Let’s talk about Donald Trump’s new social media venture, shall we?
Despite being a startup with little revenue and a relatively small audience, it’s making some serious waves on Wall Street.
Trump’s company, the Trump Media & Technology Group, which operates the Truth Social platform, debuted on Tuesday, 26 March 2024, in the stock market.
And boy, did it make an entrance! Shares soared over 50% to hit more than $77 at one point on its first day of trading. That’s quite the skyrocketing start.
Now, let’s not get too carried away – the stock did dip a bit in the final hour of trading but still closed the day by a solid 16% at $57.99 a share. Not too shabby for day one, huh?
And get this: leading up to this big merger with Digital World Acquisition Corp., the stock had already been on a tear, climbing more than 230% since the start of the year.
Why?
Well, partly because of the anticipation surrounding the deal but also because of Trump’s swift maneuvering to secure the Republican Party’s nod for the 2024 presidential nomination.
All this frenzy has boosted the company’s market value to a whopping $7.85 billion, nearly tripling Trump’s net worth.
It’s time to peel back the curtain and look closely at what’s going on with Trump’s social media venture.
Despite all the buzz on Wall Street, the stock’s price doesn’t quite match the company’s actual performance.
Here’s the scoop: Truth Social, since its launch in 2021, has only managed to rake in a mere $5 million in sales.
And to add fuel to the fire, they’ve been swimming in losses, with tens of millions of dollars down the drain. Talk about a tough start, right?
Now, let’s put things into perspective.
Truth Social boasts about 5 million members – not too shabby, you might think. But when you compare that to Twitter’s successor company, X, with over 500 million monthly users, it’s like comparing a drop in the ocean to a tsunami.
According to Jay Ritter, a finance professor at the University of Florida and an IPO expert, this situation smells like a “supercharged meme stock.”
Translation?
The stock’s price has little to do with the company’s actual performance and more with hype and speculation.
But here’s the kicker – unlike the frenzy we saw with meme stocks like GameStop or AMC, the folks jumping on the Truth Social bandwagon seem to have different motivations altogether.
According to Ritter, there’s more to the skyrocketing stock price of Trump’s social media venture than meets the eye. It’s not just about the company itself – it’s about betting on Trump’s political future, too.
Some folks are treating it like a wild ride, hoping to cash in on the hype and the stock’s rapid rise.
Ritter explains it as a mix of short-term momentum strategies and what he calls the “greater fool” model.
In plain English, some investors are banking on selling the stock to someone else at an even higher price, hoping they’ll be the ones left holding the bag.
Now, when it comes to the future of the stock price, Ritter has some thoughts.
He points out that while Trump’s political clout might keep the stock flying high for a while, some storm clouds are on the horizon.
First, there’s the matter of those extra shares hanging over our heads. If the stock price stays above $17.50 for a good chunk of its early days, Trump and his crew could rake in up to 40 million more shares.
This could end up diluting the value of existing shares pretty heavily.
But regardless of all the ups and downs in the stock market, this frenzy has certainly given Trump a boost when he needed it most.
He recently faced the grim possibility of financial disaster, with a looming deadline to pay a massive $454 million bond to appeal a legal ruling in New York. The ruling accused him of lying to lenders and insurers about the value of his assets to snag better deals.
So, here’s the latest twist in the Trump saga: He admitted he couldn’t cough up the massive bond required for an appeal, putting him on the brink of having his bank accounts frozen by New York’s Attorney General, Letitia James.
It seemed like he was about to face a tough battle to keep control of his real estate assets.
But then, when things were looking dire, some good news came his way.
On Monday, a state appellate court cut him some slack, reducing the bond amount to $175 million and giving him ten days to scrounge up the cash. Talk about a last-minute reprieve!
Now, you might think that the windfall from the Truth Social merger would be a lifesaver for Trump.
Well, not so fast.
It turns out that he won’t be able to touch those shares or use them as collateral for a loan for the next six months, thanks to the SEC’s merger agreement rules.
But here’s where it gets interesting: Some folks are whispering about the possibility of the company’s new board – which happens to be packed with Trump’s loyalists and family members – giving him a special pass.
And that could spell trouble for regular shareholders who might not get the same treatment.
So, here’s something to ponder: With the timing of the stock launch and Trump’s potential presidential campaign looming, some eyebrows are being raised.
Could shady investors use this opportunity to pump money into Trump’s pockets in a way that skirts around campaign finance rules?
Richard Briffault, a law professor at Columbia University who’s all about campaign finance and government ethics, weighs in on the matter.
He points out that technically, there’s nothing illegal about investors lining Trump’s pockets with cash through Truth Social stock. After all, he’s not in office right now.
But here’s the catch: It opens the door for what Briffault calls “indirect influence.” In simpler terms, if Trump stands to make a boatload of cash from someone who could benefit from his future policy decisions – like his stance on TikTok – well, that raises some eyebrows. It could end up being a big deal that needs a closer look.
However, at the moment, it seems more like a political puzzle than a legal one.
And here’s another thing to consider: If Trump decides to cash in and sell some of his shares before the lockup period ends, you can bet your bottom dollar that it will send shockwaves through the stock price.
But wait, there’s more. The stock might also take a hit from its ongoing legal battles. Lawsuits from disgruntled shareholders could drag down the stock’s value, adding another layer of uncertainty.
And if a waiver gets granted, that’s just asking for trouble. It’s almost guaranteed to spark a fresh round of lawsuits, turning this stock into a cash cow for lawyers.