Investors in Trump Media & Technology Group, the owner of Truth Social, experienced a significant drop in the company’s stock value on Monday. The stock fell 21% after it was revealed that the company had nearly run out of cash last year and may not have survived without a recent influx of capital from a merger with a shell company that allowed it to go public. Despite this decline, the stock is still up about 200% over the past six months, giving the company a $6.6 billion valuation that many find illogical. Former President Trump, who owns 54% of the company, saw a significant boost in his personal wealth, although he lost about $1 billion in Monday’s selloff alone.
Wall Street often supports money-losing startups as long as there is a clear path to profitability, but Trump Media has only generated $4.1 million in revenue last year, making its stock trade at about 1,500 times its annual revenue. This level of disconnect between the stock price and the underlying business operations is unprecedented, even among the most speculative AI stocks. Analysts believe that owning Trump Media stock is essentially a donation to Donald Trump at this point, as the equity value does not seem to have any relation to the company’s actual business.
The surge in Trump Media stock is reminiscent of classic meme stock behavior, driven by online enthusiasm rather than traditional fundamentals. The frenzy surrounding the stock is difficult to predict, as these internet-fueled trading trends are relatively new and unpredictable. The surge in GameStop stock in January 2021, driven by amateur day traders on Reddit, serves as a cautionary tale for investors in Trump Media. Despite crashing after surging past $100, GameStop’s stock eventually rebounded over a period of three years, fueled by a David-vs-Goliath narrative among its supporters.
While Monday’s stock slump is not necessarily the end for Trump and his social media company, the future remains uncertain and likely filled with volatility. Just as Wile E. Coyote in the Road Runner cartoon falls off the cliff but dusts himself off and continues the chase, Trump Media may face ongoing challenges but could potentially bounce back in the long run. The next several days, weeks, and even years are expected to be a roller coaster for both investors and the company, as they navigate the unpredictable landscape of meme stock trading and online enthusiasm.
