The Donald Trump-tied media company behind Truth Social sparked frenzied trading in its public debut Tuesday — but it bears all the hallmarks of infamous “meme stocks” given the actual state of its business, finance experts told The Post
Truth Media & Technology Group surged nearly 60%, to almost $80 a share, shortly after the opening bell, but a late-day selloff pushed the stock down to $57.99 at the close, to finish with a 16% increase.
The volatility drew immediate comparisons to the infamous “Reddit rally,” where retail investors bought stock in struggling firms like GameStop and AMC to squeeze short-sellers
“It definitely is the latest meme stock, but it differs from three years ago, when AMC and GameStop shot up in price and then collapsed,” said Jay Ritter, a University of Florida finance professor and expert on IPOs.
“Here, I don’t think buyers are attempting to punish short sellers,” Ritter continued. “I think the buyers are mainly Trump supporters trying to demonstrate loyalty. It’s ideologically motivated – although you could also say punishing short-sellers was ideologically motivated in that regard.”
At its session high of $79.38 per share, TMTG’s market capitalization crossed $10 billion on an undiluted basis, an astronomical valuation for a company that reported an operating loss of $10.6 million for the first nine months of 2023 on revenue of just $3.4 million. The value fell to roughly $8 billion after the sell-off.
The company also admitted that it “expects to incur operating losses for the foreseeable future” while building out its business, a recent SEC filing.
“It’s untethered from fundamentals. It’s a PR gambit,” said David Kaufman, an IPO expert and partner at Thompson Coburn.
“Typically, companies trade based on fundamentals. I think eventually, most companies revert to trading on fundamentals.”
“There probably are a number of people who view this as a way to support Trump,” Kaufman added.
The stock’s Nasdaq debut under the “DJT” ticker proved a timely windfall for Trump, who owns nearly 79 million shares of the company.
Trump’s fortune was valued at $6.5 billion even before Tuesday’s opening bell, according to the Bloomberg Billionaires Index.
However, Truth Social had an estimated base of just 494,000 monthly active users for its mobile app in February, according to data compiled by analytics firm Similarweb.
The number represented a 51% decline compared to the same month one year ago.
It’s also a fraction of the US mobile users for more well-established social media apps such as Facebook (142.4 million users), X (75 million users) and even Meta-owned Threads (7.2 million).
“We built this company to protect the American people’s voices and their freedom,” a spokesperson for Truth Social told The Post after the market closed.
“Having transformed into a public company, Truth Social remains committed to maintaining and vehemently defending a digital space for free expression.”
Ritter said the company has displayed “no obvious growth” to date and has had “difficulty getting additional paying subscribers, paying existing paying subscribers and attracting advertisers.”
“Given the fact that the operating business hasn’t demonstrated any ability to make money, I’m hard-pressed to think of a scenario where the stock is worth much more than $2 per share,” Ritter said.
“The only question is how soon does it drop from $70 to $2. It might take weeks, it might take months, it might take years.”
The company’s public debut via SPAC merger added some $300 million in cash to its balance sheet, which translates to roughly $2 per share.
Under the terms of the go-public deal, Trump and other major shareholders are unable to sell shares in the company for six months.
As a result, the ex-president will only be able to bypass the six-month “lock-up” period if he obtains a waiver from the company’s board of directors.
Even if such a waiver was granted, it would likely tank the company’s stock price – especially if Trump tried to unload a major chunk of his holdings at once, according to Ritter.
That means Trump won’t likely be able to tap his newfound riches as he faces a mounting legal tab for various courtroom battles.
On Monday, Trump said he would make a $175 million bond payment in connection to his civil fraud case after a New York state appeals court agreed to hold off collection of an original judgment of $454 million.
He has 10 days to make the payment.
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