Donald Trump, the Republican party’s nominee for the upcoming US presidential elections, returned to X (formerly Twitter) with a bang by holding a live Twitter Spaces with Elon Musk. The event is in the news for its massive viewer numbers, strange nature and various tech glitches, but Trump’s return to Twitter is bad news for his own social media platform, Truth Social, and its parent company, Trump Media & Technology Group or TMTG (NYSE: DJT).
The Spaces was immediately a disaster after most users were unable to join it for almost 45 minutes. Musk blamed the glitch on what he called a “massive” denial-of-service attack (DDOS) though X insiders revealed that this was just an excuse and that no DDOS attack had occurred. In his cost-cut spree, Musk has slashed X’s headcount and many see the recurrent glitches as a sign of underspending on infrastructure to handle a spurt in traffic.
Trump Twitter Spaces Interview Marred by Glitches
Notably, this is not the first time that X has faced a technical glitch in a mega event. It suffered through similar problems when Florida Governor Ron DeSantis officially launched his campaign with Elon Musk in a Twitter Space last year. Ironically, Trump had then mocked Santis’ Twitter launch as a “disaster” on Truth Social adding, “His whole campaign will be a disaster. WATCH!” Santis eventually dropped out of the race in January.
Trump Was Quite Active on Twitter Before He Was Banned
To be sure, Trump was an active Twitter user – until his account was banned following the January 6, 2020, Capitol Hill riots. In November 2022, Musk restored Trump’s Twitter account but back then, Trump snubbed Musk and said he does not “see any reason for” re-joining Twitter. Trump likely did this because he wanted to make sure that Truth Social stayed viable because his posts were (and still are) essentially the only reason to use the platform.
The relations between Musk and Trump have been quite volatile and while the Tesla CEO was on Trump’s economic advisory council, he quit after Trump withdrew the US from the Paris Climate Deal.
Musk – who in 2022 said that he would vote for a Republican in the 2024 elections – initially backed DeSantis. However, after the assignation attempt on Trump, he formally endorsed him.
Meanwhile, despite Musk restoring his account in 2022, Trump wasn’t active on X. His most recent tweet was his mugshot, taken at Fulton County Jail in August 2023 after surrendering in the Georgia election subversion case. Trump has instead been focusing his energies on his own social media platform which competes with X for ad dollars and users.
TMTG’s Finances Are in a Terrible State
TMTG’s earnings however portray a pretty terrible state of affairs and in Q2, the company generated revenues of a mere $837,000 – which, for context, is only a few thousand dollars more than the $828,000 that it said it paid for registration fees for filings with the SEC. This might not be so bad for a small company with low costs but TMTG lost more than $300 million in just the first quarter of this year.
Analysts are bewildered that the stock is worth over $4.5 billion despite these insanely bad numbers, suggesting that its value is only tied to Trump’s reputation and its meme stock status.
One saving grace is the $344 million in cash and cash equivalents that the company is holding – thanks to its special purpose acquisition company (SPAC) merger. It is also debt-free and if anything, in Q2 it earned a cool $2.3 million in interest on the massive cash pile, which is nearly thrice the operating revenue that the company generated in the quarter.
Truth Social’s growth has been anemic at best and the platform has failed to attract new users. Notably, even Trump has just over 7.5 million followers on Truth Social which is a fraction of the 90 million followers on X. Incidentally, Trump has added nearly a million new followers on X since he returned and remains among the most popular accounts on the micro-blogging website.
It’s therefore no surprise that Trump – who previously ruled out rejoining X – has returned to the platform. He likely only rejoined X because he was worried by recent polls that show him losing in the presidential race. This may be smart for Trump himself but it’s extremely bad news for $DJT investors. Now that Trump is posting on X, there really is no reason for anyone to join or use Truth Social anymore.
DJT Is a Meme Stock
While meme coins linked to Trump have received much attention, DJT has itself been nothing short of a meme stock itself.
Truth Social, which was looking to capitalize on the angst among a section of conservatives who believe their voices were being stifled by other social media platforms, is struggling with growing its user base.
TMTG’s valuations seem to have mostly been driven by sentiments around Trump and not its fundamentals. Even though Truth Social is spending like crazy and making pitiful revenues, it’s worth over $4.5 billion. X. on the other hand, was most recently valued at $12.5 billion by Fidelity. However, in terms of active users and revenues, Truth Social has a tiny fraction of the users and engagement commanded by X.
Twitter’s valuations have also plummeted and the social media company is now valued at just about a quarter of what Musk acquired it for in 2022. Twitter has been battling an exodus of advertisers due to the widespread hate speech on the platform, which led to boycott calls from leading advertisers.
Musk even sued the Global Alliance for Responsible Media (GARM) for antitrust over the ad boycott calls on X. Unable to bear legal expenses, GARM – which operated as a nonprofit – had to discontinue operations.
What Does Trump Returning to X Mean for Tesla?
Trump’s return to X and his conversation with Musk might not be good for $DJT or Truth Social but Musk has much to gain (and lose) with the former president’s favor. In the interview, Musk tossed Trump entirely softball questions and failed to counter multiple false claims during the interview. Unfortunately, Trump’s return to the platform could spur even more instances of hate speech and false claims on the platform as the 2024 US elections approach.
Musk’s growing closeness with Trump could also have an impact on Tesla and SpaceX. Notably, Musk’s warming up to Trump is turning away some Tesla car buyers and earlier this month European drugstore giant Rossmann said it won’t buy Tesla cars for its fleet after Musk formally endorsed Trump for president.
“Trump has repeatedly described climate change as a hoax – this attitude is in stark contrast to Tesla’s mission to contribute to environmental protection through the production of electric cars,” said a Rossmann spokesperson regarding the decision to stop buying Tesla cars.
According to car buyers surveyed by researcher Strategic Vision in October and November 2023, the proportion of Democrats buying Tesla vehicles fell by more than 60%. While the survey showed that Tesla has made amends with Republican buyers, the company might still not have been able to offset the losses from losing liberal buyers.
The partnership could be extremely beneficial if Trump wins, however, as Musk could push for subsidies or similar policies that benefit his companies. This kind of cronyism is unfortunately extremely common in the US government.
Truth Social Stock Has Fallen as Expected
Tesla’s deliveries have fallen YoY for two consecutive quarters, and while the slowdown in the electric vehicle (EV) industry is surely to blame, it looks like Musk’s antics have turned off a lot of potential liberal EV buyers.
As for Trump’s Truth Social, the former president embracing X ahead of the impending elections looks like another jolt for the struggling company. It is now down over 11% so far this week as markets weigh the company’s outlook after Trump’s return to X.