The Donald Trump-affiliated media company that runs Truth Social has become the most expensive US stock for investors after soaring on its public trading debut. Financial experts have warned that the stock is a highly volatile “meme stock” like AMC or GameStop.
Truth Media & Technology Group, listed on the Nasdaq under its former president’s initials DJT, soared 16% to $66.77 a share in early trading Wednesday.
This comes after the company’s stock price rose 16% the previous day after a volatile trading period in which its stock price soared up to 60% after going public through a SPAC merger.
Despite Truth Social’s loss-making track record and meager earnings, the stock’s early success has made it an attractive bet for short sellers, who can borrow shares and sell them back at lower prices when stocks decline. , they make a profit by picking up the difference.
“We have a very high degree of confidence (Trump pun intended) that stocks will fall significantly in the near term,” said Ihor Dusaniowski, managing director of predictive analytics at data analytics firm S3 Partners. said.
As of Tuesday, Truth Social’s parent company was the “most shorted SPAC in the U.S.,” with $168.6 million in short interest and 3.37 million shares shorted, according to S3.
The company says short sellers currently face annual financing costs of more than 150% to borrow the necessary shares.
“Short sellers paid more than 250 times the average borrowing rate for short sales in the U.S., and about 400 times the short interest, and yet they remained in the trade. [a stock like Apple]”Dusaniwski added.
The strong performance of the company’s stock on its first day of public trading shows that “long-time shareholders have a significantly different and more positive view of DJT\DWAC’s stock price,” he added. Ta.
At one point in the trade, Truth Social’s short sellers suffered approximately $61 million in mark-to-market losses.
Trump, who faces a wave of legal costs, including a looming $175 million bail payment in a civil fraud case, is now worth more than $7 billion as a result of soaring stock prices, according to the Bloomberg Billionaires Index. It is said that there is.
Experts told the Post that despite the initial short squeeze, Truth Media stock has become “decoupled from fundamentals” and is likely to decline over the long term.
The struggling social media company reported an operating loss of $10.6 million for the first nine months of 2023, on revenue of just $3.4 million. In a recent SEC filing, Truth Social executives said the company “expects to incur operating losses for the foreseeable future.”
Truth Social’s mobile app had an estimated monthly active user count of just 494,000 in February, down 51% from the same month last year, according to data compiled by analytics firm Similarweb.
“This is definitely the latest meme stock,” said Jay Ritter, a University of Florida finance professor and IPO expert, predicting it’s only a matter of time before the stock drops to just $2. did.
The company’s soaring stock price could tempt more short sellers.
“At these high stock prices, which are at new year-to-date highs, we’ll probably see new short sellers jump into this trade in hopes of getting the stock back below $30 in the near term,” Dusaniwski said. Stated. . “Short sellers who are squeezed out of this trade will be replaced by new short sellers who will be seen as an attractive new entry point for short sellers.”
