Trump Media & Technology Group (DJT) has recently gone public, marking the first risk associated with the company. With no support, fundamental or technical, for the stock price, investors are left vulnerable. The $10 floor that was initially in place is now gone, leaving the company’s performance to determine its fate.
Furthermore, the company’s moderate business operations and growth, along with negative earnings, add to the risk for stock investors. Despite the merger with Digital World Acquisition, there are no significant business benefits to boost Trump Media’s sales, earnings, and growth outlook. The cash injection from the merger has not historically proven beneficial for most SPAC deals when a company’s results and outlook are less than stellar.
Investors were lured in with the promise of a big earnout bonus, but there are several problems with this plan. The bonus hinges on the stock price holding above certain levels for a specific period, resulting in dilution of shares for all shareholders, including Donald Trump who stands to benefit the most. Trump’s majority ownership of over 50% of the company stock and the controlled company status further diminish protections and assurances for investors typically found in publicly held companies.
Another risk factor is the “founder shares” structure that allows founders to acquire the SPAC stock at a bargain price before the public offering, resulting in a drop in per share values once the deal is completed. The founder shares represent 20% of the outstanding shares, leading to a decrease in per share book value from $10 to $8 post-merger. This structure has contributed to significant drops in share prices for many SPACs after completing a deal.
It is important for investors not to let the personality of a company CEO, such as Donald Trump, overshadow the risks associated with investing in the company. While considering the CEO’s traits can be part of the investment decision-making process, it should not override sound investing methodology. Investing is challenging enough without adding unnecessary risks, so it is crucial to assess the potential risks and rewards objectively.
In conclusion, the Trump Media & Technology Group’s recent public listing presents a variety of risks for investors to consider. From the lack of support for the stock price to the dilution of shares through earnout bonuses and founder shares, there are multiple factors that could impact the company’s performance and investor returns. By acknowledging these risks and conducting thorough due diligence, investors can make informed decisions and minimize potential losses in their investment portfolios.
