Trump Media Stock (DJT) – Significant Risks Are At Hand – Forbes

There are serious risks here. Hope for Truth Social improvements were tempered by the weak second quarter earnings report. With no earnings report from management, shareholders received no information about future plans or expectations for how things will improve.

The key question is, “Why are there no forward-looking presentations?”

Perhaps the answer lies in ownership figures. Donald Trump owns more than 50% of Trump Media’s stock, making him the “controlling” shareholder with preferred rights. As a result, other minority shareholders face the risk of exclusion. This is explained in the “Risk Factors” list on page 46 of the April 15 prospectus on page 39.

• “President Donald J. Trump controls a majority of TMTG’s voting stock and therefore has significant influence over its key decisions.”
• “As the controlling stockholder, President Donald J. Trump has the right to vote the shares in his own interest, which may not necessarily be in the interest of TMTG’s stockholders as a whole.”

Thus, while Trump Media’s board of directors has a duty to consider all shareholders, it is legally permitted to focus on Donald Trump’s wishes because he alone represents the majority of shareholders.

Not surprisingly, CEO Devin Nunes also takes Trump’s wishes seriously.

So what are the significant risks?

First, there is a risk of a massive sell-off in September when the lock-up period expires.

With the exception of Donald Trump’s large holding, all other locked-up shares are held by minority shareholders. Many of these shareholders did not choose to invest in DJT; instead, they received the shares as payment for services, repayment of cash loans, or as a low-cost or no-cost position from the creation and merger activities of the Digital World acquisition. Thus, unless there is a strong investment reason to hold the shares when they become available for sale, liquidation is likely, especially if the share price remains depressed.

The second is the risk of premature insider selling.

Donald Trump has a large amount of locked-down stock, but the board could grant him an exemption and allow him to sell early. Why would he want to sell? Because he has enough shares that he could sell while still owning a majority stake. So if he sells now, he could capture the current price and raise cash before the others are expected to sell in September.

If he chooses to do so, when would such a sale be made public? The SEC requires insiders to report purchases and sales monthly, and reporting must be done by the 10th of the following month. So, for example, if he gets an exemption this month, i.e., in August, the sale would be made public within the first 10 days of September.

Note: If such a report is released, it will be released ahead of the expected expiration of the lock-up period later that month, so there is still time for non-locked-out shareholders to sell their shares before the lock-up period expires.

The third risk is the decline in brand value.

Trump Media’s stock price remains high primarily due to the Donald Trump brand. The usual fundamentals (sales, earnings, book value, growth) are well below where DJT is currently at. Without the Donald Trump brand, the fundamentals would dictate a lower single digit valuation.

So why is the brand likely to fade? There are two main issues. First, Trump Media’s stock price has fallen 70% less than six months since the March 25 merger, suggesting that things aren’t going well for the company. Second, Donald Trump is away from the company as he runs for president, raising questions about when or if he’ll return.

Fourth, stock prices are in a risky position.

This chart shows just how volatile this stock is. It’s already wedged in the gap between $25 and $17.50. While this drop may not be horrible, a 30% loss is substantial. More importantly, this drop will send the stock back down to its January lows, evaporating all of the excitement around the merger. At that point, many fans will be faced with the possibility that DJT will continue to fall and reach its lowest fundamental levels.

Conclusion – Without fundamental support, any stock is at risk of crashing.

The Trump brand has been a big draw for Trump Media investors, but non-fundamental support could fade if current investors continue to suffer losses and potential investors shy away.