Shares of Trump Media & Technology, former President Donald J. Trump’s social media company, dropped significantly after the company filed to register the potential sale of tens of millions of additional shares. The company’s stock fell by 18.3 percent, reducing its market value and impacting Mr. Trump’s majority stake. This decline followed an initial surge in the company’s value after its merger with Digital World Acquisition Corp., which lifted its value to about $8 billion but later dropped by around 60 percent.
In the filing, Trump Media registered more than 146 million shares of stock that could be sold, along with 21 million shares converted after the exercise of warrants. Some of these shares were part of an “earnout” bonus given to Mr. Trump based on the company’s stock price. Despite claims that investors were not planning to sell immediately, the notion of a potential flood of new shares hitting the market caused concern among investors and led to a drop in the company’s stock price. Large hedge funds and investors, including Anson Funds, Hudson Bay, and others, had acquired discounted shares or warrants from Digital World before the merger.
While Trump Media will not receive proceeds from shares sold by investors, it could receive cash from the exercise of warrants. The filing does not imply that shareholders listed in the statement were planning to sell shares immediately, and there is a six-month restriction for Mr. Trump and other major shareholders from selling their shares before late September. The registration statement still needs approval from the Securities and Exchange Commission before any stockholders can sell shares.
Some investors had predicted Trump Media’s stock price would decline after the expected share registration, with fund managers like Marshall Wace and Zazove Associates being large holders of Trump Media’s warrants. These warrants had been trading at a lower price than the shares, and the short-selling activity contributed to Trump Media becoming one of the most shorted stocks in the U.S. Trump Media’s shares had already fallen more than 50 percent since their first day of trading after the merger, amid doubts about Truth Social’s revenue-generating potential.
Last year, Trump Media reported a loss of $58 million on revenue of $4.1 million, all of which came from advertising on Truth Social. The warrants have also experienced a significant decline in value in recent weeks, making it easier for short-sellers to bet against Trump Media’s shares. Short-selling involves borrowing shares of a company, selling them into the market, and buying them back later at a lower price to profit from the difference. With the potential influx of new shares into the market, Trump Media is currently one of the more expensive stocks to short due to limited availability for borrowing shares.
