The stock market debut of the social network Truth Social promises US presidential candidate Donald Trump a lot of money. But the risk of “Trump shares” crashing is great.
Donald Trump can be happy. In the coming months, the former US president could be paid out hundreds of millions following the successful stock market launch of his social network Truth Social. On Tuesday, the shares of the company behind Truth Social, the Trump Media & Technology Group (TMTG), began trading on the US technology exchange Nasdaq in New York.
The shares bear the abbreviation DJT for Donald John Trump. They got off to a brilliant start. At times they shot up 60 percent and went out of trading with an increase of 16 percent and a price of $57.99. It was wild. The price fluctuations were at times so great that trading had to be suspended for minutes.
On Wednesday, shares continued to build on the previous day’s gains. Donald Trump owns 58 percent of TMTG, giving his stake a theoretical value of over $5 billion. The company went public via a special Spac transaction. For this purpose, TMTG merged on Monday with an existing, listed shell company called Digital World Acquisition Company (DWAC).
Trump shares have a “meme” character
Trump shares do not follow the procedures of a classic IPO. The valuation and business model of TMTG played no role for the investors. The company has never made a profit and mostly burned cash in the first nine months of last year. Sales were a modest $3.4 million. Nevertheless, TMTG currently has a market value of almost $9 billion.
Truth Social is also not established as an “alternative social network”. According to data from Similarweb, Truth Social has 5 million monthly users. For comparison: On Tiktok there are more than 2 billion, on Facebook more than 3. Trump would also have a more widespread impact via X (formerly Twitter). The former president has almost 7 million followers on Truth Social and 87 million on X. Trump was banned from Twitter (X), Facebook and Instagram following the storming of the US Capitol.
But it’s not about financial figures or the marketing of the social network. TMTG is primarily a vehicle for Trump fans to personally support the Republican presidential candidate – while also making speculative profits on the stock market. In the run-up to the stock market launch, Trump supporters had organized themselves via social networks to boost the share price of the shell company DWAC.
The shares temporarily gained over 300 percent and were a popular topic on the Reddit forum “Wall Street Bets,” where meme stocks such as Gamestop, AMC and Blackberry are otherwise hyped up. Such speculative stocks attract more speculators. According to market analysts, trading in options also reached record highs on Tuesday. Financial instruments such as call options allow speculators to bet on the stock price continuing to rise. The most traded options are said to have a target price between $80 and $90.
Shares temporarily blocked
It remains to be seen whether the stock can continue its rise, especially since only small investors typically get involved in meme stocks. Their investment behavior is erratic and unpredictable compared to large, institutional investors. The volatility of the shares is likely to remain high, as the price mainly reflects speculation and sympathy for Trump and has no fundamental basis – similar to many cryptocurrencies. For investors, the risk of crashing with TMTG shares is therefore considerable.
In any case, it will not be easy for Trump, as the largest shareholder, to sell larger blocks of shares and make money. Because any signal that he is selling or intends to sell would have a negative impact on the share price, put pressure on capitalization and also endanger Truth Social’s future plans. Without Trump, “Trump shares” are worth nothing.
Trump urgently needs the money. On the one hand, to finance his election campaign, which could be the most expensive in US history. On the other hand, because of the legal problems he has to contend with. Earlier this week, a New York court ruled that Trump would have to pay $175 million to delay a $464 million fine for fraud. Trump has claimed that he is currently financially unable to post the full amount of such bail.
Not much is likely to change in the short term. Trump’s shares are blocked for six months under a “lock-up” clause that is common in IPOs before he can sell shares. Bypassing the lock is possible. The seven-member board of directors would have to grant special permission for this. Nevertheless, people usually wait at least a month before allowing a large investor to sell so as not to trigger a flood of further sales.
Although TMTG’s board of directors is filled with loyal Trump people – including his son and three former members of his administration – they are likely to be cautious about granting special permission. The company is already being hit with new lawsuits from investors involved in the Spac transaction. They are dissatisfied with the founder shares allocated to them and could therefore earn less money from the current price fireworks.