement moot.

The Challenges Ahead for Truth Social

The core issue for Truth Social is its struggle to compete in a crowded social media landscape. Short-form text platforms like Truth Social face stiff competition from giants like TikTok, Instagram, and YouTube, which are dominant in capturing user engagement. Truth Social's focus on a niche audience - primarily Trump supporters - limits its potential for widespread adoption and makes it less attractive to blue-chip advertisers.

Elon Musk's ownership of X adds another layer to Truth Social's challenges. Musk has emerged as a significant supporter of Trump, and the platform offers a far larger audience than Truth Social. Trump's need to reach a broader electorate means he is likely to prioritize platforms with greater reach, further undermining Truth Social's position.

Conclusion: Navigating the Uncertain Future of DJT

If DJT's stock value shifts from being a proxy for Trump's political success to reflecting the company's actual performance, a significant market correction could be looming. Alternative data already indicates declining web traffic and app downloads for Truth Social. As President Trump expands his messaging to other platforms, this downward trend may accelerate, potentially leading to decreased revenue and diminished investor confidence.

This scenario presents a paradox for investors. While Trump's return to the presidency might intuitively seem like a boon for DJT, the underlying business fundamentals tell a different story. The erosion of Truth Social's exclusivity diminishes its unique value proposition, and the platform's financial metrics are far from encouraging.

For investors, the key takeaway is caution. DJT faces substantial headwinds - from intense competition in the social media space to the loss of its primary differentiator. The volatility that once made DJT an exciting proxy for Trump's political fortunes could now become a liability as the stock begins to reflect the company's actual performance. For investors considering short positions, DJT presents an intriguing but risky opportunity.

At AltIndex, we recommend staying informed and vigilant. The shifting landscape means that DJT could present both risks and opportunities in the coming months. We will continue to monitor essential metrics like sentiment analysis, web traffic, and app downloads to provide you with real-time insights.

Get More Insights

Sign up and get access to a personalized dashboard, deeper insights, AI stock picks, stock alerts, weekly newsletter and much more.