Trump Media & Technology Group Corp.’s shares, the latest social media enterprise of ex-US President Donald Trump, soared by up to 58% in their initial appearance on the public market. This significant increase was a result of the most renowned special purpose acquisition company (SPAC) agreement in recent times, boosting Trump’s wealth by billions, if only on paper for now.
The boom occurred after the company finalised a merger with Digital World Acquisition Corp., sending the shares of Trump’s company to a high point of $78.80 each during Tuesday’s session. The outcome of this deal granting public status to the unprofitable company behind Truth Social has led to an astonishing surge in a meme stock. This could potentially present a significant financial windfall for Trump, who is currently tackling a succession of legal and financial challenges.
If shares maintain near this level, the value of Trump’s shares could eventually exceed $6.2 billion. However, due to a six-month lock-in agreement, he is currently unable to sell, limiting his potential to liquidate the stock to alleviate his current cash flow problems. Furthermore, some of this ostensible wealth relies on the shares meeting performance goals.
The merger’s aftermath on Nasdaq under the alias DJT will gauge Trump’s ability to draw individual traders and momentum investors, who see it as an opportunity to wager on his re-election campaign. Despite this, the venture has struggled to turn a profit so far, reporting a loss of $49 million in the nine months up to September whilst only generating a modest $3.4 million in revenue.
Based on filings with the US Securities and Exchange Commission, the trading places the company’s value on the Nasdaq at roughly $10.5 billion. Trump could potentially earn an additional $2.2 billion in shares, provided the stock meets performance goals, as per Bloomberg’s compiled data.
Trump’s near 60% stake in the company stands as an emblem of the probable Republican nominee’s capacity to draw individual traders and momentum investors wagering on his re-election bid. However, after a series of impediments on the path to a listing, including scrutiny from the Justice Department and the US Securities and Exchange Commission, the loss-making company might struggle to convince long-term focused investors.
At some point, according to Julian Klymochko, the CEO of Accelerate Financial Technologies, the company’s underlying business basics will play a crucial role. He claimed that the stock can defy the law of gravity only for a limited time and labelled DJT as the ultimate meme stock.
As the deal involving Trump Media sparks political controversy, individual investors are rallying behind the firm, which purports to challenge major tech entities such as Meta Platforms, Netflix, and Musk’s X, despite the protracted and complex journey to complete the merger raising doubts amongst the majority of Wall Street analysts.
The SPAC’s value surged by 185% within this year until Monday’s end, reflecting Trump’s meteoric political rise as he aggressively pushed his way to the Republican presidential nomination.
However, Trump and other significant stakeholders from Trump Media are unable to liquidate any shares for an estimated half-year time window, unless the administration decides to accelerate the process.
Before finalising the deal, Trump Media had expressed concerns of insolvency without the SPAC fusion. Having sidestepped this possibility, the forthcoming hurdle will be to evade the destiny of multiple infamous meme stocks- a term popularised during the peak of the pandemic to denote firms that trade seemingly unconnected with objective reality.
The sale of shares by Trump or other insiders before the six-month lock-in period concludes could precipitate a market sell-off due to an influx of sellers.
Jay Ritter, a financial professor at the University of Florida, stated, “The number of shares in circulation or the public float, as opposed to the intrinsic value of a share, significantly affects the price of meme stocks.” Post the lock-in-period, a sell-off by Trump or other key stakeholders could potentially cause an immediate drop in share value given that the shares active for trading could comprise just a meagre fraction of the total outstanding shares.
Ritter commented, “Short-term results can be unpredictable. However, the investment strategy of purchasing overpriced stocks to offload at a further inflated price is often called the ‘greater fool theory’ of investing.” – Bloomberg