Investors in Trump Media & Technology Group, the owner of Truth Social, experienced a significant drop in their shares on Monday, as the company revealed that it nearly ran out of cash last year and only survived due to an influx of capital from a recent merger. Despite the drop, the stock is still up 200% in the past six months, leading to a $6.6 billion valuation that is difficult to justify. The former president, who holds a majority stake in the company, saw a boost in his personal wealth, although he lost about $1 billion in Monday’s selloff alone.
On Wall Street, it is not uncommon for money-losing startups to receive support as long as there is a clear path to profitability. However, Trump Media’s revenue was only $4.1 million last year, leading to the stock trading at around 1,500 times its annual revenue, which is unprecedented. This disconnect between the stock’s value and the company’s business has led some to view owning Trump Media as essentially donating to Donald Trump, according to Axios’ Dan Primack. The situation resembles classic meme stock behavior, with investors driven by fervor similar to religious devotion or online activism.
The unpredictable nature of meme stock trading makes it difficult to foresee the outcome for Trump Media. The concept of meme stocks gained attention in January 2021 when amateur day traders on Reddit drove GameStop’s shares up dramatically. Similar to GameStop, Trump Media’s stock may face a rollercoaster ride in the coming days, weeks, and months. GameStop’s stock crashed after surging past $100, but the Reddit community’s dedication to the stock and the narrative behind it led to a resurgence over the following years.
Despite Monday’s setback, Trump and his social media company are far from being counted out. The analogy is drawn to the Road Runner cartoon where Wile E. Coyote falls off a cliff but dusts himself off and resumes his chase. The future for Trump Media remains uncertain, and investors should be prepared for a volatile ride ahead. The intertwining of financial markets with internet-fueled trading phenomena like meme stocks adds a layer of unpredictability to the situation. The coming days, weeks, and possibly years will likely be filled with ups and downs for Trump Media and its investors.