(New York) Shares of Donald Trump’s social media company jumped about 16% in the first day of trading on the NASDAQ, increasing the value of Mr. Trump’s significant stakes in the company as well as the smaller stakes from supporters who bought shares in a show of support for the former president.
Trump Media & Technology Group was acquired Monday by a special purpose acquisition company – a non-operating, publicly traded company that serves as an intermediary for a private company to quickly access the public market – called Digital World Acquisition. Trump Media, which runs the social media platform Truth Social, has taken Digital World’s place on the NASDAQ.
Shares closed at US$57.99, up 16.1%, giving the company a market value of US$7.85 billion. At one point, the stock was up about 59%. Mr. Trump owns a nearly 60% stake in the company, which is now worth about US$4.6 billion.
Most of Trump Media’s investors are small investors trying to support Mr. Trump or profit from the mania, rather than large institutional and professional investors. These shareholders helped Digital World’s stock more than double this year in anticipation of the consolidation.
These investors might break out in a cold sweat. On the one hand, they are betting on a company whose profitability prospects are vague. Trump Media lost US$49 million in the first nine months of last year, while it only took in US$3.4 million in revenue and had to pay US$37.7 million in fees. ‘interest. In a recent regulatory filing, the company cited the high failure rate of new social media platforms, as well as the fact that it expects to lose money on its operations “for the foreseeable future,” as being risks for investors.
Truth Social launched in February 2022, a year after Mr. Trump was banned from major social platforms, including Facebook and X, formerly Twitter, following the January 6 insurrection at the United States Capitol. He has since been reinstated to both platforms, but has remained loyal to Truth Social.
On Monday, Mr. Trump appeared in a New York court in connection with a criminal case involving hush-money payments made to cover up allegations of marital infidelity. He later told reporters that “Truth Social is doing very well. It’s hot as a gun and wears great.”
However, Trump Media has yet to disclose Truth Social’s user count – although that is expected to change now that the company is public. Research firm Similarweb estimates that Truth Social had around 5 million active users across mobile and web as of February. This figure is well below TikTok’s 2 billion users and Facebook’s 3 billion users, but still higher than other “alt-tech” rivals like Parler – which hasn’t been around for almost a year. year, but plans to make a comeback – or Gettr, which had less than two million visitors in February.
Besides competition in the social media space, Trump Media faces other risks – including, to some extent, that of Donald Trump himself.
Trump Media, headquartered in Palm Beach, Fla., said in a regulatory filing that it is “heavily dependent on the popularity and presence of President Trump.” If the former president were to limit or discontinue his dealings with the company for any reason, including because of his campaign to regain the presidency, the company “would be at a significant disadvantage.”
Acknowledging Mr. Trump’s involvement in numerous legal proceedings, the company noted that “an adverse outcome in one or more” of these cases could negatively impact Trump Media and Truth Social.
Another risk, according to the company, is that as a controlling shareholder, Mr. Trump would have the right to vote his shares in his own interest, which would not always be in the interest of all shareholders generally .
Based on recent trading activity, investors should expect the stock to be volatile. Digital World shares more than doubled this year before shareholders voted on combining with Trump Media. After Friday’s vote, shares fell nearly 14%, but on Monday they rebounded sharply with a 35% gain.