The parent company of former President Trump's platform Truth Social has missed expectations in its first week on the stock market.
Trump Media & Technology Group stock closed at about $62 per share Thursday after a tumultuous week of trading. Shares of Digital World Acquisition Corporation (DWAC), the “blank check” company that Trump Media merged with last week, closed at $49.99 per share, the day before the newly combined company made its stock market debut. .
Trump Media stock rose to $79.38 in its first week on the market, but settled around $62 on Thursday, the last trading day before Easter. The company's market capitalization was about $8.4 billion as of Thursday, according to CNBC data.
Despite this week's strong performance, Truth Social's parent company Truth Social's 2023 performance is not as strong, with just $3.4 million in revenue in the first nine months of this year, according to regulators. The company posted a net loss of $49 million in the same period. Documents to be submitted.
Experts say the discrepancy between Trump Media's strong market debut and financial reality places the company firmly in the “meme stock” category, with enthusiasm for the former president the main driver of the stock's price. He argued that it appears to be the case.
“This is a proxy statement in support of Donald Trump and nothing more,” Thomas Hayes, chairman and managing member of Great Hill Capital, told The Hill.
“I've never seen anything like it,” Hayes added. “But the same can be said about Donald Trump.”
Jay Ritter, a finance professor and initial public offering (IPO) expert at the University of Florida, said that based on the $300 million infusion from the completed merger with DWAC, the actual value of Trump Media stock is We estimate this to be approximately $2.00 per share. Monday.
The merger of DWAC and Trump Media is a major victory for the former president and his media company after years of setbacks and regulatory scrutiny. Trump owns 78.75 million shares of the company's stock, worth about $4.9 billion based on Trump Media's Thursday closing price, according to regulatory filings.
“With our transition to a public company, Truth Social aims to strongly expand and strengthen our platform while resolutely defending our users’ right to free speech. We are committed to reinstating freedom of expression in the digital space. We're leading an entire movement to make sure,” said Truth Social spokesperson Shannon Devine.
Trump campaign spokesman Stephen Chan said in a statement to The Hill that Truth Social is “hot as a pistol” and that “aside from speeches and interviews, the American people have never heard President Trump's message directly. “This is the only place where you can receive it.”
Steve Sosnick, chief strategist at brokerage Interactive Brokers, said the passion Trump supporters have for the former president is consistent with the “quasi-religious fervor” needed to drive meme stocks higher. ..
“It takes a large group to have a belief in a company that goes beyond normal investment criteria,” Sosnick says.
The concept of meme stocks first surfaced in 2021, when a group of Reddit users encouraged people to buy shares of GameStop, a long-suffering video game retailer, by shorting the stock. Inflated prices for professional investors.
Sosnick said AMC Entertainment, BlackBerry, and Bed Bath & Beyond were also part of the 2021 meme stock boom, largely due to nostalgia-driven 20-somethings buying popular stocks from childhood. This is because he bought shares in a certain company.
“Investment decisions are no longer really being made based on price-to-earnings ratios or discounted cash flow,” he said of meme stock investors. “All the factors that people use to evaluate companies become somewhat meaningless because it's about faith. It's about being part of something bigger.”
In the case of the Trump media, that means supporting the former president.
“If 30, 40, 50 percent of the population wants to support Donald Trump, what better way to do that than to buy this company's stock and hold that stock through the election period,” Hayes said. said.
Trump owns about 58% of Trump Media, meaning he stands to make billions of dollars from the company. The former president currently cannot access the funds because a lock-up provision prevents him from selling his shares for six months.
But Hayes said that if President Trump receives a waiver from the board, he could have “billions of dollars to put into advertising, campaign and legal fees” within six months, or sooner. It will be,” he said.
The former president is preparing for a rematch with President Biden in November, but his campaign has lagged far behind Biden in fundraising in the first months of 2024.
Biden's campaign raised $42 million in January, while Trump's main committee only raised $13.8 million. The former president ramped up fundraising in February, totaling just over $20 million, while Biden raised $53 million.
Trump also faces mounting legal costs. His fundraising committee spent about $50 million in legal fees last year. President Trump's leadership PAC, Save America, spent more than $8 million in legal fees in the first two months of 2024 alone.
Civil judgments against the former president are also beginning to pile up. Trump's lawyers said last week that it would be “impossible” for him to secure $500 million bail to appeal his New York civil fraud case. His bond was eventually reduced to $175 million.
President Trump's media rally on Thursday showed signs of losing momentum, and the stock fell 6.4% to close $4.26 below its opening price for the day.
But Sosnick said meme stocks could stay high for much longer than people expect. Even four years after the GameStop craze, the gaming retailer's price-to-earnings ratio is still above 600, which Sosnick described as “sneaky.”
“They've been stuck at overvalued levels for longer than you might think because they've got a bunch of very passionate investors,” he told The Hill.
Hayes warned against trying to sell stocks short or “betting on the staying power” of Trump supporters.
“Betting on them is a bad choice because they have always shown loyalty,” he said.
“While the value of a company is independent of the price at which it trades in the market, we should not underestimate the potential for additional support and consistent support from President Trump's supporters for as long as he needs it.” added Hayes.
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