Former President Donald J. Trump's social media company soared on its first day of trading on the Nasdaq on Tuesday, giving the company an estimated market value of nearly $8 billion, putting it ahead of established companies such as Mattel Inc., Alaska Airlines and Western Union. big.
The biggest beneficiary of the market action is Trump, who owns about 60% of Trump Media stock and is its largest shareholder. His stake in the company, which is the parent company of Truth Social, the online platform that is Mr. Trump's main megaphone for appealing to supporters and attacking his critics, is worth about $4.6 billion on paper.
For many investors, the investment is both a sign of support for Trump personally and his relatively small, loss-making social media company, which bills itself as a platform to counter Big Tech censorship. It is also an expression of support. Tuesday's frenzy was so great that trading in Trump Media stock was suspended by the exchange shortly after it opened due to extreme volatility. Shares soared as much as 40% before falling toward the close, ending the day 16% higher.
Trump Media on Monday completed its merger with Digital World Acquisition Corporation, a well-funded public shell company.
Mark Willis, 63, of Indian Trail, North Carolina, who has been buying stock in public shell companies that have merged with Trump Media since the merger plan was proposed, said, “I don't want President Trump. I certainly appreciate it, but it's more about freedom of speech.” “We believe this is the only social media platform that is largely free from government influence.”
Scott Luzak, a Nokesville, Va., graphic designer and another longtime shareholder, said he doesn't care that Trump Media is trying to cash in on the huge jump in its stock price. He said his own investments were to support Truth Social and Mr. Trump.
“Even if I lose every penny, I'm going to fight to the end,” Leuchak said.
The investors flocking to Digital World, and now Trump Media, stocks are often individuals rather than investment companies or hedge funds.
By traditional measures, Trump media scores are unusually high. The company generated just $3.3 million in revenue from ads on Truth Social in the first nine months of last year, posting a $49 million loss.
This means Trump Media's market value is nearly 2,000 times its estimated annual revenue. Investors may assign high valuations to small loss-making companies, expecting rapid growth or believing that other investors will continue to buy up the company's stock for some reason. Usually not on this scale.
Other social media companies have much lower price-to-sales ratios than Trump Media, with Reddit at about 10, Meta at 7 and Snap at 6, according to FactSet. High-flying tech stocks such as semiconductor makers Nvidia and ARM have price-to-sales ratios of about 25 times.
On the Truth Social bulletin board set up by merger supporters, some investors cheered Trump Media's stock market debut.
“If anyone deserves to be a billionaire, it's Donald J. Trump,” said one poster. “Never bet on a billionaire with over 100 million supporters who is determined to rebuild America and protect freedom for all,” said another.
Chad Nedohin, 40, who has been a vocal supporter of the merger at Truth Social, said in an interview that most people who buy Trump Media stock are not focused on the company's valuation, but rather on the survival of Truth Social. He said his focus is on ensuring that
“You're looking at people who are investors, not traders,” said Nedohin, who lives in Canada and works as an engineer and Christian worship leader. “We're looking at long-term MAGA holders, and they're Trump's base of support.”
Still, judging by its trading patterns, Trump Media looks a lot like the so-called meme stocks (GameStop, AMC Entertainment, etc.) that were pushed to dizzying heights by an army of amateur investors during the pandemic. Meme stocks tend to trade based on emotion rather than fundamentals.
“It's hard to say how this will trade, but it definitely has the DNA of a meme stock, so we could see some extreme volatility,” said the former investment banker who collects market data. SPACInsider Editor Christy Marvin says: Special purpose acquisition company.
A popular investment message board on the social media platform Reddit expressed skepticism about Trump Media's prospects. “Are people really brave enough to buy this stock?” asked one poster.
Many of the publicly traded holders of the stock, with most filings dating back to the end of 2023, are individual investment advisers who help facilitate trades on behalf of individual clients, and those contacted by The New York Times are generally , a personal investment advisor that helps facilitate transactions on behalf of individual clients. Trump Media himself.
“Our typical advice to clients is that it's best to have a diversified portfolio,” said Kevin Grogan, chief investment officer at Buckingham Wealth Partners.
Digital World was formed as a special acquisition purpose company. The sole purpose of a SPAC is to raise money from investors, merge with an operating business, and make that entity a publicly traded company.
Large investors who bought Digital World stocks and Trump Media stocks will not have to disclose their holdings until mid-May. Some large investors have shorted Trump Media shares or bet on the stock, believing the company cannot continue trading at such high prices.
Trump Media is currently the most underfunded company in the U.S. to merge with a SPAC, according to financial data firm S3 Partners.
The merger of Trump Media and Digital World was completed this week as Mr. Trump faces a deadline to secure bail to cover the hefty fines imposed by a judge in his civil fraud case. But in a reprieve for Trump, the appeals court reduced the amount he needed to post from $454 million to $175 million, giving him more time to raise money.
The appeals court's action appears to have eased pressure on Trump as he seeks to capitalize on his newly acquired Trump media wealth. To do so, the company's new seven-member board of directors would have to lift a six-month ban on selling shares or using them as collateral.
The board could still vote to ease those restrictions if Mr. Trump wishes. He has enormous influence over the company, owning about 60 percent of Trump Media's stock and at least 55 percent of voting rights on proposals submitted to shareholder votes. Owning another type of stock that gives. And the company's seven-person board of directors is full of supporters, including his eldest son, Donald Trump Jr.
But Trump may be content to maintain a six-month limit on stock sales because he no longer faces an urgent need to raise large amounts of cash. From Mr. Trump's perspective, Trump Media's soaring stock price gives him bragging rights on the campaign trail. One of his political calling cards was to talk about his success as a businessman and his vast wealth, and since the merger it has become easier for him to do so.
The bigger challenge for Trump Media's board is developing a strategy to expand the company's business and extend Truth Social's reach to justify the company's valuation. Truth Social is a relatively minor player in the social media world, relying heavily on Trump's posts for traffic.
In merging with Digital World, Trump Media raised much-needed funding from the roughly $300 million in cash that Digital World raised from investors. Without this infusion, Trump Media and Truth Social were potentially considering shutting down.
Additionally, as a publicly traded company, Trump Media will be required to file regular financial reports with the Securities and Exchange Commission and detail any transactions it may enter into with Mr. Trump.
“When you're a publicly traded company, you're subject to scrutiny from investors and regulators,” said Usha Rodriguez, a professor of corporate law at the University of Georgia School of Law. “Shareholders now have standing to sue if they claim any of the company's statements are misleading.”
