Shares of the social media company owned by former President Donald J. Trump shares plunged Monday after the company filed to list the potential sale of tens of millions of additional shares.
Shares in Trump Media & Technology fell 18 percent, wiping hundreds of millions of dollars off the company’s market value — and dealing a blow to Mr. Trump’s majority stake, worth more than $3 billion. Since a rally in its first days of trading as Trump Media, which raised the company’s value to about $8 billion at one point last month, the company’s shares have fallen more than 50 percent.
Trump Media had been expected to record the potential sale of new stock after completing its merger last month with Digital World Acquisition Corp., a cash-rich shell company known as a SPAC. Companies that merge with SPACs, or special purpose acquisition companies, typically file a registration statement a few weeks after completing the deal to sell additional securities held by early investors.
In the filing, Trump Media — the parent company of Truth Social — listed more than 146 million shares that could be sold, along with 21 million shares that were converted upon exercise of the warrants, which allow an investor to buy shares at a predetermined price . When a SPAC goes public, it issues warrants to investors that can later be converted into shares.
Although the company said investors did not plan to sell those shares immediately, investors reacted to the idea that if a flood of new shares hit the market, they could drive down the company’s share price.
Also included in the filing was an additional 36 million shares given to Mr. Trump as part of a “profitability” bonus based on the company’s share price. With these additional shares, Mr. Trump owns about 115 million shares of Trump Media, or 65 percent of the company.
Some of the shares listed for sale included shares held by major hedge funds such as Anson Funds, Hudson Bay, Mangrove Partners and Washington Muse Investments, which had acquired discounted shares or options in Digital World prior to the merger with Trump Media. Others, such as Millennium Partners and Pentwater Capital, had built stakes in the company by buying warrants.
Trump Media will not receive any of the proceeds from shares sold by investors, but could receive tens of millions in cash from exercising the options.
Trump Media said in a press release Monday that the filing did not imply that the shareholders listed in the filing planned to sell shares. The company also noted that the filing did not change a six-month restriction on Mr. Trump and other major shareholders from selling their shares until sometime in late September.
The registration statement must be reviewed and approved by the Securities and Exchange Commission before shareholders can sell shares.
Some investors had bet that Trump Media’s share price would collapse after the stock’s expected filing, seeking to profit from the move. Fund managers including Marshall Wace and Zazove Associates were large holders of Trump Media orders, according to regulatory filings. Those warrants are trading at a much lower price than Trump Media shares, in part because they haven’t yet been listed and also because of the stock’s wild rally when it first began trading.
To take advantage of that spread, mutual funds have been shorting the stock, betting it will fall once the warrants are subscribed, according to people with knowledge of the mutual fund’s trades. Marshall Wace and Zazove declined to comment.
The trading helped boost demand from investors looking to bet on a drop in the company’s share price, making Trump Media one of the most shorted stocks in the United States. Even before the filing arrived, shares of Trump Media had fallen more than 50 percent since the first day of trading after the merger, amid doubts about Truth Social’s ability to generate revenue and profits.
Last year, Trump Media lost $58 million on $4.1 million in revenue — all from ads on Truth Social.
Warrants have also fallen sharply over the past two weeks, down about 50% since the start of the month.
Short-sellers bet that a stock’s price will fall by borrowing shares of a company and selling them in the market, hoping to buy them back later at a lower price, before returning the shares to the lender and pocketing the difference as a profit.
Matthew Unterman of S3 Partners, a research firm, said a potential flood of new shares coming to market would make it easier for short-sellers to bet against Trump Media stock. For now, he said, Trump Media is one of the costliest stocks to short because the company doesn’t have a large supply of shares to borrow.
