To The Moon

Trump Merges MAGA and Wall Street With 'Super-charged Meme Stock'

For a business with little revenue and a relatively small audience, Donald Trump's social-media company is proving to be one of the biggest things on Wall Street on its first day of trading.

Despite the underlying fundamentals, shares of $Trump Media & Technology (DJT.US)$ , operator of the former president's Truth Social media platform, shot up over 50% to more than $77 a share at some points on Tuesday, its first day as a public company following its merger with the SPAC Digital World Acquisition Corp. The stock gave up some of those gains in the last hour of trading, but still ended up 16% higher on the day and closed at $57.99.

The stock has risen by more than 230% since the beginning of the year in anticipation of the deal and Trump's quick success at locking up the Republican nomination for president. That has given the company a market capitalization of $7.85 billion and nearly tripled Trump's net worth - on paper, at least.

But the stock's price so far has reflected little of the company's actual fundamental operating performance. Truth Social has only posted $5 million in sales since its inception in 2021, while recording tens of millions of dollars in losses. The site has about 5 million members, which is tiny compared to X.com's more than 500 million monthly users.

"This is a super-charged meme stock," said Jay Ritter, a professor of finance at the University of Florida and an expert in IPOs. "Its market price is entirely divorced from fundamentals, but unlike what we saw with meme stocks like $GameStop(GME)$   or $AMC Entertainment(AMC)$  , the motivations of its investors seem to be different."

Ritter said he believes the stock is being partially driven by people betting on Trump's political fortunes more than the company itself, although there are likely plenty of investors trying to take advantage of the stock's rapid gains.

"Some people are playing short-term momentum strategies and are banking on the 'greater fool' model, in that they hope to unload the stock at a higher price to a greater fool than themselves," he said.

Regardless of where the price goes, the frenzy helped put some wind in Trump's sails following a period of great financial uncertainty. As recently as this weekend, Trump had faced the possibility of financial ruin with a deadline to post a $454 million bond to appeal a civil ruling by a New York state judge that he lied to lenders and insurers about the value of his assets to get better rates.

Trump had said that he had been unable to come up with the bond, and faced the very real possibility of having his bank accounts frozen by New York Attorney General Letitia James and needing to fight to retain control over his real-estate assets. The former president was given a reprieve on Monday, when the New York State Appellate Court agreed to lower the bond amount to $175 million and give Trump an extra 10 days to secure the money.

The sudden infusion of cash from the Truth Social merger does not initially look to be a panacea for Trump, as he will be unable to touch the shares or even borrow against them during the six-month lock-up period dictated by the merger agreement, according to SEC filings. But some have speculated that the company's new board - which is stacked by Trump loyalists and family members - could issue him a waiver.

The timing of the stock launch and Trump's presidential campaign has raised some questions about whether unscrupulous investors could possibly take advantage of the situation to pump money into Trump's coffers in a way that could completely sidestep campaign-finance restrictions.

Richard Briffault, a law professor at Columbia University who focuses on campaign finance and government ethics issues, said while there is nothing against the law in enriching Trump by investing in the Truth Social stock - considering that he is not currently in office - it does create the possibility for "indirect influence."

"If he is in a position to make a great deal of money from someone who may benefit from his eventual policy positions should he win - like say his stance on TikTok - it raises questions and could eventually become a matter that deserves scrutiny," Briffault said. "But as it stands, it appears to be more of a political question than a legal one."

As for the stock price, Ritter said there were many issues as to why it could eventually fall, even if it remains elevated due to Trump's continuing political position as presidential candidate.

"For one, Trump and the other principals stand to gain up to 40 million more shares if the price remains above $17.50 for 20 of the first 30 days of trading, which would be highly dilutive," Ritter said. "And if he moves to sell any shares before the lock-up period expires, that will surely impact the share price considerably."

The stock could also eventually be weighed down by ongoing lawsuits brought by some of the company's shareholders, he added.

"And if there is a waiver granted, it would certainly trigger lawsuits, and this stock has already been a gravy train for lawyers," Ritter said.

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