Former President Donald Trump’s ambitious social media venture, Truth Social, is facing significant financial challenges, prompting concerns among accountants and management about its ability to survive. This revelation comes as a result of corporate filings released recently.
The Trump Media & Technology Group (TMTG), chaired by the former president, has incurred staggering losses of $31.6 million since its inception in early 2021, according to the Securities and Exchange Commission (SEC) filings unveiled on Monday.
Truth Social, launched in early 2022 as a perceived alternative to Twitter, which now operates as X under the ownership of billionaire Elon Musk, initially gained attention due to Trump’s ban from Twitter for violating the platform’s rules regarding the promotion of violence during the January 6th riot.
Although Trump’s Twitter account has since been reinstated, Truth Social has struggled to gain traction, with a meager 861,000 monthly active users on iOS and Android as of October—accounting for barely 1% of X’s user base, according to Similarweb.
As the company’s cash reserves continue to dwindle, Trump Media’s management and accountants are issuing warnings that there is no guarantee the company can remain solvent.
The filing states, “TMTG has suffered negative cash flows and recurring losses from operations that raise substantial doubt about its ability to continue as a going concern.” This assessment was made by an independent accounting firm and financial statements.
To address this dire financial situation, Trump Media’s management believes that the capital raised through an impending merger will be “sufficient” to retire existing debt and sustain operations.
However, as of the end of June, management expressed “substantial doubt” regarding the company’s ability to have “sufficient funds to meet its liabilities as they fall due.”
To ensure financial stability, Trump Media’s management has indicated that having adequate funds is “directly conditional” on completing the merger by the end of the year. Additionally, they mentioned that additional bridge funding “may be required” before the merger is finalized. Trump Media executives are actively engaged in discussions with investors to extend debt maturity dates and secure new funds through convertible debt, as detailed in the filings.
The merger, which aims to take Trump Media public by joining forces with a blank-check company commonly known as a SPAC (Special Purpose Acquisition Company), has been marred by a series of investigations into its controversial nature. The successful completion of this merger is paramount to Trump Media’s survival, as it would unlock hundreds of millions of dollars in much-needed funding.
Matthew Kennedy, principal analyst at Renaissance Capital, commented, “Based on the financials, I’d expect they want to get the deal done ASAP,” adding, “TMTG is currently not able to fund itself through operations.”
Kennedy also emphasized that the “substantial doubt” warning serves as a stark reminder that Trump Media could face potential shutdown given its operating losses and limited cash reserves. However, Kennedy believes that this concern could be alleviated if Trump Media manages to raise the necessary capital through the merger.
According to SEC filings, Trump Media reported a loss of $59.1 million in 2021, but it posted a net profit of $50.5 million in 2022. In the first half of the current year, the company incurred losses totaling $23 million.
The filings also reveal that Trump Media burned through $7.4 million of cash during the first six months of this year alone, leaving the company with just $2.4 million in cash reserves at the end of June. This represents a significant decline from the $9.8 million at the close of 2022 and $18.7 million at the end of 2021.
Commenting on the situation, Matthew Tuttle, CEO of Tuttle Capital Management, suggested that the filings indicate Trump Media “may be circling the drain.”
In addition to its financial woes, Trump Media acknowledges that its success depends largely on the “reputation and popularity of its Chairman, President Donald J. Trump.” The filings state that the value of TMTG’s brand could diminish if President Trump’s popularity were to decline. Several potential third-party partners have already expressed reluctance to collaborate with TMTG due to its association with President Trump.
Another significant risk highlighted in the filings is the possibility of President Trump being unable to dedicate substantial time to Truth Social, which could have an adverse impact on the business.
Despite these challenges, Digital World, the blank-check firm seeking to merge with Trump Media, remains optimistic about the venture’s potential for growth. Digital World’s board believes that if Trump Media is “properly capitalized,” it is “very well positioned to grow a user base at an accelerated pace,” citing Trump’s massive social media following as a potential catalyst for growth.
However, it’s essential to note that the SPAC deal to bring Trump Media public has been mired in legal issues, including insider trading charges against three investors and allegations of violating anti-fraud laws by Digital World.
Trump’s Truth Social is facing a precarious financial situation, with mounting losses and dwindling cash reserves. The success of the impending merger with Digital World is crucial for its survival, but legal challenges and risks associated with Trump’s reputation add complexity to the situation. The coming months will be critical in determining the fate of Truth Social and Trump Media.