Donald Trump may be sitting on a nearly $5 billion windfall from the market debut of his social-media company, Trump Media & Technology Group. The question now: whether an army of MAGA traders can keep propping up the stock, defying forces that could cause it to crash.
Shares of Donald Trump’s social media company have surged since their market debut on March 22.
For now, the MAGA traders are winning the day. Trump Media stock is up about 65% since March 22, the day it started trading after a merger with a “blank check” shell company, Digital World Acquisition. Since the start of the year, Digital World’s stock, now trading under the symbol DJT, is up almost 250%.
Trump’s windfall—at least on paper—arises from the fact that he owns 58% of TMTG and controls roughly 79 million shares, worth $4.8 billion, based on recent prices near $62. Trump is also chairman of TMTG and has filled the board with friends, political associates, and his son Donald Trump Jr.
Near term, it seems futile to try to separate the company from the man at the top. Trump Media’s success is tied to the former president’s popularity, as its prospectus notes. Shares of Digital World traded up nearly 30% after Trump won the Iowa caucus. The dynamic appears to be ample fuel for the stock, which has rocketed to a $9.4 billion market value, according to FactSet.
“You can’t question the fervor of the former president’s political supporters, many of whom have viewed DJT as a call option on the MAGA movement,” said Steve Sosnick, chief strategist at Interactive Brokers. “This is a way to put their money where their mouth is and have an opportunity to profit.”
Investors in “red states” appear to be leading the charge. Public, an online brokerage with more than three million users, says demand for the stock has surged from customers in Idaho, Wyoming, South Dakota, Oklahoma, and Florida, where Trump and other Republicans tend to do well. There hasn’t been nearly as much buying from customers in more liberal states like New York and California, according to public.
“It’s very clear that the interest in DJT looks similar to the election maps during the past few cycles,” said Sam Nofzinger, general manager of brokerage for Public. “It seems to be concentrated in states leaning politically to the right.”
At $9.4 billion, TMTG would appear to be worth more than the New York Times Co. Based on things like revenue and profits, it’s tough to justify that valuation.
TMTG reported revenue of $3.4 million in the first nine months of 2023, the most current numbers available. During that span, it posted a net loss of nearly $50 million.
Compared with social-media companies like Meta Platforms or Snap, that revenue is a rounding error. Twitter, now called X, reported $2.4 billion in the first six months of 2022 before Elon Musk took it private in October of that year.
TMTG’s fans argue that it’s an early-stage social-media company that shouldn’t be judged on recent revenue. But the stock’s valuation implies heroic growth.
Even if you assume that TMTG revenue ended the year at $6.8 million—double its first nine months—the stock would be valued at a price-to-sales ratio of more than 1,200. Meta, by comparison, trades at nine times 2023 sales, while Snap goes for four times trailing revenue.
“It’s the perfect meme stock. It’s not a long-term buy and hold,” says Matthew Tuttle, CEO of Tuttle Capital Management.
A spokeswoman for TMTG declined to comment on the company’s plans. TMTG’s CEO Devin Nunes, a former congressman, said in a press release that “having transformed into a public company, Truth Social remains committed to maintaining and vehemently defending a digital space for free expression.”
How that will translate into revenue isn’t clear, as the company hasn’t released figures on its user base, advertising revenue, or growth forecasts.
Perhaps the biggest near-term risk is a flood of stock hitting the market and depressing prices. Trump and other insiders are in a six-month lockup period. But they could seek board approval for a waiver. Trump may also need to cash out to fund his legal bills and liabilities, including judgments against him totaling $547 million.
SCOTT OLSON/GETTY IMAGES
Very little of the stock actually trades. Just 28% of the shares outstanding are on the market. The public float may be diluted from a secondary stock issuance, moreover, and the company has filed for a convertible offering, saying it will issue convertible notes worth $65 million, which may be converted to common stock at an exercise price of $11.50 a share.
Shorting the stock looks tempting, but that is also risky. Short sellers borrow stock and sell it, aiming to buy it back at a lower price. Annualized borrowing costs are now steep, however, averaging 150%. And with nearly 12% of shares held short, the stock is vulnerable to a squeeze, whereby a stock can pop as short traders are forced to liquidate shares.
According to research firm S3 Partners, DWAC/DJT shorts have lost $158 million so far this year, including $93 million in March.
Tuttle says it looks far too risky as a short. “I would not bet against Trump,” he said, adding that Digital World was never in his firm’s SPAC and New Issue ETF because he thought it was “way too risky.”
Trump enthusiasts may keep buying TMTG, of course, as a bet on the former president. “This is a way to play the election in the stock market,” says Nofziger. “This stock is going to be very active through November.”
The stock has showed some signs of cracking, falling 6.4% on Thursday.
Some advisors aren’t buying it. “We’re not going to chase it,” said Tom Hulick, CEO of Strategy Asset Managers, a private advisory firm with more than $700 million in assets under management. TMTG is purely a momentum play, he adds, and “doesn’t meet the characteristics of a high quality” stock.
