Content-type: text/html Downes.ca ~ Stephen's Web ~ How can Donald Trump’s loss-making Truth Social be worth $9bn?

Stephen Downes

Knowledge, Learning, Community

There's a short but important lesson to be learned here, and this is about the nature of 'valuation'. We often read of tech companies being 'valued' at x number of billions of dollars. But this isn't a real number. As the Guardian explains, the valuation is just is just a product of multiplying the value of a recently purchased individual share with the number of shares outstanding. So if there are 100 shares and someone buys a share for $20 the valuation is $2000. Now, as author Alex Hern suggests, "Typically, that value, known as the market capitalisation, is kept in check by reference to the 'fundamentals' of the company.... But sometimes … it isn't." And that's the case with Truth Social, which is somehow 'valued' at $8 billion, based on income of $3.3m from advertising and posting a loss of $49m. Nobody is ever going to actually pay $8 billion for the company, and no responsible lender would ever offer a loan based on that collateral.  

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Stephen Downes Stephen Downes, Casselman, Canada
stephen@downes.ca

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Last Updated: May 29, 2024 11:40 p.m.

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