Trump Media’s anti-short selling campaign has inadvertently played into the hands of short sellers, who have been waiting for the right opportunity to strike again. The recent rise in Trump Media’s stock price from the $20s to around $50 may have given the impression of success for the campaign, but it has also highlighted the importance of both long buyers and short sellers in ensuring proper pricing in the market. Short sellers are not necessarily bad actors; they serve as a check on overoptimism and overvaluations, providing a vital reality check on Wall Street and the capital markets.
Despite claims that the actions taken by Trump Media have chased off short sellers, the reality is that short sellers are likely to return because the stock remains overpriced. In addition to the risk posed by short sellers returning, Trump Media faces a combination of other factors that make another plummet highly likely. These include weak fundamentals, a significant increase in common shares, the registration for resale of a large number of shares, the presence of new shareholders who may not stick around, and the existence of significant shareholdings that were acquired below the IPO price, making the $10 price level a temporary support barrier.
In order to meet the expectations of current shareholders, Trump Media must grow quickly, a challenge given the company’s current situation. The company, led by former Congressman Devin Nunes, is described as a tiny, money-losing, slow-growing social media company that recently went public. The looming question is what will happen if the app’s most important user and biggest investor, Donald Trump, decides to sell his shares. The stock listing provided Truth Social, the social media platform backed by Trump, with over $200 million, potentially saving the company from financial struggles it had previously faced.
In conclusion, while Trump Media’s anti-short selling campaign may have led to a temporary rise in the stock price, the underlying weaknesses in the company’s fundamentals, along with other factors, make further declines likely. The ongoing legal disputes involving important supporters and companies connected to Digital World Acquisition Company, as well as the challenges faced by Truth Social, add additional layers of complexity and risk to the situation. Moving forward, Trump Media will need to focus on sustainable growth and addressing the concerns of both long buyers and short sellers to navigate the complexities of the market successfully.
