In what remains a difficult year for initial public offerings, both Reddit and Trump Media & Technology Group rallied on their first days of trading, only to plummet shortly afterward. The two companies declined for different reasons as the IPO market continues to search for a winner that can provide sustained returns. They do share one similarity: Big losses in 2023.
Reddit soared 48 percent during its IPO last month, as its ambitions to supply AI companies with training data for large language models fueled investor interest. But after peaking at $65, shares tanked and are now trading at $49.
Donald Trump’s latest business play, TMTG, was taken public last month by Digital World Acquisition Group, a special purpose acquisition company, a once-hot investment play that has since become almost toxic. For the former president, embroiled in legal charges and facing hundreds of millions in fines, TMTG’s public debut earned him billions on paper, and he needs the money.
But the move so far seems to be partly failing: TMTG peaked at $66 on March 26–the same day Reddit hit its apex–but fell to $48 on Monday, before rebounding slightly to its current $51 share price. The decline knocked $1 billion off Trump’s net worth, as the Republican frontrunner owns 57 percent of the company. His shares are still worth $3.76 billion on paper, but there is a substantial lockup period: Trump won’t have access to his shares for six months, meaning the value could still diminish substantially before he’s able to cash out.
TMTG is parent company of Truth Social, the former president’s social media platform that’s purportedly teeming with his diehard supporters, though the platform will not disclose how many users it has. Estimates suggest there are five million Truth Social users.
It posted losses of $58 million last year, according to its latest SEC filings, and the losses will be ongoing. “TMTG expects to continue to incur operating losses and negative cash flows from operating activities for the foreseeable future, as it works to expand its user base, attracting more platform partners and advertisers,” the company’s Form 8-K says.
TMTG noted that it has relied primarily on bridge financing to build Truth Social. It paid out $39.4 million in interest payments across 2023. As its regulatory filings indicate, Truth Social’s early success was a bit of a mirage. “Truth Social was overvalued and that reality is dragging down the stock. Because the service does not have a clear path to profitability and its revenues are meager, its high debut was unsustainable,” Ross Benes, an analyst at Insider Intelligence, told Reuters.
Unlike Truth Social, Reddit has a large audience–173 million daily site visits. But the company has been unable to monetize them. Reddit posted losses of $90 million last year, according to its S-1. In a report last week, the market researcher Hedgeye Risk Management expressed doubt that Reddit could get out of the red soon, noting that the company was “grossly overvalued” by about 50 percent, Bloomberg reported.
Despite each companies’ plummeting share price, analysts predict different paths for Reddit and Truth Social. The view on Truth Social has been somewhat scathing: “The underlying business doesn’t seem to be worth much. There is no evidence this is going to become a large, highly profitable company,” Jay Ritter, a finance professor at the University of Florida, told CNN last week.
“I’m reasonably confident the stock price will eventually drop to $2 a share and could even go below that if the company blows through the money it got from the merger,” he continued.
Reddit, meanwhile, might be repricing to a more realistic target. It priced initial shares at $34 back in March, which Hedgeye noted was a fairer peg, as investors still see its AI gambit as worthwhile.
