Trump Media, the company behind the Truth Social app and majority controlled by Donald Trump, faced a significant setback as its shares plummeted by over 15% on Monday. This sharp decline came after the company disclosed plans to issue millions of additional shares of stock. The company’s stock, listed under the ticker DJT on the Nasdaq, had already experienced a nearly 20% drop the previous week, resulting in a total decline of more than 62% since its initial public offering on March 26.
The decision to issue more common stock was revealed in a preliminary prospectus submitted to the Securities and Exchange Commission (SEC). The filing outlined the company’s intention to offer over 21.4 million shares of common stock, which would be available for purchase upon the exercise of warrants. These warrants grant holders the right to buy shares at a predetermined price within a specific timeframe. Trump Media estimated that it could generate approximately $247.1 million from the warrants.
Following the stock’s downward trend, Trump Media’s market capitalization has been significantly reduced, falling by nearly $6 billion to approximately $3.7 billion as of Monday. Despite the company’s optimistic projections, its financial results are less favorable. In 2023, Trump Media reported a net loss of $58.2 million on revenue of only $4.1 million. This stark contrast between the stock valuation and actual financial performance has raised concerns among industry experts.
Ben Silverman, head of Verity Research, commented that the stock valuation of Trump Media appears disconnected from its financial reality. The current trading price of the company’s shares may not accurately reflect its underlying financial health. However, if the stock price remains high enough for Trump and other insiders to receive earnout shares, they could potentially reap a windfall exceeding $1 billion.
As the majority stakeholder in Trump Media, Donald Trump holds significant influence over the company’s operations and future prospects. However, due to a six-month lockup period imposed as part of the merger agreement with Digital World Acquisition Corp., Trump is prohibited from selling his shares immediately. This lockup period serves as a safeguard to prevent premature selling of shares and stabilize the company’s stock price.
Despite Trump’s efforts to promote Truth Social as an alternative social media platform, the company has not disclosed key performance indicators such as the number of active users. This lack of transparency raises questions about the app’s popularity and sustainability. Without crucial data on user engagement and growth, investors may remain skeptical about the long-term viability of Truth Social as a competitive player in the social media market.
The recent decline in Trump Media’s stock price following the announcement of additional share issuances highlights the challenges facing the company. With mounting financial losses, uncertainties surrounding user adoption, and skepticism regarding the stock valuation, Trump Media must navigate a complex landscape to regain investor confidence and sustain its market position.
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