Since its spectacular debut last week, which added former U.S. President Donald Trump to the world’s 500 richest people, Trump Media & Technology Group has experienced a series of setbacks that have reduced the value of its common stock.
But this highly exciting social media investment may defy expectations, at least for a while.
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Some refer to Trump Media & Technology Group as a “meme stock.” But in financial markets, confidence tends to be driven by financial fundamentals, rather than by the risky foundations of emotion or personal confidence.
Trump Media first listed on the Nasdaq stock market on March 25, and its stock price soared to $79 at one point. And early Monday morning, the company revealed that it had just $4 million in revenue last year and a net loss of nearly $60 million.
The stock lost 21% of its value in one day, closing just below its offering price of $49.95. As of Wednesday, the stock was fairly stable, closing at $48.81 per share.
As an investment, Trump Media has always been inherently risky. This was in part due to its adoption of a different listing method known as a special purpose acquisition company (SPAC). The number of SPACs surged in 2020 and 2021, but the boom quickly fizzled out as the stock prices of most of these companies fell.
Despite the company’s historically weak fundamentals, some investors seem to have faith in Trump himself. Furthermore, some people may use their investment funds to support presidential candidates, as if they were political donations.
Since its spectacular debut last week, which added former U.S. President Donald Trump to the world’s 500 richest people, Trump Media & Technology Group has experienced a series of setbacks that have reduced the value of its common stock.
But this highly exciting social media investment may defy expectations, at least for a while.
Some call these “meme stocks,” or stocks that attract investors for emotional reasons. Some point to Trump supporters buying it as a political statement, especially in this case. Whatever it is, Trump Media relies at least as much on trust in Mr. Trump as an individual as on the potential growth of the company as a whole. Trump Media owns Trump’s social media network, Truth Social.
Why I wrote this
a story focused on
Some refer to Trump Media & Technology Group as a “meme stock.” But in financial markets, confidence tends to be driven by financial fundamentals, rather than by the risky foundations of emotion or personal confidence.
“I don’t think it has anything to do with economics,” says Michael Klausner, a professor at Stanford Law School. “It’s all just cult stocks. [And] If the cult following is strong enough… there’s probably no risk in the short term, because there’s an appetite on the part of these people to keep buying it. ”
Trump Media first appeared on the Nasdaq stock market under the ticker symbol DJT on March 25, and its stock price soared in the first few days of trading, at one point exceeding $79. And early Monday, in a regulatory filing, the company revealed that it had revenue of just about $4 million last year and a net loss of nearly $60 million. “Our operating losses cast significant doubt on our ability to continue as a going concern,” the filing warns.
The stock price then plummeted, losing 21% of its value in one day and closing just below its offering price of $49.95. On Tuesday, the stock rebounded slightly to $51.60 just minutes after a Bloomberg report that Trump was suing the company’s two co-founders for “reckless and wasteful decisions” that harmed the company. The transaction was completed. The co-founders now accused Trump of trying to dilute the company’s stock.
Inherent risks test market norms
Big losses, warnings of possible bankruptcy, and legal disputes between founders would normally drive investors away. The stock was fairly stable as of Wednesday, closing at $48.81, down about 5.4% on the day.
As an investment, Trump Media has always been inherently risky. Part of the reason is that it used a different listing method known as a special acquisition company, or SPAC. A SPAC is a pool of capital raised in the retail and institutional markets specifically for the purpose of merging with or acquiring high-growth companies. These companies allow a faster and hassle-free way to raise funds from the public. It will also allow individual investors to get in on the ground floor, rather than the venture capital and private equity firms that have traditionally funded company growth.
The number of SPAC deals surged in 2020 and 2021, but the boom quickly fizzled out as the stock prices of most of these companies fell. As of two weeks ago, 92% of SPACs that have come online since 2019 have sold below their initial offering price, according to Professor Klausner’s calculations. “They’re losers,” he says. “They have systematically lowered prices.”
No one knows whether the Trump media will be able to buck this trend. Other legal actions are also swirling around the company and its initial public offering. The company is under criminal investigation by federal prosecutors in part over two payments from a little-known entity linked to allies of Russian strongman Vladimir Putin, the Guardian reports. . On Wednesday, two investors involved in Trump Media’s initial public offering through a SPAC pleaded guilty to federal charges of insider trading.
Two other facts stand out about the Trump media. First, the company has a very small base compared to its ambitions to compete with social media giants like Facebook and X (formerly Twitter). At the time of its listing, the number of monthly active users on Facebook exceeded 800 million, and the number of active users on Twitter exceeded 200 million. Trump Media uses a looser definition and claims that about 9 million people have used it at some point.
Second, the company is overvalued for its size.
“From a fundamentals perspective, this is just insane and outrageous,” said Mimmo Gahan, a finance professor at Cornell University. Initial public offerings may feature high-potential but unprofitable companies, with very high valuations based on expectations for future profits, but nowhere near the level of Trump Media. “What’s new is this is all about politics.”
Some investors believe Truth Social will one day reach the same level of popularity as Facebook or X, Dr. Gahan said. Some people trust Trump himself. Additionally, some are using their own investment funds to support him, Dr. Gahan added. “It’s mostly donations, so to speak.”
Stock prices and fundamentals
Albert Choi, a law professor at the University of Michigan who studies the phenomenon, said this disconnect between stock prices and fundamentals is one of the characteristics of what people call meme stocks.
But in other respects, Trump Media is not behaving like a meme stock at all. We’re not seeing a surge of investors rushing into this stock like we did with early meme stocks like GameStop and AMC. Stock trading volume has not increased sharply. Truth Social itself doesn’t seem to be experiencing any intense coordination between investors via social media.
“I hesitate to call this a meme stock, but we’ll see,” Dr. Choi said. “The bottom line is this stock is a little strange.”
Ultimately, the future of Trump Media & Technology Group may depend not only on how much credibility and popularity Mr. Trump can generate going forward, but also on financial realities. Monday’s regulatory filing warned that “TMTG’s brand value could decline if President Trump’s popularity declines.”