Trump Media & Technology Group had a strong start on its first trading day. The stock opened at $70.90 and reached a high of $79.38 as investors showed interest.
However, the price began to decline later in the session. Since then, the stock has been fluctuating at lower levels. As of 10:28 a.m. ET last Monday, the stock was trading down 13.3% at $53.70.
This pattern reflects the typical volatility seen in meme stocks. Despite initial excitement, such stocks often experience significant price fluctuations. The decline suggests a possible reality check for Trump Media & Technology Group.
Despite its struggles, Trump Media & Technology Group has achieved a market valuation of over $8 billion. This valuation is remarkable, considering the company’s status as a fledgling social media platform.
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Trump Media has faced challenges in attracting users and advertisers. The company has also experienced financial difficulties, including cash burn and losses.
“The company’s valuation should be several hundred million, not the billions it is currently valued at,” University of Florida professor Jay Ritter said.
Market observers say Thursday’s slide into the red could be just the beginning. Ritter predicts the vanity stock ticker DJT will bottom out around $2 a share—or worse.
“The stock will continue to be very volatile, with sharp moves up and down. But the long-term trend will be down,” he said. “The company has about $2 in cash per share, but it will probably burn through that money, and the most likely outcome is eventual bankruptcy.”
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Trump previously employed a vanity ticker for his Atlantic City casino venture, Trump Hotels and Casino Resorts, during its initial public offering in 1995. Despite the flashy ticker, the company struggled financially and failed to achieve profitability.
Trump Hotels and Casino Resorts eventually filed for bankruptcy in 2004, marking the end of its troubled existence. Trump Media’s trading behavior resembles meme stocks like GameStop and AMC Entertainment. These meme stocks experienced significant surges in value driven by individual investors on social media platforms like Reddit.
The investors aimed to retaliate against hedge funds that had shorted the stocks, causing their prices to rise unexpectedly. According to Jonathan Brogaard, a finance professor at Trump Media, it possesses all the characteristics of a volatile stock.
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Derek Horstmeyer, another finance professor, notes the difficulty in predicting when a meme stock will collapse, but emphasizes that eventual decline is inevitable.
Trump Media’s valuation exceeds conventional Wall Street standards for social media companies. In the first nine months of 2023, Trump Media generated $3.3 million in revenue but suffered a loss of $49 million.
Despite its relatively low revenue and substantial losses, Trump Media’s market value is over 2,000 times its estimated annual revenue. In comparison, other social media companies like Reddit, Meta, and Snap have much lower market value-to-revenue ratios.
Reddit’s ratio is ten times, Meta’s is seven, and Snap’s is six, indicating that Trump Media is significantly overvalued relative to its peers.
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