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Former President Donald Trump clearly benefited financially from his media startup Trump Media & Technology Group, which trades under his initials “DJT.” The company soared in value when it went public on March 26, with its stock up more than 40% that day. Trump’s stock holdings could be worth more than $4 billion.
DJT is essentially a meme stock, the kind of viral sensation that garners investor interest beyond what the company’s fundamentals would normally suggest. That clearly stems from Trump’s notoriety and the fervent belief some of his supporters have in his “Make America Great Again” movement.
Trump Inc. went public through a merger with special purpose company Digital World Acquisition Corporation (DWAC), which has been trading since 2021, but has generated little revenue, with $41 million in revenue over the past two years, according to S&P Capital IQ. suffered a loss. Many of the buyers driving up stock prices are individual investors who have expressed loyalty to Mr. Trump himself.
But many investors expect Trump’s business to fail. “We have great confidence (Trump pun intended) that stock prices will decline significantly in the short term,” Ihor Dusaniowski, managing director at S3 Partners, said in an email.
Short interest in DJT stock (bets that the price will fall rather than rise) is about 11% of outstanding shares, according to S3. This is expensive, but not unheard of. The average short interest for public companies ranges from 3% to 4%, but if a trader thinks the stock is doomed, the short interest he has can reach 40% or more.
However, there are very few DJT stocks available for short-term trading, making it very expensive to bet on the stock. In other words, rising short interest is a strong indicator of negative views about a company’s prospects. “There is very little inventory available to support new short sales,” Dusaniwski said. “But short sellers remain in the trade, paying more than 200 times the average borrowing rate for short sales in the US.”
But there is plenty of anecdotal evidence that other buyers are betting on the bubble and hoping to sell before it bursts. “After the merger, the stock price has fallen to $2.50,” one investor posted on Reddit’s meme stock channel WallStreetBets. Others have suggested that anyone who holds stocks long-term is a “MAGA bag holder” who is essentially putting money in President Trump’s pockets.
Short sellers who bet on DJT have lost money so far this year as the stock rose on hopes of the merger being completed and Trump’s return to the public markets. But there are several reasons to think Trump will struggle and shareholders will suffer.
First, Trump Inc.’s flagship social networking app, Truth, is a loss-making niche player with no clear advantage over competitors like X and Facebook other than Trump’s own polarizing appeal. is.
Another risk is Trump’s own financial stake in the company, which bears the same ticker symbol as Trump’s casino company, which went bankrupt in 2004. Mr. Trump owns at least 55% of the company, and his shares have soared by more than $1 billion as the stock price has risen. It became a hot topic when it was released. But President Trump has a strong incentive to sell the stock to pay for legal costs associated with four ongoing criminal cases and two civil cases that have resulted in more than $500 million in fines and fees. there is a possibility.
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Under the terms of the merger, President Trump must wait six months before selling any shares in the public company. However, it is still possible to sell the stock by October. The company’s board could waive this rule, which seems plausible given that the board is made up of Trump’s cronies as well as his son Donald Jr. .
If President Trump sells stock in his company, or if investors even think he is likely to sell stock, there will be downward pressure on stock prices, as typically happens when insiders sell. It turns out. If President Trump releases a large amount of stock to rush his fundraising, his stock price could plummet.
Stock prices have already fluctuated on news related to Trump’s personal finances. On March 25, a New York court reduced the amount President Trump must pay to appeal his civil conviction for corporate fraud from $464 million to $175 million. His stock price rose nearly 20% on the news, which suggested President Trump was unlikely to sell his company’s stock to raise funds. In the case of publicly traded stocks, this is unusually sensitive to personal economic characteristics, and could easily go in the opposite direction if President Trump reverses.
The third risk is that Trump, the likely 2024 Republican presidential nominee, will lose to incumbent President Joe Biden in November. A second loss to Mr. Biden would leave the 77-year-old Mr. Trump with little political future, other than some kind of honorary position in the Republican Party. Instead of being a “place” for Trump supporters to have conversations, Truth Social will become a remnant of the Trump movement. What Trump’s company does excel at is its unique way of monetizing his political beliefs about the outcome of the 2024 presidential election.
Rick Newman is a senior columnist in the United States. Yahoo Finance. Follow him on Twitter @rickjnewman.
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