Former President Donald Trump is poised to receive a significant amount of shares in his social media company, Trump Media & Technology Group, as long as the share price remains stable. Trump is set to receive an additional 36 million shares as the owner of Truth Social, which would be valued at about $1.3 billion. Despite Trump Media losing money and Truth Social being relatively small, Trump’s net worth has been volatile since the company went public. The stock has been described as a “meme stock on steroids” due to its extreme volatility.
The merger agreement between Trump Media and pre-merger shareholders, including Trump himself, allows for additional shares to be issued based on specific performance provisions in the agreement. These provisions dictate that a certain dollar volume-weighted average price must be met for Trump to receive the additional shares. The 20th trading day marks the deadline for these conditions to be met, and it appears likely that Trump will receive the earnout shares due to the high share price. Trump is expected to receive 90% of the earnout shares, further increasing his stake in the company.
While Trump’s stake in the company is significant, there are restrictions in place that prevent insiders from selling or borrowing against their stock for months after the merger closed. Experts also caution that Trump Media’s share price may be overvalued based on fundamental metrics, such as its price-to-sales ratio. The average social media stock trades at a much lower ratio compared to Trump Media, leading some experts to believe that the stock is grossly overvalued. Ultimately, the value of Trump’s stake in the company may fluctuate greatly due to the volatility of the stock.
Experts believe that Trump Media’s share price is affected by non-rational factors, such as the behavior of uninformed traders and market sentiments. One example cited is how the stock price dropped after the company announced plans to register new shares, despite this being a standard procedure after going public. The company’s response to concerns about short selling, such as updating their website with tips to prevent shareholders’ stocks from being loaned to short sellers, is seen as unusual in the financial industry. Overall, the stock price of Trump Media is influenced by factors beyond traditional fundamental analysis.
In conclusion, Trump Media & Technology Group’s share price is on track to trigger performance provisions in the merger agreement that would result in Trump receiving a significant number of additional shares. While Trump’s stake in the company is substantial, there are restrictions in place that may limit his ability to cash in on this stock in the near future. Some experts believe that the stock is overvalued based on fundamental metrics, and the price may be influenced by non-rational factors. Despite these challenges, Trump’s financial situation is poised to benefit from the potential increase in share value.
