Investors in Trump Media & Technology Group, owner of Truth Social, saw their shares fall by 21% after the company nearly ran out of cash last year and needed capital from a merger with a shell company. Despite this drop, the stock is up 200% over the past six months, giving it a $6.6 billion valuation that many find illogical. The former president, who has a 54% stake in the company, saw a significant boost in personal wealth but lost approximately $1 billion in Monday’s selloff alone.
Wall Street typically supports money-losing startups if there is sufficient cash flow and a clear path to profitability. However, Trump Media only generated $4.1 million in revenue last year, leading to the stock trading at about 1,500 times its annual revenue, a significant disconnect. Owning shares in the company is akin to a donation to Donald Trump rather than an investment in a viable business, according to some analysts.
The enthusiasm around Trump Media reflects classic meme stock behavior, with investors driven by factors beyond traditional financial metrics. This makes it challenging to predict how the situation will unfold, especially considering the unpredictable nature of meme stock trading. Comparisons are made to GameStop, which experienced a surge followed by a crash before eventually stabilizing. The future of Trump Media and its stock price remains uncertain, with potential for a roller coaster ride in the coming days, weeks, and months.
The history of meme stock trading, characterized by extreme volatility and rapid fluctuations, adds an additional layer of uncertainty to the situation. The internet-driven trading frenzy seen in meme stocks is a relatively new phenomenon, stemming from the Reddit-fueled GameStop saga in early 2021. Investors in Trump Media may need to brace themselves for a turbulent journey, similar to the ups and downs experienced by other meme stocks in the past.
While Monday’s slump in Trump Media shares may not signal the end for the company or its social media platform, the road ahead is likely to be tumultuous. Just as Wile E. Coyote falls off a cliff in the Road Runner cartoon but always gets back up to continue the chase, Trump Media may face challenges but could ultimately recover. The coming days, weeks, and possibly years are expected to be a roller coaster ride for investors and observers of the company’s stock performance.
