Public trading of Reddit and Trump Media marks the entry of two notable social media companies in the stock market in the last five years. However, both companies have become the latest targets of meme stock frenzy due to their unclear profit outlooks and the excitement among investors. Reddit’s IPO was highly anticipated and saw a 48% increase on the first day, followed by another 30% rise the following day. On the other hand, Trump Media stole the spotlight by jumping as much as 59% on its first day before closing with a gain of 16%, and further increasing by 14% on the following day. Former President Donald Trump holds a majority stake in Trump Media, potentially bringing him significant profits.
The surge in Reddit and Trump Media is being compared to the meme stock craze of 2021, which boosted companies like GameStop and AMC Entertainment. Both Reddit and Trump Media have financials that raise questions about their long-term profitability, yet small investors have continued to invest in them. Trump Media reported a loss of $49 million in the first nine months of the previous year, with low revenue and high interest expenses. The company predicts continued losses in the foreseeable future. Despite these challenges, both companies have captured the attention and investment of small investors.
While Reddit and Trump Media can be seen as newer technology companies, the meme stock frenzy has also affected older companies like GameStop and AMC. GameStop struggled to adapt to the digital transformation in the gaming industry, while AMC faced challenges with the rise of streaming services and the impact of the pandemic on movie theaters. Retail investors, including those from the Reddit community Wall Street Bets, supported these companies to defy big institutions. Although GameStop and AMC experienced temporary market value growth, analysts remain skeptical about their long-term sustainability.
Many retail investors supporting Trump Media are either aiming to show support for Trump or looking to benefit from the hype surrounding the company. With the merger of Digital World Acquisition and Trump Media, the stock market value more than doubled. The frenzy around these meme stocks has drawn comparisons to the GameStop and AMC saga, which eventually subsided. GameStop’s potential for bankruptcy has been raised by analysts, while Trump Media’s revenue is significantly lower than GameStop’s, raising doubts about its long-term success. Despite the excitement, skepticism remains about the sustainability of these meme stocks in the market.
