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The Truth Social app is displayed on a phone screen in Washington, DC, on February 21, 2022.
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CNN
—
Trump Media & Technology Group, owner of Truth Social, got cold feet.
The conservative social media company's market capitalization has fallen by nearly half since May 30, when former President Donald Trump was convicted of 34 felony counts in a hush-money trial. Trump Media's volatile stock (DJT) fell another 5% on Friday, bringing its total to a staggering 50% drop in just three weeks.
The fierce sell-off has reduced the estimated net worth of Trump, the controversial company's largest shareholder and chairman, by nearly $3 billion.
The stock's weeks-long decline accelerated in recent days after Trump Media said it had received regulatory approval for measures that could dent the value of shareholders' holdings.
Despite the stock price plunge, some experts are warning that Trump Media could be exposed to further losses.
“The stock is still extremely overpriced,” said Jay Ritter, a finance professor at the University of Florida who has studied capital markets for the past 40 years.
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The problem is that even after recent sales, Trump Media is valued at billions of dollars, yet it brings in very little revenue.
Trump Media brought in just $770,500 in revenue in the first quarter, its second consecutive quarter of under $1 million. Not only that, Truth Social remains a small player in the social media world, smaller than Elon Musk's X (formerly Twitter), Reddit, or even Instagram's Threads.
“This is a development-stage company with a multi-billion-dollar valuation,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.
That has led some experts to write off Trump Media as a meme stock like GameStop or AMC, trading on momentum and hype rather than fundamentals.
“When a company's share price drops significantly, value investors typically become interested, but that's not the case with meme stocks,” Kennedy said.
Trump Media was already struggling in June, but things got even worse when the company announced that the Securities and Exchange Commission had approved its registration statement, which gives early investors the green light to exercise their warrants to buy more shares.
The move, which has been long expected, could raise around $250 million for Trump Media, which the company can use to build out its emerging advertising platform or acquire smaller companies.
“Today marks another milestone for Truth Social,” Trump Media CEO Devin Nunes said in a statement Tuesday. “With the S-1 declared effective, we expect we will be well positioned to aggressively pursue streaming television, other enhancements to our platform, and potential mergers and acquisitions.”
But exercising the warrants could dramatically increase the number of shares the company has outstanding, diluting existing shareholders' holdings. Trump Media could issue an additional 21.5 million shares.
“The price of these meme stocks is determined by supply and demand, which is true for any stock, but even more so when the stocks are trading at prices well above their underlying value,” said Ritter, the finance professor.
Trump is the company's largest shareholder, owning 114.75 million shares, or about 65%, and his stake increased in late April when the company's stock price rose above a certain level and he was given a bonus known as an earn-out.
Trump's shares, which he cannot sell in the near future, are currently worth about $3.1 billion, down from $6 billion as of May 30.
