Trump Media & Technology Group, with its Truth Social platform at the center, is now eyeing expansion into various areas. One such potential move is the acquisition of Bakkt Holdings, a cryptocurrency company. Let's delve deeper into this intriguing development.

Unraveling the Crypto Ties of Trump Media

Trump Media's Business Focus

The Trump Media & Technology Group primarily centers around its Truth Social platform. It has been actively exploring opportunities to diversify and grow. This includes looking into expanding into streaming video, aiming to tap into new markets and revenue streams.The social media business seems to have its sights set on making significant moves. Acquiring Bakkt Holdings could be a key step in this journey. Bakkt operates a platform that allows users to engage with cryptocurrencies, providing a unique opportunity for Trump Media.

Understanding Bakkt Holdings

Bakkt is a company that enables users to buy, sell, and store cryptocurrencies. Over the trailing 12 months, it generated $1.9 billion in sales. However, with a high cost of sales, it managed to achieve a tiny gross profit of just $74 million. After accounting for operating expenses, the business incurred a loss of over $54 million in the past year.It's important to note that Bakkt has mentioned in the past that it may not be able to continue as a going concern. This adds an element of uncertainty to any potential acquisition. Earlier this year, the struggling stock also underwent a 1-for-25 reverse stock split to prop up its value and stay listed on the New York Stock Exchange. As of September end, the company reported cash and cash equivalents totaling $29 million, which is relatively low considering its recent operating activities.

The Pros and Cons of Acquiring Bakkt

If Trump Media acquires Bakkt, it could potentially benefit from the current hype surrounding cryptocurrencies. Bitcoin, for instance, soared to record highs this year, driven in part by the pro-crypto stance of President-elect Donald Trump. This could lead to higher valuations for digital currencies and potentially boost Trump Media's position.On the other hand, Bakkt is a cash-burning and unprofitable business. To keep it afloat, Trump Media may need to continuously allocate resources, which could exacerbate its current financial situation. It doesn't generate positive operating cash flow and may not necessarily improve Trump Media's prospects for profitability in the short term.In the end, if Trump Media acquires Bakkt, it could require even more cash, increasing the risk of dilution and frequent share offerings in the future.

Investment Considerations

Trump Media is already a risky investment. Adding a cryptocurrency trading platform only amplifies the potential risk and volatility for investors. While short-term traders might see it as an opportunity due to the excitement in the crypto markets, it's not a safe long-term investment option.The social media stock has a market cap of over $6 billion, which seems unjustified given its current financials. Investors are better off waiting on the sidelines until Trump Media can demonstrate a clear path to generating revenue growth and improving its bottom line. A deal for Bakkt wouldn't change this fundamental assessment.David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and has a disclosure policy.