April 17, 2024

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“Definitely the latest meme stock.”

“Definitely the latest meme stock.”

The Donald Trump-linked media company behind Truth Social sparked feverish trading in its first public appearance on Tuesday — but it bears all the hallmarks of a notorious “meme stock” given the actual state of its business, financial experts told The Post.

Truth Media & Technology Group rose nearly 60%, to nearly $80 a share, shortly after the opening bell, but late-day selling sent the stock down to $57.99 at the close, finishing up 16%. .

This volatility led to immediate comparisons to the infamous “Reddit spike,” where retail investors bought shares in distressed companies like GameStop and AMC to put pressure on short sellers.

Truth Social trades on the Nasdaq under the symbol “DJT.” Getty Images

“It's certainly the latest meme stock, but it's different from three years ago, when AMC and GameStop soared and then crashed,” said Jay Ritter, a finance professor at the University of Florida and an expert on IPOs.

“Here, I don't think buyers are trying to punish short sellers,” Ritter continued. I think the buyers are mainly Trump supporters trying to show loyalty. It's ideologically motivated – although you could also argue that punishing short sellers was ideologically motivated in this regard.

At its session high of $79.38 per share, TMTG's market cap exceeded $10 billion on a undiluted basis, an astronomical valuation for a company that reported an operating loss of $10.6 million for the first nine months of 2023 on revenue of just $3.4 million. . The value fell to approximately $8 billion after the sell-off.

The company also acknowledged that it “expects to incur operating losses for the foreseeable future” as it builds its business, which it recently filed with the Securities and Exchange Commission.

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“It's not tied to the fundamentals. It's a public relations maneuver,” said David Kaufman, an IPO expert and partner at Thomson Coburn.

“Typically, companies trade on fundamentals. I think most companies will eventually return to trading on fundamentals.”

Truth Social has struggled to build a user base since its launch. Filo Niko – Stock.adobe.com

“There are likely a number of people who view this as a way to support Trump,” Kaufman added.

The stock's debut on the Nasdaq under the symbol “DJT” proved to be a timely windfall for Trump, who owns nearly 79 million shares of the company.

Trump's fortune was estimated at $6.5 billion even before the opening bell on Tuesday, according to the Bloomberg Billionaires Index.

However, Truth Social had an estimated base of just 494,000 monthly active users for its mobile app in February, according to data compiled by analytics firm Sameweb.

The figure represents a 51% decrease compared to the same month a year ago.

Donald Trump has posted $175 million bail in a civil fraud case, allowing him to begin his appeal in the case. Stephen Hirsch for the New York Post

It's also a small fraction of the US mobile users of more established social media apps like Facebook (142.4 million users), X (75 million users) and even Meta-owned Threads (7.2 million).

“We built this company to protect the votes and freedom of the American people,” a Truth Social spokesperson told The Post after the market closed.

“Having gone public, Truth Social remains committed to preserving and vigorously defending a digital space for free expression.”

The company has not shown “clear growth” yet and has had “difficulty acquiring additional paying subscribers, paying existing paying subscribers, and attracting advertisers,” Ritter said.

“Given the fact that the operating business has not demonstrated any ability to make money, I have a hard time thinking of a scenario where the stock is worth more than $2 per share,” Ritter said.

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Shares of Truth Social's parent company rose more than 40% in its public trading debut. Reuters

“The only question is when the price will go from $70 to $2. It could take weeks, it could take months, it could take years.”

The company's public exposure via the SPAC merger added about $300 million in cash to its balance sheet, which translates to about $2 per share.

Under the terms of the public deal, Trump and other major shareholders will not be able to sell shares in the company for six months.

As a result, the former president will not be able to exceed the six-month “hold” period unless he obtains a waiver from the company’s board of directors.

Even if such a waiver were granted, it would likely drag down the company's stock price — especially if Trump tried to unload a large portion of his holdings at once, according to Ritter.

The company's public exposure via the SPAC merger added about $300 million in cash to its balance sheet, which translates to about $2 per share.

This means Trump will likely not be able to cash in on his newfound wealth, as he faces a growing legal mark in various court battles.

Trump said Monday he will post a $175 million bond in connection with a civil fraud case after a New York state appeals court agreed to defer collection of the original $454 million judgment.

He has 10 days to pay the amount.