The stock price of former President Donald Trump's social network, Truth Social, soared more than 50% minutes after it began trading on the stock market this Tuesday morning, under the symbol DJT.
Trump Media & Technology Group Corp. was acquired on Monday by a special purpose acquisition company called Digital World Acquisition Corp. Trump Media, which runs the Truth Social social network, takes Digital World's place on the company's Nasdaq index. NYSE.
Trump Media shares debuted at nearly $50 and the company has a market value of $6.8 billion.
Many of Digital World's investors were small, non-professional or institutional investors trying to support Trump or ride the crest of the wave, and thanks to them the share price more than doubled this year, anticipating the fusion.
They bet their money on
a company that has not yet made a profit
.
Trump Media lost $49 million in the first nine months of last year, when it raised just $3.4 million and had to pay $37.7 million in interest.
In a recent regulatory filing, the company said the high bankruptcy rate of new social media platforms and the expectation that it will lose money on its operations “for the foreseeable future” constitute risks to investors.
Trump launched Truth Social in February 2022, a year after he was banned from Facebook and X following the January 6, 2021 insurrection at the Capitol.
He has since been allowed access to both again, but he has kept his social network.
The merger of Trump Media with the company Digital World Acquisition Corp. allowed it to go public, and added almost $4 billion in paper profits to Donald Trump's net worth.
Trump Media's market valuation could be $6 billion after Tuesday's stock market opening bell, even though the company reported less than $3.5 million in revenue for the first three quarters of 2023.
In this photo illustration, the Truth Social logo is seen on a smartphone screen in Chania, Greece, on August 27, 2023. Nikolas Kokovlis / NurPhoto via AP Image
However, this is
wealth on paper
, and several things would have to happen for Trump to cash in on that stake and address some of his financial problems, including mounting legal bills in his criminal cases and a hefty bail resulting from it. of a civil fraud case in New York.
On Monday, an appeals court reduced that bail to $175 million, much lower than the original $464 million.
“(The rise in share price) is a very unusual situation.
(The price) of the stock is quite far from fundamentals,” Jay Ritter, a finance professor at the University of Florida's Warrington College of Business who specializes in initial public offerings (IPOs) on the stock market, told CNN.
Ritter assured that the case that is most similar is that of GameStop, AMC and other stocks that skyrocketed during the pandemic.
For the analyst, Trump Media is actually worth around $2 per share, a far cry from its implied price of $50.
“There is no evidence that it is going to become a large and very profitable company,” he added.
“I'm reasonably confident that
the stock price will eventually fall to $2
per share, and could even fall below, if the company spends the money it made from the merger.”
These are some of the big questions surrounding the debut of Trump's social network on the stock market, and what it means for the former president:
How did Trump's company become public?
Shareholders Digital World Acquisition Corp. (DWAC) agreed on Friday to merge with Trump Media.
The new company is listed on the Nasdaq under the symbol DJT.
When was the last time a Trump company went public?
Trump's hotel and casino company, which encompassed his Atlantic City gaming and entertainment venues, went public in 1995, also under the symbol DJT.
The company ended up declaring bankruptcy in 2004.
Is Trump Media having an initial public offering (IPO)?
No.
DWAC was founded in 2021 as a special purpose acquisition company, or SPAC.
This type of company raises money before deciding on a company to acquire, which is why they are also commonly known as a “blank check company.”
DWAC hit the public markets, raised a ton of money, and then announced plans to acquire (or merge with) Trump Media and Technology Group, the formerly private firm that owns its social media platform, Truth Social.
[A court eases the $454 million bail against Trump for tax fraud: reduces it to $175 million and gives more time to pay it]
That announcement came in 2021, but was delayed by legal holds and investigations, including allegations of fraud and insider trading by the Securities and Exchange Commission (SEC).
In the case of the SEC, an agreement was reached last year in which the company was fined $18 million, but which paved the way for the merger.
How much can Trump earn?
It's hard to know.
Trump would own nearly 80 million shares in Trump Media, or about 58% of the company.
DWAC stock, which fell on Friday but rose again on Monday, has more than doubled this year but is still far from its 2022 highs. Its volatility sparked criticism that it is a “meme stock” driven by a following. of fans, rather than business or market fundamentals.
Can Trump sell his shares instantly?
No.
Under the merger agreement, he cannot sell his shares for six months, part of a standard “lock-up” procedure in many merger agreements.
But there is a great variation.
The new board of directors of the merged company
could authorize Trump to sell his shares before that deadline.
And the council will include his son Donald Trump Jr, as well as Linda McMahon and Robert Lighthizer, who were members of his Administration.
If Trump obtains permission and, in turn, sells shares, the company – and himself – could be exposed to legal challenges from shareholders who are left empty-handed in the event of a sale.
Although most shareholders are likely to be Trump supporters, it would be enough for a few disgruntled shareholders to file a lawsuit and claim that Trump did not act in the shareholders' interest by selling his stake.
Can Trump put his shares as collateral for a loan?
There could be some financiers willing to take Trump's shares as collateral for a massive loan that he could use to later cover the money he needs to deposit to appeal the decision in his civil fraud case in New York.
On Monday, a New York appeals court reduced the bail amount and said the former president has 10 days to surrender it.
However, there can also be legal problems in obtaining a massive loan by leaving any DJT stock as collateral.
With information from
NBC News
,
CNBC
and
CNN