Peter Schiff's criticism of Trump Media (DJT) merger might have merit

For investors wanting some insight into Trump Media & Technology Group Corp. (DJT), they're not going to find it through brokerage analyst notes.

That's because there doesn't seem to be any coverage of the stock.

While this is not uncommon for penny stocks, it is very unusual for a company of Trump Media's stature, which owns a social media platform (Truth Social) belonging to the President of the United States and has a market cap of $4.5 billion.

One reason that could explain the lack of coverage is that Trump Media went public through a merger with a special purpose acquisition company (SPAC) and most companies that go public through a SPAC struggle to get brokerages to cover them.

Investment banks earn the lion's share of their money by issuing shares and bonds of public companies.

If a company went public through a SPAC merger, these banks are less likely to cover these companies because the banks see fewer opportunities to gain future business from them.

And yet, investors can still find analyst coverage of other SPAC companies.

Nextdoor Holdings (NXDR), which went public via a SPAC in 2021, now has seven analysts covering its stock. Lucid Group (LCID), which also went public through a SPAC merger in 2021, has 11 analysts covering its shares.

Now, it's possible that brokerages are abstaining from covering DJT shares due to potential negative blowback their firms could face from the White House over any negative coverage it gives its stock.

But there's also the fact that not only has Trump Media failed to turn anything it does into a successful business, it's unclear what its business is actually supposed to be at this point.

Truth Social exists primarily as a soapbox for President Trump, rather than as a platform where individuals, companies, politicians, and celebrities gather as they do on X.

And so, when economist Peter Schiff reacted on Thursday to Trump Media's merger with fusion power company TAE Technologies by noting on X that the "only real value that DJT offers an energy company is political leverage," he might not have actually been wrong.

Schiff added that Trump media "has little intrinsic value beyond its connection to the President."

“It began as a social media company, pivoted into a Bitcoin treasury company, and is now merging with a fusion energy company," Schiff said. "The constant reinvention makes clear that the business itself is not the point.”

Political leverage could be the point

Matthew A. Winkler, editor in chief emeritus of Bloomberg News took it a step further and said that "calling Trump Media a company is a bit of a stretch."

He points out that the company has only generated $3.7 million in revenue for the 12 months ended Sept. 30, while reporting an operating loss of $186.1 million.

Citing Bloomberg data, Winkler notes that Trump Media was the worst performer of internet media companies on the Russell 1000 across three months, six months and one year. Nearly every other of these 20 companies appreciated, while DJT declined.

And though it's not uncommon to think of Trump Media less as a company and more as a meme stock, its shares have lost 52.8% for the year. A meme stock normally generates a big gain for investors, at least for a brief moment.

Trump Media and TAE said in a press release announcing the merger that the former would provide "access to significant capital."

Which would certainly be a big advantage for TAE, except the company is already backed by Alphabet (GOOG), Chevron Corporation (CVX), Goldman Sachs (GS) and Charles Schwab (SCHW). Which means that access to capital has never been a problem for the company.

Even those who are bullish on the deal didn't clearly articulate Trump Media's role in the merger.

Daniel Newman, CEO of the Futurum Group, said in a post on X that "this deal will be politicized, but having spent time with the CEO, the board, and the scientists at TAE this organization couldn't be more apolitical."

To be fair, without specifically naming Trump Media, Newman indicated that it will take a lot of money for TAE to realize its ambitions, which is where this merger could pay off for it.

“Fusion is a decade plus long journey, and it needs a lot of capital to get to net power production,” Newman said. “It won't immediately be profitable, and it is the kind of company that has exponential upside but needs liquidity and flexibility to get from here to there.”

Meanwhile, prominent tech analyst Dan Ives of Wedbush pointed to what this deal means for the fusion industry, without specifically mentioning Trump Media's role.

"This TAE deal is a major bet on nuclear fusion power," Ives said. "Now creates the first public nuclear fusion company in the US with backers from Google and Chevron."

Ives added that this merger "will be the US key play on nuclear fusion."

Of course, as TAE Technologies moves forward with its fusion power business, which is still years from commercialization, it's going to need not just capital, but also regulatory backing.

Even if Schiff is correct in saying that the "only real value that DJT offers an energy company is political leverage," in this case that might be enough.