Former US president Donald Trump’s social media start-up climbed as much as 58 per cent in its first session as a publicly traded company, after the most high-profile blank-check deal in years added billions to his fortune – at least on paper.
Shares of Trump Media & Technology Group Corp. were halted for volatility after rising as high as $78.80 each on Tuesday after completing a merger with Digital World Acquisition Corp. The deal to take the unprofitable company behind Truth Social public caps an eye-popping meme stock run, and provides a potential windfall for Trump as he faces a mounting series of legal and financial woes.
Should they stay near that level, Trump’s shares may ultimately be worth more than $6.2 billion. He can’t sell the stake immediately due to a six-month lock-up agreement, hindering his ability to monetise the stock and ease his present cash crunch. A portion of that paper wealth is also dependent on shares meeting performance requirements.
The company’s post-merger performance on the Nasdaq under the symbol DJT will test Trump’s ability to capture the attention of individual traders and momentum investors who use it as a way to bet on his push for re-election. Its operations have so far struggled to generate a profit, losing $49 million in the nine months through September while delivering just $3.4 million in revenue.
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The trading values the Nasdaq-listed company at roughly $10.5 billion, based on its filings with the US Securities and Exchange Commission. Trump could earn another $2.2 billion worth of shares if the stock meets performance targets, according to data compiled by Bloomberg.
Trump’s ownership of nearly 60 per cent of the company has made the listing a symbol of the presumptive Republican nominee’s ability to capture the attention of individual traders and momentum investors who use it as a way to bet on his push for re-election.
After two years of snags on the way to a listing, however, including investigations from the Justice Department and the US Securities and Exchange Commission, the money-losing company may have difficulty convincing some investors focused on the long term.
“The underlying business fundamentals will matter at some point. The stock can defy gravity for only so long,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies. “DJT is the mother of all meme stocks.”
As the Trump Media deal became a political lightning rod, retail investors embraced the company and its stated mission fighting against big tech companies like Meta Platforms, Netflix, and Elon Musk’s X, even as the merger’s winding multiyear path to completion triggered a wave of scepticism from most of Wall Street.
The SPAC soared 185 per cent this year through Monday’s close in anticipation of the merger, mirroring Trump’s electoral fortunes as he bulldozed his way toward the Republican presidential nomination.
But Trump and other Trump Media insiders with stakes can’t sell any shares for roughly six months, unless management moves to expedite the process.
In the lead-up to the deal’s completion, Trump Media had warned it could go bankrupt without the SPAC merger. Having avoided that fate, the next challenge will be avoiding the fate doled out to many so-called meme stocks – a name coined during the height of the pandemic for companies whose trading appears detached from reality.
If Trump and other insiders sell share before the six-month lock-up period that could trigger a sell-off as the market would likely be inundated by sellers.
“A problem for meme stocks is that the supply of shares that are tradeable, known as the public float, rather than the fundamental value of a share, is an important determinant of the price,” said Jay Ritter, a finance professor at the University of Florida. With the shares available for trading potentially accounting for just a small percentage of the total outstanding, a sale by Trump or other insiders after the lock-up ends could spark a rapid decline.
“In the short run, anything can happen,” said Ritter. “But buying an overvalued stock hoping to sell it at any even higher price is known as the greater fool theory of investing.” – Bloomberg
