The media company behind Donald Trump-affiliated Truth Social sparked a frenzy of trading in its public debut on Tuesday, but given the real state of its business, it’s not easy to see what makes it a notorious “meme stock.” Everything is in place, financial experts told the Post.
Truth Media and Technology Group soared nearly 60% immediately after the opening bell, rising to nearly $80 per share, but intraday declines sent the stock down 16% to a close of $57.99. It rose and finished.
The volatility quickly drew comparisons to the infamous “Reddit Rally,” when retail investors bought stocks of distressed companies like GameStop and AMC in an effort to squeeze out short sellers.
Jay Ritter, a University of Florida finance professor and IPO expert, said: “There’s no question that this is the latest meme stock, but it’s the same as three years ago when the prices of AMC and GameStop soared and collapsed. The situation is different.”
“I don’t think the buyers are trying to punish the short sellers here,” Ritter continued. “I think the buyers are primarily Trump supporters trying to show their loyalty. It’s ideologically motivated, but to that extent punishing short sellers is also ideologically motivated. Masu.”
At a session high of $79.38 per share, TMTG’s market capitalization exceeds $10 billion on an undiluted basis, with an operating loss of $10.6 million on revenue of just $3.4 million for the first nine months of 2023. This was an astronomical evaluation for a company that reported this. After the decline, the value fell to about $8 billion.
The company also acknowledged in a recent SEC filing that it “expects to incur operating losses in the foreseeable future” as it expands its business.
“It’s divorced from fundamentals. It’s a PR strategy,” said David Kaufman, an IPO expert and partner at Thompson Coburn.
“Typically, companies trade based on fundamentals. I think eventually most companies will go back to trading on fundamentals.”
“There are probably a lot of people who will see this as a way to support Trump,” Kaufman added.
The company’s stock debut on the Nasdaq under the ticker “DJT” proved to be a timely windfall for President Trump, who owns about 79 million shares of the company.
Trump’s fortune was valued at $6.5 billion before the opening bell rang on Tuesday, according to the Bloomberg Billionaires Index.
But Truth Social’s mobile app only had an estimated 494,000 monthly active users as of February, according to data compiled by analytics firm Similarweb.
This number was down 51% compared to the same month last year.
This is also a fraction of US mobile users on more established social media apps such as Facebook (142.4 million users), X (75 million users), and even Meta-owned Threads (7.2 million). 1.
“We founded this company to protect the voices and freedoms of the American people,” a Truth Social spokesperson told the Post after the market closed.
“Even after transforming into a publicly traded company, Truth Social remains committed to preserving and strongly defending the digital space for freedom of expression.”
Ritter said the company has not shown “obvious growth” to date and has had “difficulty acquiring additional paying members, paying existing paying members, and attracting advertisers.” .
“Given the fact that the business has shown no ability to generate profits, it’s hard to see a scenario where the stock price gets much above $2 per share,” Ritter said.
“The only question is how quickly it will go from $70 to $2. It could take weeks, it could take months, it could take years.”
The company’s initial public offering through the SPAC merger added about $300 million in cash to its balance sheet, which equates to about $2 per share.
Under the terms of the IPO deal, Trump and other major shareholders cannot sell their shares for six months.
As a result, former presidents can only avoid the six-month “lock-up” period if they obtain a waiver from the board.
Ritter said that even if such a waiver were granted, the company’s stock price would likely fall, especially if President Trump were to try to release a large portion of his holdings all at once.
This means President Trump will likely not be able to take advantage of his newfound wealth as he faces increasing legal liability in various legal battles.
On Monday, President Trump announced he would post $175 million in bail in connection with his civil fraud case after the New York State Court of Appeals agreed to suspend collection of the original $454 million judgment. Announced.
He has 10 days to pay.
