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

Trump Media & Technology Group (DJT.O) is one of the most actively traded US stocks, yet Wall Street’s equity analysts are staying clear.

Shares of the company that operates former US 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 US 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 US company of similar market capitalisation 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.