Former President Donald J. Trump’s social media company had an estimated market value of nearly $8 billion on Tuesday, its first day of trading on the Nasdaq Stock Exchange, greater than established corporations equivalent to Mattel, Alaska Airlines and Western Union.
The biggest beneficiary of the market motion has been Mr. Trump, who owns about 60 percent of Trump Media, making him the biggest shareholder. His stake within the company – the parent of Truth Social, the net platform that’s Trump’s predominant megaphone for reaching supporters and attacking critics – is worth about $4.6 billion on paper.
For many investors, investing is as much about supporting Trump personally because it is about supporting his relatively small, money-losing social media company, which describes itself as a platform opposing Big Tech censorship. There was such confusion on Tuesday that trading in Trump Media shares was briefly halted by the stock exchange shortly after it opened on account of extreme volatility. After rising as much as 40 percent, the company’s shares fell on the close, ending the day up 16 percent.
On Monday, Trump Media accomplished its merger with Digital World Acquisition Corporation, a cash-rich public shell company.
“We appreciate President Trump, but this is more about free speech,” said Mark Willis, 63, who lives in Indian Trial, North Carolina, and has been buying shares in a public shell company that has merged with Trump Media since proposing a merger plan in 2021. “We believe this is the only social media platform where the government does not have much influence.”
Scott Lewczak, a graphic designer from Nokesville, Virginia, and one other longtime shareholder, said he’ll cash in on Trump Media’s big price increase, but that is not the purpose. He said his investment is meant to support Truth Social and Trump.
“Even if I lose every penny, I will fight until the end,” said Lewczak.
The investors who flocked to shares of Digital World, and now Trump Media, were typically individuals, not investment firms and hedge funds.
By most traditional measures, Trump Media’s valuation is incredibly high. In the first nine months of last yr, the company earned just $3.3 million in revenue, all from promoting on Truth Social, and reported a loss of $49 million.
This implies that Trump Media’s market value is nearly 2,000 times its estimated annual revenue. Investors sometimes assign high valuations to small, loss-making corporations within the expectation of rapid growth – or in the idea that other investors will proceed to purchase the company’s stock for whatever reason – but normally not on this scale.
According to FactSet, other social media corporations trade at much lower price-to-sales ratios than Trump Media: Reddit has about 10, Meta has 7 and Snap has 6. Tech stocks equivalent to chipmakers Nvidia and ARM are trading at price to sales ratio of roughly 25.
On a message board on Truth Social, arrange by merger supporters, some investors cheered Trump Media’s IPO.
“If anyone deserves to be a trillionaire, it’s Donald J. Trump,” one poster said. “Never bet on a billionaire with over a hundred million followers who is determined to fix America and keep freedom for all,” said one other.
Chad Nedohin, 40, who has been a vocal supporter of the merger at Truth Social, said in an interview that almost all people buying Trump Media stock usually are not focused on the company’s valuation but on ensuring Truth Social stays profitable.
“You’re looking at people who are investors, not traders,” said Mr. Nedohin, who lives in Canada and works as an engineer and Christian worship leader. “We see long-term holders who are MAGA and who are the backbone of Trump.”
But judging by its trading patterns, Trump Media closely resembles the so-called meme stocks — GameStop, AMC Entertainment and others — which have propelled armies of amateur investors to dizzying heights through the pandemic. Meme stocks are based more on emotions than on fundamentals.
“It’s hard to say what it will look like, but it certainly has the DNA of a meme stock, so we could see extreme volatility,” said Kristi Marvin, a former investment banker and editor of SPACInsider, which compiles market data for special purpose acquisition corporations.
Trump Media’s prospects have been met with skepticism on popular investment forums on the social media platform Reddit. “Do people really have the guts to buy these stocks?” – asked one of the posters.
Many of the listed shareholders, with most of the filings dating back to late 2023, are retail investment advisors who help facilitate trading on behalf of individual clients, and folks contacted by The New York Times they mainly didn’t want to precise their position on this matter. Just the Trump media.
“Our typical advice to our clients is that it is best to have a diversified portfolio,” said Kevin Grogan, chief investment officer at Buckingham Wealth Partners.
Digital World was established as a special purpose acquisition company. The sole purpose of a SPAC is to boost money from investors after which merge with an operating company, which then becomes a publicly traded entity.
Large investors who bought shares of Digital World or Trump Media wouldn’t be required to publicly disclose their holdings until mid-May. Some large investors have shorted or bet on Trump Media stock, betting that the company cannot proceed to trade at such a high price.
According to S3 Partners, a financial data firm, Trump Media is currently probably the most troubled company to merge with a SPAC within the United States.
The merger of Trump Media and Digital World was accomplished this week as Mr. Trump’s deadline to secure bond to cover a hefty positive imposed by a judge in a civil fraud case had passed. But in a break for Trump, an appeals court reduced the quantity he needed to pay from $454 million to $175 million and gave him more time to boost the cash.
The appeals court’s motion appeared to ease the pressure on Trump to attempt to capitalize on his newfound Trump Media fortune. To do that, the company’s latest seven-member board would need to remove a restriction that prevented him from selling shares or using the shares as collateral for six months.
The board could still vote to loosen that restriction if that is what Trump wants. He has enormous power over the company: In addition to owning about 60 percent of Trump Media stock, he also owns a separate class of stock that provides him at the very least 55 percent of the voting power on any resolutions recommend for a shareholder vote. And the company’s seven-member board is crammed with loyalists, including his oldest son, Donald Trump Jr.
But now that Trump now not faces an urgent need to boost quite a bit of money, he could also be content to depart the six-month restriction on stock sales in place. From Trump’s perspective, Trump Media’s rising stock price gives him bragging rights through the campaign. One of his political calling cards has been to discuss his success as a businessman and his enormous wealth – something he has found easier for the reason that merger.
The greater challenge for Trump Media management is developing a technique to grow the company’s business and expand Truth Social’s reach to justify the company’s valuation. Truth Social is a relative minnow within the social media world, relying heavily on Trump’s posts to draw traffic.
By merging with Digital World, Trump Media received a much-needed money infusion of roughly $300 million, which Digital World raised from investors. Without this injection, Trump Media and Truth Social were considering a possible shutdown.
As a public company, Trump Media will probably be required to file periodic financial reports with the Securities and Exchange Commission and disclose intimately any agreements it might enter into with Trump.
“In a public company, investors and regulators are now scrutinizing,” said Usha Rodrigues, a professor of corporate law on the University of Georgia School of Law. “Any shareholder now has standing to bring a lawsuit if they claim that one of the company’s statements is misleading.”
