Former President Donald Trump's social media company, Trump Media & Technology Group (TMTG), made its long-awaited debut on the Nasdaq exchange Tuesday, with shares surging more than 50% in the first minutes of trading under the ticker symbol "DJT." The quick move triggered a five-minute trading halt, a mechanism used by exchanges to put a check on volatile stock moves.
The stock's performance is being closely watched, as its fortunes could have a significant impact on Trump's strained finances. With the share price increase, the former president's net worth, at least on paper, has risen to over $6 billion, according to Bloomberg. This development comes as Trump faces a $175 million bond requirement in his New York civil fraud trial, reduced from $464 million on Monday.
Despite the strong start, experts warn that TMTG's valuation, which currently stands at around $14 billion, is untethered to reality. Jay Ritter, a finance professor at the University of Florida's Warrington College of Business, said, "This is a very unusual situation. The stock is pretty much divorced from fundamentals." He added that the closest parallel would be the meme stock phenomenon seen with GameStop and AMC during the Covid-19 pandemic.
TMTG's main product, the social media platform Truth Social, has been struggling with declining user numbers. According to Similarweb stats provided to CNN, Truth Social had just 494,000 monthly active US users on iOS and Android combined in February, a 51% year-over-year decrease. In comparison, X (formerly Twitter) had 75 million monthly active users, and Facebook had 142 million.
Matthew Kennedy, senior IPO strategist at Renaissance Capital, described TMTG as a "meme-SPAC," alluding to both its astronomical valuation and the fact it was formed through a merger with a special purpose acquisition company (SPAC). "At these levels, it appears untethered to its underlying business results," he said. "Eventually, valuations tend to fall back on fundamentals. That means this stock is definitely at risk of plummeting back down to earth."
Through the first nine months of last year, TMTG lost more than $49 million while generating revenue of nearly $3.4 million. In contrast, X, the company formerly known as Twitter, did about $2.5 billion in revenue last year.
Experts also highlight the unique risks associated with investing in TMTG, given its heavy reliance on Trump himself. "There is a unique key man risk because Donald Trump is the chairman, top shareholder, and the most popular user. He is one man, and he's 77 years old," said Kennedy.
Moreover, Trump's history of bankruptcies and ongoing legal troubles pose additional risks. TMTG even acknowledged these factors in its SEC filings, stating, "A number of companies that were associated with President Trump have filed for bankruptcy. There can be no assurances that TMTG will not also become bankrupt."
Despite these concerns, some investors see potential in TMTG, particularly if Trump secures a second term in the White House. "If he wins in November, Truth Social will probably be the primary means of presidential communication," said Kennedy. "That's the bet here."
However, Michael Ohlrogge, an associate professor of law at the NYU School of Law, cautioned, "If Trump were to lose the 2024 election, I'd imagine the stock price would crater quite quickly. If he were to win, it could conceivably stay higher for longer, maybe much longer."
