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Trump Media Whipsawed by Volatility in Post-SPAC Deal Debut

Trump Media Whipsawed by Volatility in Post-SPAC Deal Debut
The Truth Social website.

Former president Donald Trump’s social media startup whipsawed in its first session as a publicly traded company, after the most high-profile blank-check deal in years added billions to his fortune — at least on paper.

Shares of Trump Media & Technology Group Corp. jumped nearly 59% on Tuesday and briefly triggered a volatility-related trading halt before paring gains. The merger with Digital World Acquisition Corp. to take the unprofitable company behind Truth Social public caps an eye-popping meme stock run, and provides a potential windfall for Trump as he faces a mounting series of legal and financial woes.

The shares were trading at $71.24 each at 10:38 a.m. in New York, 43% above the SPAC’s close on Monday, according to data compiled by Bloomberg. More than 9 million shares were traded in the first fifteen minutes of the session, exceeding 24-times the volume seen for the SPAC in the same period over the past month.

Should they stay near that level, Trump’s shares may ultimately be worth more than $5.5 billion. He can’t sell the stake immediately due to a six-month lock-up agreement, hindering his ability to monetize the stock and ease his present cash crunch. A portion of that paper wealth is also dependent on shares meeting performance requirements.

Read More: Trump Wealth Hits Record $6.5 Billion on SPAC, Slashed Bond

Trump Media Jumps Up to 59% in Early Trading | Meme stock surges after going public via SPAC deal

The company’s post-merger performance on the Nasdaq under the symbol DJT will test Trump’s ability to capture the attention of individual traders and momentum investors who use it as a way to bet on his push for re-election. Its operations have so far struggled to generate a profit, losing $49 million in the nine months through September while delivering just $3.4 million in revenue.

The trading values the Nasdaq-listed company at roughly $9.5 billion, based on its filings with the US Securities and Exchange Commission. Trump could earn another $2 billion worth of shares if the stock meets performance targets, according to data compiled by Bloomberg.

Trump’s ownership of nearly 60% of the company has made the listing a symbol of the presumptive Republican nominee’s ability to capture the attention of individual traders and momentum investors who use it as a way to bet on his push for re-election.

Read More: Most Popular DWAC Option Eyes a 95% Plunge Over Next Month

After two years of snags on the way to a listing, however, including investigations from the Justice Department and the US Securities and Exchange Commission, the money-losing company may have difficulty convincing some investors focused on the long term.

“The underlying business fundamentals will matter at some point. The stock can defy gravity for only so long,” said Julian Klymochko, chief executive officer of Accelerate Financial Technologies. “DJT is the mother of all meme stocks.”

Legal Troubles

The potential funds come at a critical time for Trump. He’s paying millions of dollars a month to fund his ongoing legal troubles. Trump is set for the first of his criminal trials on April 15, a judge ruled.

Separately, Trump was ordered by a different judge last month to pay $454 million after a civil ruling that he had fraudulently inflated his wealth for years. While a New York appeals court agreed on Monday to slash the amount the former president would have to put up as a bond while he contests the verdict, he is still required to post $175 million within 10 days.

Read More on Trump’s Legal Woes
Trump Vows to Pay Fraud Trial Bond Cut by 68% to $175 Million
Trump’s First Criminal Trial Set to Start April 15 in NY
Keeping Up With Trump and His Trials: A Timeline of Court Dates

As the Trump Media deal became a political lightning rod, retail investors embraced the company and its stated mission fighting against big tech companies like Meta Platforms Inc., Netflix Inc., and Elon Musk’s X, even as the merger’s winding multi-year path to completion triggered a wave of skepticism from most of Wall Street.

The SPAC soared 185% this year through Monday’s close in anticipation of the merger, mirroring Trump’s electoral fortunes as he bulldozed his way toward the Republican presidential nomination.

But Trump and other Trump Media insiders with stakes can’t sell any shares for roughly six months, unless management moves to expedite the process.

The seven-person Trump Media board of directors, the group that would potentially give the green light to the former president to sell shares before September, is made up of a range of ex-members of his administration. Among them are former US Trade Representative Robert Lighthizer, former head of the Small Business Administration Linda McMahon and former Trump defense official Kash Patel.

Devin Nunes, a former California Representative who left Congress to become CEO of Trump Media, Trump’s son Donald Trump Jr. and Digital World’s CEO Eric Swider are among the other board members. The company trades under the symbol DJT.

Meme Stock

In the lead-up to the deal’s completion, Trump Media had warned it could go bankrupt without the SPAC merger. Having avoided that fate, the next challenge will be avoiding the fate doled out to many so-called meme stocks — a name coined during the height of the pandemic for companies whose trading appears detached from reality.

If Trump and other insiders sell share before the six-month lock-up period that could trigger a selloff as the market would likely be inundated by sellers.

Read More: SPACs With Small Floats Use Meme-Stock Playbook for Crazy Swings

“A problem for meme stocks is that the supply of shares that are tradeable, known as the public float, rather than the fundamental value of a share, is an important determinant of the price,” said Jay Ritter, a finance professor at the University of Florida. With the shares available for trading potentially accounting for just a small percentage of the total outstanding, a sale by Trump or other insiders after the lock-up ends could spark a rapid decline.

“In the short run, anything can happen,” said Ritter. “But buying an overvalued stock hoping to sell it at any even higher price is known as the greater fool theory of investing.”

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Comments - Please in order to comment.

  • Johan Buys says:

    The orange man has pulled a cunning stunt. About 70m people voted for him in 2020 (versus 81m for Biden). He owns over 70m shares in this. So if he bleeds shares into the market and his followers just each commit just 5 BigMac meals ($70 also about the share price) they can fund his campaign to the tune of 70m x $70 = $5b without going through the motions of campaign finance.

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