There’s a new big stock on Wall Street that some investors are eagerly piling into. Its largest shareholder is former President Donald J. Trump.
The social media company, Trump Media & Technology Group, will begin trading on Nasdaq on Tuesday under the ticker DJT. Trump Media — the parent of Truth Social, the online platform that is Mr. Trump’s primary mouthpiece for reaching out to supporters and hounding critics — closed its merger with a cash-rich public shell company on Monday.
The shell company’s stock rose ahead of the deal, in frenzied trading that has fueled the company since it proposed a merger with Mr. Trump’s company in 2021. Trading on Monday showed that the new company’s stock valuation could surpass $6 billion — making it worth more than established companies like Alaska Airlines, Western Union and American Eagle Outfitters.
The biggest beneficiary of the market action is Mr. Trump, who owns about 60 percent of Trump Media shares. At the close of trading on Monday, his stake was worth nearly $4 billion.
Before the merger, shares of the shell company – Digital World Acquisition Corporation – had long acted as something of a proxy for Mr Trump’s investor sentiment. And that is likely to continue for the merged companies, especially as Mr. Trump remains in the headlines with pending lawsuits and the presidential campaign.
By most traditional measures, Trump Media’s valuation is extremely high. The company took in just $3.3 million in revenue in the first nine months of last year, all from advertising on Truth Social, and posted a loss of $49 million.
That means Trump Media’s market value is more than 1,000 times its estimated annual revenue. Investors routinely assign high valuations to small money-losing companies in anticipation of rapid growth — or the belief that other investors will continue to bid on a company’s stock, for whatever reason — but usually not on this scale.
Other social media companies trade at much lower price-to-sales ratios than Trump Media: Reddit is about 10, Meta is 7 and Snap is 6, according to FactSet. High-tech stocks such as chipmakers Nvidia and ARM trade at price-to-sales ratios of around 25.
Investors who have piled into Digital World’s stock tend to be individuals rather than investment firms and hedge funds.
On Monday alone, shares of Digital World, the last day of trading before the stock ticker changed to DJT, surged 35%. Based on this kind of trading, Trump Media is a lot like the so-called meme stocks — GameStop, AMC Entertainment and others — that were pushed to dizzying heights by armies of amateur investors in frenzied trading during the pandemic.
“It’s hard to say how this will trade, but it certainly has the DNA of a meme stock, so we could see some extreme volatility,” said Kristi Marvin, a former investment banker and editor of SPACInsider, which collects market data on companies special purpose acquisition.
Digital World was organized as a special purpose acquisition company. The sole purpose of a SPAC is to raise money from investors and then merge with an operating business, which then becomes the publicly traded entity. This year, Digital World’s shares had risen more than 140 percent when it became clear that Mr. Trump was going to be the Republican presidential nominee.
The merger between Trump Media and Digital World was completed as Mr Trump faced a deadline on Monday to secure a bond to cover a large sentence handed down by a judge in a civil fraud case. But in a break for Mr. Trump, an appeals court reduced the amount he would need to post, to $175 million from $454 million, and gave him more time to raise the money.
The appeals court’s action appeared to ease pressure on Mr. Trump to try to capitalize on Trump Media’s newfound wealth. To do so would require the company’s new seven-member board to lift a restriction preventing it from selling shares or using shares as collateral for six months.
The board can vote to relax that restriction if Mr. Trump wants to. He holds enormous sway over the company: In addition to his roughly 60 percent stake in Trump Media, he owns a separate class of stock that gives him at least 55 percent of the voting power on any measure brought up for a shareholder vote.
Mr. Trump will no longer be chairman of Trump Media, but the board is filled with executives who have faith in him. They include his eldest son, Donald Trump Jr., and Devin Nunes, the company’s chief executive and a former Republican congressman from California. Also on the board are three people who served in his administration: Kash Patel, who was chief of staff to Mr. Trump’s acting defense secretary; Robert Lighthizer, former US Trade Representative. and Linda McMahon, former administrator of the Small Business Administration.
Ms. McMahon is chairwoman of a major fundraiser for Mr. Trump scheduled for April 6 in Palm Beach, Florida.
But now that Mr. Trump no longer faces an urgent need to raise a large amount of cash, he may be content to let the six-month limit on stock sales remain. After all, a flood of Trump Media shares into the market would likely either lower the stock price or prevent it from going higher.
Also, from Mr. Trump’s perspective, Trump Media’s rising stock price gives him bragging rights on the campaign trail. One of his political cards was to talk about his success as a businessman and his vast fortune – something that is easier for him to do after the merger.
The biggest challenge for the Trump Media board is to develop a strategy to grow the company’s business and expand the reach of Truth Social in order to justify the company’s valuation.
By merging with Digital World, Trump Media received a much-needed infusion of approximately $300 million in cash that Digital World had raised from investors. Without that infusion, Trump Media and Truth Social were considering possible closure.
But as a public company, Trump Media will now draw more scrutiny from investors and regulators. It will be required to file periodic financial reports with the Securities and Exchange Commission and to disclose in detail any new deals it may enter into with Mr. Trump.
“In a public company you now have the scrutiny of investors and regulators,” said Usha Rodrigues, a professor of corporate law at the University of Georgia School of Law. “Any shareholder now has the right to sue if they claim one of the company’s statements is misleading.”
