Explainer: Where are Wall Street's analyst notes on Trump's Truth Social?

Grindr

25/04/2024 11:00

By Echo Wang
       NEW YORK, April 25 (Reuters) - Trump Media & Technology
Group  DJT.O  is one of the most actively traded U.S. stocks,
yet Wall Street's equity analysts are staying clear. 
    Shares of the company that operates former U.S. President
Donald Trump's social media app Truth Social listed on Nasdaq on
March 26. An army of Trump supporters and speculators have
snapped up the stock, giving it a market value of about $4.9
billion. 
    Yet there are still no widely distributed analyst notes from
brokerages for it, unlike social media peers with smaller
valuations that are covered by several brokerages, including
Nextdoor  KIND.N , Bumble  BMBL.O  and Grindr  GRND.N . 
    Here is what happening with the lack of analyst coverage of
TMTG and the reasons behind it.
    
    ARE THERE NO BROKERAGES COVERING TMTG?
    No analyst note on the company has surfaced thus far.
JPMorgan Chase  JPM.N , Bank of America  BAC.N  and Barclays Plc
 BARC.L  are among the top brokerages that told Reuters they
were not covering TMTG. None of them provided a reason.
    A TMTG spokesperson declined to comment on the lack of
equity coverage. "Our focus now, a few weeks after going public,
is to build up our platform and continue delivering value to our
shareholders," the spokesperson said. 
    
    WHY ARE THERE NO EQUITY ANALYSTS COVERING TMTG?
    Most companies like TMTG that go public through a merger
with a special purpose acquisition company (SPAC), rather than a
traditional initial public offering, struggle to get brokerages
to cover them. This is because the banks that operate these
brokerages make little to no money on analyst notes. They
typically produce them if they have worked on a company's
listing, their big institutional clients ask for such coverage,
or they hope the company will hire them for other investment
banking work such as deal advisory or corporate financings.
    Few major banks work on SPAC deals, most of which have
performed poorly in the stock market and have attracted fierce
regulatory scrutiny. Only one brokerage, EF Hutton, advised
Digital World, the SPAC that merged with TMTG last month. EF
Hutton did not respond to a request for comment on whether the
brokerage would provide equity coverage of TMTG in the future.
    Even by SPAC standards, however, TMTG's shares are snubbed
by analysts. Nextdoor and Grindr, for example, which also went
public through SPAC deals, were covered by three and four
brokerages, respectively, on their most recent earnings calls.
      
    WHY THE MISMATCH BETWEEN TRADER BUZZ AND EQUITY COVERAGE?
    TMTG may be one of the most actively traded U.S. stocks,
according to Trade Alert data, but this is primarily driven by
individual investors rather than Wall Street firms managing
other people's money that brokerages cater to. 
    "An analyst would ask 'why should I spend my time covering
this stock if clients aren't going to pay us'", said Jay Ritter,
a professor at the University of Florida who studies listings. 
    In addition, TMTG's stock market valuation is not linked to
business fundamentals. 
    The valuation is equivalent to almost 1,200 times the
loss-making company's revenue in 2023 of $4.1 million. No other
U.S. company of similar market capitalization has such a high
valuation multiple, LSEG data shows. TMTG has warned investors
in regulatory filings that its operational losses raise
"substantial doubt" about its ability to remain in business.  
    Analysts are apprehensive about covering so-called "meme"
stocks such as TMTG, because any price target they set on them
based on scrutiny of their financials is bound to be much lower
than what speculative trading drives them up to.

 (Reporting by Echo Wang in New York
Editing by Greg Roumeliotis and David Gregorio)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))