Trump Media: The Biggest Sucker Bet on Wall Street

Trump Media & Technology Group DJT made a splash last week after the SPAC deal finally closed following more than two years of waiting for SEC approval. The financial media, including the Wall Street Journal and CNBC, immediately dubbed DJT a meme stock due to its heavy retail interest and valuation divorced from fundamentals. 

By calling DJT a meme stock, however, the media causes confusion and disservice to novice investors while conjuring up hopes that retail joining together can manipulate a stock higher to create a high-flying short squeeze such as with GameStop GME. Punditry ought not to mince words and explain that the valuation of DJT is one of the most egregious in history — in the league of a New Jersey deli valued at $100 million — and the shares are destined to go much, much lower.

Wall Street is not a game and when “investors” try to treat stocks like manipulatable numbers, most who play along lose bigly. Sometimes pundits focus on aspects that excite retail investors by implying irrationality can persist, like high short interest or hard-to-borrow stock that make it dangerous or expensive to short shares. 

Media commentary may even marvel at the high-flying stock. CNBC referred to DJT shares as “unstoppable.” Barron’s expressed concern about a short squeeze due to the limited float and reported that DJT is far too risky as a short! Don’t worry Barron’s, soon enough sizable blocks of stock will become free to trade — and quick to be sold — making moot the thin float or the hard-to-borrow aspect of the shares.

Talk of short interest is mostly a distraction that, unfortunately, sucks in less sophisticated investors on the long side. Time and again, sales made during irrational moves higher vastly benefit and enrich the sellers at the expense of retail investors.

For DJT’s irrational move, the focus should be on how fast the rug will be pulled from under the stock and when the stock could suffer a dramatic decline. Investing in the reliance that the market will stay absurdly irrational for any duration is a bad bet, especially in a stock like DJT where insiders will be champing at the bit to dump shares as soon as possible.

The impetus for Truth Social grew out of creating a voice for more conservative-leaning groups as a counterweight to the left-leaning Twitter. However, since Elon Musk bought Twitter almost 18 months ago, it’s clear that voices on the right have been amplified on that platform, rendering Truth Social’s raison d’être practically moot. Truth Social’s shrinking user base of under 500 thousand daily active users reflects this trend.

Donald Trump owns 78.75 million shares of DJT, a stake currently valued at $4.8 billion. The former president is entitled to another 36 million shares if the stock stays above $17.50 for any 20 out of 30 trading days. Assuming those shares are granted, his stake would be currently valued at $7.1 billion, and TMTG valued at over $10 billion — only slightly less than where Fidelity has X/Twitter’s valuation marked at $11.8 billion. Indeed, Wall Street currently has Trump Media & Technology Group, which consists solely of Truth Social, and X/Twitter valued on paper almost equally, even as X/Twitter produced nearly 700x the revenue of Truth Social in the last 12 months.

For the Wall Street novice, there’s likely to be an expectation that stock valuations have some logical rationale. Unfortunately, regarding DJT this is entirely and embarrassingly not the case, partly due to technical reasons. In time, this will sort itself out when DJT trades much lower.

There is a limited float of shares and insiders have a six-month lock-up agreement for the bulk of the outstanding shares. Yet, agreements are easily amended, especially in the case of DJT where the board consists of Trump’s cronies and his son. While the board is unlikely to unlock shares early over the next 17 trading days, which could jeopardize Trump’s award of 36 million shares if DJT trades under $17.50, I would expect an amended lock-up agreement vastly shortening insiders’ holding period soon afterward.

Of all the risks, the key-man risk may even surpass the egregious valuation risk. TMTG lives and dies off the political and personal fortunes of Donald J. Trump. Trump will likely need to sell shares to cover his legal troubles, amounting to hundreds of millions of dollars in fines and legal fees. 

The idea that a stock will dramatically rise and fall in sympathy with the vagaries of political outcomes is a risk most prudent investors will avoid. The toss-up election in seven months will either give DJT a healthy sentiment boost or a potential death blow — an unusual risk for any investor to endure. Certainly, any health issues for Trump would seriously jeopardize the enterprise.

Some have suggested buying DJT as a way to support Trump as the Republican nominee. Reportedly, investors residing in deep red states have disproportionately led the charge in buying shares. However, I would encourage people inclined to support Trump via the stock market to earn profits by making better investments and donating those gains to his campaign rather than losing money going long DJT.

In a gambling culture, alas, people are free to speculate and throw their money at any stock, option, SPAC, cryptocurrency, or sports team they choose. But even a gambler should know when the deck is stacked so far against them that they’re on the wrong side of the biggest sucker bet on Wall Street.

At the time of publication Ginesin had no positions in any securities mentioned.