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What a stormy debut for Trump Media & Technology yesterday on the American Nasdaq stock market.
The social media company’s shares literally took off as investors piled into the stock, surging 50 percent at one point before closing 15 percent higher on the day. Shares continued to rise in early trading today, up more than 10 percent.
Most people probably expected nothing less from a company in which presidential candidate Donald Trump has a heavy hand.
His personal stake is estimated at around $4.5 billion (£3.6 billion, a few million euros) – a pretty hefty financial reward considering the lawsuits coming his way from all sides as he tries to win a second term.
Financial website Bloomberg said the company’s flotation meant Trump was now among the 500 richest individuals in the world.
Donald Trump’s social media companies soared on the first day of trading in New York yesterday
TM&T’s stock market debut was as exciting for investors as anything we’ve seen in recent times, taking us back to the lockdown days of 2020 and 2021, when an army of sit-at-home investors frantically bid for US electronics retail stocks. company Gamestop.
TM&T stock was even given the market ticker DJT (Trump’s initials), though I’m not sure the good man’s ego needed any more attention.
The same investor community that drove Gamestop’s stock price to a high of nearly $87 in early 2021 — the WallStreetBets forum, run by the social media network Reddit — was heavily behind the hype of TM&T’s stock.
As Dan Coatsworth, an analyst at investment platform AJ Bell, noted when TM&T shares soared, “the meme stock craze is back in full force.” Meme is a code for a company’s stock price not being in line with the prospects of the underlying company.
The launch of the company was a rather complicated affair, merging Trump’s social media operations with a special purpose acquisition vehicle (Spac) called Digital World Acquisition.
Still, the most important question for investors is whether TM&T’s stock price is sustainable and whether the stock is worth holding. It is difficult to find support among investment experts in Britain (albeit a cautious audience) for TM&T being a long-term strategy.
Chris Justham, investment guru at 7IM (Seven Investment Management), says that when you look under the hood of TM&T, the financials don’t justify such a high share price.
The beating heart of TM&T is Truth Social, a Twitter-like service. In the first nine months of last year, it generated revenue of just $3.3 million, racking up losses of nearly $50 million along the way.
Mr Justham added: ‘In an election year it feels as if share price activity is driven by a fervent desire to show support for DJT, rather than by a rational assessment of the company’s prospects.
“If we separate this enthusiasm from the financials and look at Truth Social’s value per user – approximately five million active participants per month – we’d say it is materially more valuable than other, more established and profitable social media platforms. . I’m not sure that’s the case.’
Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, agrees. She says TM&T’s market cap of $8 billion is comparable to the $10.3 billion market value of recently listed Reddit. Yet Reddit has 73 million active users – almost 15 times more.
The other bright spot on the horizon is that Trump may sell his stake at some point
“It is difficult to predict where TM&T’s growth will come from to justify its market value,” she says. “The company will have to do a lot of work to compete with the more established social media platforms that continue to draw attention to the screen due to the network effect of already having a large number of users.”
The other dot on the horizon is that Trump could sell his stake at some point, even though he is currently not allowed to do so for six months. If he does, the stock will likely plummet (due to the fundamental laws of supply and demand).
The last word goes to Jason Hollands, director of fund company Bestinvest. He says: “The valuation looks pretty insane, and I would be very wary of investing in something that has gone up that much at opening.”
He adds, “I suspect much of the initial surge will be due to Donald Trump’s loyal MAGA supporters and Truth Social account holders who support the stock for political rather than sound financial reasons. This must be seen in the context of a highly charged election campaign and with the courts going after their hero’s finances.
“That doesn’t necessarily mean the medium to longer term prospects for TM&T are great in the increasingly crowded social media space.”
Buyer beware.