New York

For the first time in almost thirty years, part of Donald Trump’s business empire has become public. Trading started with a bang, but the frenzy subsided significantly by the closing bell, with shares ending well below their highs for the day.

Trump Media & Technology Group, the owner of troubled social media platform Truth Social, began its long-delayed journey as a publicly traded company at Tuesday’s opening bell under the ticker symbol “DJT.”

The stock rose about 56% to $78 at the open, and trading was briefly halted due to volatility. Shares of Trump Media stabilized around $70 before plummeting. At the closing bell, Trump Media closed at $57.99, up a modest 16% on the day.

Despite the drop at the end of the day, Wall Street still awards Trump Media an eye-popping valuation of nearly $11 billion — a price tag that experts warn is disconnected from reality.

Shares of Digital World Acquisition Corp., the shell company that became Trump Media Tuesday morning, are up more than 200% so far this year. That includes a 35% increase Monday after the deal closed. Shares rose again in early trading Tuesday — the first chance for investors to trade the shares post-merger under the new DJT ticker.

The skyrocketing stock price comes despite Trump Media gobbling up money; accumulating losses; and its flagship product, Truth Social, is losing users.

“This is a very unusual situation. The stocks are pretty much disconnected from fundamentals,” says Jay Ritter, a professor of finance at the University of Florida’s Warrington College of Business, who has studied initial public offerings (IPOs) for more than four decades.

Ritter said the closest parallel would be GameStop, AMC and other so-called meme stocks that skyrocketed during Covid-19 as an army of retail traders poured in. He said Trump Media is probably worth somewhere around $2 per share — nowhere near its closing price. price of $58.

“The underlying business doesn’t seem to be worth much. There is no evidence that this is going to be a large, highly profitable company,” he said. “I’m reasonably confident that the stock price will eventually drop to $2 per share, and could go even below that if the company blows through the money it got from the merger.”

The eye-popping valuation is a huge windfall for Trump, who owns a dominant stake of 79 million shares.

At Tuesday’s opening price of nearly $78, that stake is worth nearly $6 billion, though lockup restrictions are likely to prevent Trump from selling or even borrowing against those shares anytime soon. The value of Trump’s stake ended at $4.6 billion at the closing bell.

Trump Media generated just $3.4 million in revenue in the first nine months of last year, according to the filings. The company lost $49 million during that period.

And yet the market values ​​Trump Media at about $11 billion.

For context, Reddit was only valued at $6.4 billion at its IPO last week — even though it generated 160 times more revenue than Trump Media. (Reddit generated $804 million in revenue in 2023, compared to Trump Media’s annual revenue of about $5 million.)

“At this level, the company appears disconnected from the underlying business results,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital. “Ultimately, valuations tend to fall back on fundamentals. This means that this stock is certainly at risk of being razed to the ground again.”

Michael Ohlrogge, an associate professor of law at NYU School of Law, told CNN that there is “no way to square the current stock price with anything that could be called a rational valuation for this company.”

Truth Social faces real challenges and continues to be overshadowed by its rivals.

Truth Social had just 494,000 monthly active US users on iOS and Android combined as of February, according to comparable web statistics provided to CNN. That’s a small fraction of the 75 million on X (formerly known as Twitter) and 142 million on Facebook.

Even Threads had more than ten times as many monthly active users as Truth Social did in February, according to SimilarWeb.

Not only that, but Truth Social is shrinking. The number of monthly active users fell by 51% year-on-year in February, according to Similarweb statistics. The number of unique visitors to Truth Social’s website was 648,000, a decrease of 20% year over year.

Kennedy described Trump Media as a “meme SPAC,” referring to both its astronomical valuation and the fact that it was formed through a merger with a special purpose acquisition company, or SPAC.

“Stocks that trade on momentum can fall quickly,” he said.

Jonathan Macey, a Yale law professor, told CNN last week that Digital World’s stock price is “clearly a bubble.”

Of course, history shows that bubbles can always inflate further, and it is very difficult to determine when they will burst.

That means Trump Media’s stock price could keep rising for now — even if those gains aren’t supported by fundamentals. In theory, a rival company or wealthy group could acquire Trump Media even at these price levels, although Ritter said that is highly unlikely.

“We’ve seen with other meme stocks that even if they eventually fall back on reflecting a fundamental value, the process can take quite a long time,” said Ohlrogge, the NYU professor. “There is every reason to believe that this stock can remain at highly inflated prices for much longer, thanks to the enthusiasm that Trump supporters have for it.”

Matthew Tuttle, CEO of Tuttle Capital Management, told CNN that Trump Media is probably not worth anything close to what the market values ​​it at.

“But that doesn’t really matter,” he said.

Tuttle noted that there is a history of SPACs peaking on their first day of trading, and he placed options bets that could make money if the stock soars.

“Because of what this is, and because it’s Trump, you have people expecting this thing to take off (Tuesday),” he said.

But Tuttle advised ordinary investors to be extremely cautious when trading Trump Media, noting that the implied volatility is “insane.”

“Stay away from it,” says Tuttle, who has sold his shares in Digital World but still owns options that would pay out if the stock rises sharply. “Normally I wouldn’t touch this with a 10-foot pole. But I don’t play with a lot of money and I have already earned a lot from this. If I wake up tomorrow and the price is at $1, well.”

In addition to valuation concerns, there are other risks associated with Trump Media.

The future of this company is inextricably linked to that of one person: Trump.

“There is a unique key man risk because Donald Trump is the chairman, top shareholder and the most popular user. He is one man and he is 77 years old,” Kennedy said.

Not only that, but Trump is facing felony charges in multiple concurrent cases.

Trump Media noted that risk in SEC filings, saying: “Donald J. Trump is the subject of numerous legal proceedings, the scope and scope of which are unprecedented for a former President of the United States and the current candidate for that office. An adverse outcome in one or more of the ongoing legal proceedings involving President Trump could negatively impact TMTG and its Truth Social platform.”

Not only does Trump himself face reputational problems, but his companies also have a history of bankruptcies.

The last Trump company to go public, Trump Hotels and Casino Resorts in 1995, used the same DJT ticker symbol. It went bankrupt in 2004 and was delisted from the New York Stock Exchange.

Trump Media even highlighted Trump’s history of bankruptcies as a risk in its SEC filing.

“A number of companies associated with President Trump have filed for bankruptcy. There are no guarantees that TMTG will not also go bankrupt,” the company said.

Another question is what happens if lockdown restrictions on Trump and other key insiders expire in the coming months.

Trump’s legal troubles could give him a reason to sell his important stake, an outcome that would threaten Trump Media’s stock price.

Other insiders, including the SPAC’s sponsor, could also sell.

Like any social media company, Truth Social is facing pressure to grow its user base, expand its advertising business and build a subscription service.

These tasks are complicated by the polarizing political backdrop in which at least part of the country views the Trump movement with skepticism.

Kennedy said taking Trump Media public in many ways amounts to a “multibillion-dollar bet” on a second Trump term, a return to the White House that could be lucrative for his social media network.

“If he wins in November, Truth Social will likely be the president’s primary means of communication,” Kennedy said. “That’s the bet here.”

Ohlrogge, a professor at NYU, agrees that the election could be a real turning point for this company.

“If Trump were to lose the 2024 election, I would imagine the stock price would collapse quite quickly,” he said. “If he were to win, it could possibly stay higher for longer, maybe much longer.”

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