One of the most important revenues for Wall Street firms is the IPO or Initial Public Offering. The IPO is both speculation and vindication of a successful company. The speculation is based on other similar companies, what are they worth now and the future? the vindication is taking the company to the next level as companies have to change when they go from private to public. In every IPO, part of the job of the Wall Street firms who help the company go public is to ensure it has maximum media exposure or the general public knows about the issue, if they do some will or could be buyers.

In an article by Medha Singh and Yuvraj Malik of Reuters, in late March, an IPO meant all the criteria for a successful IPO. The company was former President Donald Trump’s company of Trump Media and Technology Group. The IPO happened, there was market demand to push the one day level to $79.38 a share but it closed at $57.99. If you take the price times the shares outstanding, the company was worth $8 billion that day.

Mr. Trump’s shares are locked up for 6 months before he can sell, which means on paper he was worth about $6 billion, but since the shares cannot be locked up or they cannot be pledge for a loan, it is paper value only. If the price stays high for 6 months, one would expect Mr. Trump to sell some of his shares on the market.

On Wall Street, the analysts examine the valuation of a company. People are buying the shares for a reason, but it is not financially rational. The company had an operating loss of $10.6 million for the first 9 months of 2023 on revenues of $3.4 million.

The biggest revenue area of the company is Truth Social and in February had 8.9 million sign-ups. Its competition including X has 238 million active users, Facebook has 2.1 billion users and Reddit has 73 million users. Investors are paying $1,000 per signed up user in Truth Social, $147 for Reddit, $80 for X and $46 for Snapchat.

If you are an investor, you must believe the numbers will go for Truth Social because all Social Media platforms are essentially advertising companies. The greater the number, the more advertising comes and the higher the rates companies are willing to pay for the spots.

Linking to dividend paying stocks, there are many reasons why a stock can go up, but to stay up for months and years takes a rational approach to its revenues and ability to make profits. For a company similar to Trump Media, it went up, but why would it stay there unless the sign-up level multiplies at levels it has previously not seen? It could happen, the present valuation of the company allows it to buy another one, but if the sign-up level does not change greatly over the short and medium term the company will be pennies on the dollar and an interesting story line.

There are more questions than answers, till the next time – to raising questions.