Trump Media shares plummet

Truth Social’s owner, Trump Media & Technology Group, has experienced a significant decline in market value.

Since May 30, when former President Donald Trump was convicted on 34 felony counts in a hush money trial, the conservative social media company has seen its market value drop by about half. Trump Media’s share price (DJT) fell another 5% on Friday, resulting in a 50% decrease over just three weeks.

This dramatic selloff has wiped nearly $3 billion from the net worth of Trump, who is the company’s main shareholder and chairman.

The decline intensified recently after Trump Media announced regulatory approval for a move that could dilute shareholder holdings.

Despite the sharp drop in share price, experts warn that Trump Media could still face further declines.

“The stock is still wildly overpriced,” said Jay Ritter, a finance professor at the University of Florida with four decades of experience studying capital markets.

The issue is that even after the selloff, Trump Media is valued in the billions but generates minimal revenue.

In the first quarter, Trump Media reported revenue of just $770,500, marking the second consecutive quarter of less than $1 million in revenue. Truth Social remains a small player in social media, overshadowed by platforms like Elon Musk’s X (formerly Twitter), Reddit, and Instagram’s Threads.

“This is a development-stage company with a multi-billion-dollar valuation,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.

Experts have likened Trump Media to meme stocks such as GameStop and AMC, which trade based on momentum and hype rather than fundamentals.

“When a company’s stock drops significantly, you typically see value investors take interest, but that’s not the case with meme stocks,” said Kennedy.

Trump Media’s struggles in June worsened when the company announced that the Securities and Exchange Commission had approved its registration statement. This regulatory approval allows early investors to exercise warrants to buy more shares.

The move could raise nearly $250 million for Trump Media, which the company can use to expand its ad platform or acquire smaller firms.

“Today marks another milestone for Truth Social,” said Trump Media CEO Devin Nunes. “With our S-1 declared effective, we’re well positioned to energetically pursue TV streaming, platform enhancements, and potential mergers and acquisitions.”

However, the exercise of the warrants is expected to dilute existing shareholders’ holdings by significantly increasing the number of shares. Trump Media can issue an additional 21.5 million shares.

“The price of these meme stocks is determined by supply and demand – something that is true for any stock but more so when a stock is trading far above its fundamental value,” said Ritter.

Trump, who holds 114.75 million shares or nearly 65% of the company, saw his stake increase in late April when a bonus, known as earnout shares, was triggered by the company’s share price staying above certain levels.

Trump’s stake, which cannot be sold in the near term, is now valued at about $3.1 billion, down from $6 billion as of May 30.