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Social media is not a new technology. Sure, it changes here and there — this time the popular one is teens doing dumb little dances so that China can vacuum up their data — but we should be well past the age when hype alone dazzles would-be investors in these supposed tech companies.
The fact is that high user counts alone cannot make an online media company profitable. We have seen that repeatedly in Reddit: the platform has never once been profitable in nearly two decades of existence, despite having more than 70 million daily users.
Its lack of profitability notwithstanding, Reddit’s recent initial public offering was a success. Its share price shot up 48% on the first day of trading, even as the stock gave up some of those gains on the second day. Reddit shares subsequently rallied again early in its first full week as a public company.
We do have a longstanding model as to what makes a publicly traded social media company consistently, massively profitable. Facebook (now a subsidiary of “Meta” thanks to its founder’s rich inner fantasy life) turned profitable in 2009 and went public a few years later. In the course of gobbling up several competitors, Facebook has always remained more or less the same thing: a machine that attracts eyeballs to screens so it can stick mainstream ads in front of them. By the latest figures, 97.2% of Facebook’s revenue comes from advertising.
Reddit might still have a chance to make money under this model (maybe the company could start by slashing the compensation package of its CEO, who, at $193 million for 2023, reportedly made more than the heads of Pinterest, Snap, and Meta combined). Following the IPO, many Reddit users do fear the kind of “watering down” of content required to attract and retain well-heeled mainstream advertisers. Yet, Reddit is already pretty good at keeping matters to mostly healthy discussions among dedicated subcommunities thanks to its army of volunteer moderators.
In Reddit, or really even in the perennially ubiquitous Facebook, we might already have as close as it gets to an online free speech mecca, the digital town square purported to be sought by so many right-wing trolls. While you may have a right to say odious things, in an actual town square or otherwise, you have never had a right to make money off of doing so. Nor do you have a right to incite violence with your speech or tell outright lies about someone. If you do these things, you may face criminal consequences or civil liability. Plus, social media companies are not restrained by the First Amendment to begin with (that’s the government).
We are already in the midst of a real-world experiment on the concept of a social media platform where supposedly any speech goes. That is what Elon Musk promised when he purchased Twitter and renamed it X. Not only have advertisers fled, the promise turned out to be hollow, as X in practice is less a free speech platform than it is a platform where one can say anything as long as it does not displease Musk personally. People still self-moderate somewhat on X — Musk himself removes posts fairly frequently after receiving backlash — yet the concept of an unrestrained shout-fest has proven anything but lucrative. The company is scrambling to find other revenue streams as advertising income dries up, and X might even face bankruptcy after being purchased for $44 billion less than two years ago.
A similar fate awaits Truth Social. Like Musk’s X, Donald Trump’s personal social media playground stakes its own claim on the digital free speech territory.
On March 22, Trump Media & Technology Group, the owner of Truth Social, merged with Digital World Acquisition Corporation, a special purpose acquisition company formed as a way to take Truth Social’s parent public without an IPO. Based on a preset $44 per share price for Digital World, Trump Media became a public company valued at more than $5 billion.
In a rational marketplace, this $5 billion valuation would be laughable. The first nine months of last year saw Trump Media incur a net loss of $49 million, while it took in a paltry $3.3 million in advertising revenue. There is also an inherent problem in that the bathroom musings of a 77-year-old facing four criminal indictments (containing nearly 100 felony counts) are Truth Social’s main draw. Also, there is Truth Social’s anemic user count: 494,000 monthly active U.S. users.
One can (while holding one’s nose) imagine a world in which Trump wins the 2024 election and finds a way to funnel taxpayer money to Truth Social (to himself, in other words, as the majority shareholder) like he did with many of his other businesses during his first term. Other than that scenario, it is difficult to conceive of a way in which Truth Social, and by extension Trump Media & Technology Group, does anything over time other than lose a tremendous amount of money for its investors. Of course, this did not stop Trump Media, trading under the ticker symbol DJT on the Nasdaq, from surging in value during its first day of public trading on March 26, because Trump’s rabid supporters never fail to recklessly throw their money at him.
When it comes to Trump Media, the smart money will attempt to seize early gains on the backs of die-hard Trump supporters. If you want to talk about a bloodbath, at least financially speaking, give it a little time: we’re about to see one.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
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