Trump May Soon Sell Shares in Truth Social’s Parent Company: What’s at Stake?

As discussions continue regarding former President Donald Trump’s wealth, it is clear that his stake in Trump Media & Technology Group has positioned him as a billionaire. The company, responsible for the Truth Social platform, is currently valued at over $3.5 billion, with Trump owning more than half of it.

Currently, Trump and other insiders at TMTG have been restricted from selling their shares due to a “lock-up agreement” that has been in place since the company’s public trading began in March. With the expiration of this agreement approaching, speculation mounts about what it will mean for both Trump and TMTG’s stock value.

The impending end of the lock-up means that Trump can start selling his shares as long as TMTG’s stock doesn’t dip below $12 before the release. Recently, the shares closed at around $18.

This lock-up was established in March during TMTG’s merger with Digital World Acquisition Corp., which facilitated the company’s entry onto the Nasdaq stock exchange. Although Trump doesn’t manage TMTG directly, the organization is led by CEO Devin Nunes, a former Republican representative from California. Trump’s presence as the platform’s most prominent user draws significant attention, with his ‘truths’ frequently highlighted on Truth Social.

As of mid-August, Trump held a 57.3% stake in TMTG, translating to a value of over $2 billion based on the current market capitalization of nearly $3.6 billion. He launched Truth Social in February 2022 following bans from major platforms like Facebook and Twitter after the January 6 attack on the U.S. Capitol. Though reinstated on those networks, Trump primarily utilizes Truth Social to communicate with his followers.

Truth Social has aimed to attract users by presenting itself as an alternative to mainstream platforms, claiming these services discriminate against conservative viewpoints and stifle free expression. The audience primarily consists of Trump’s dedicated supporters. Critiques, however, describe it as an echo chamber for conservative commentary, often rife with hate speech and extremism.

Trump is also bound by an agreement that requires him to wait six hours after posting on Truth Social before he can share any non-political communications on other platforms. However, he has leeway in defining what constitutes a political post, potentially allowing most of his content to be deemed political.

TMTG has reported that its revenues primarily come from advertising. However, their income has been minimal, with only $836,900 reported in the latest quarter, a noticeable drop from $1.2 million the previous year. The company sustained a loss of $16.4 million for the quarter ending June 30, largely due to legal expenses related to its merger.

During the latest reporting period, TMTG also incurred approximately $3.1 million in expenses for technology consulting and software licensing, which relate to its new streaming service, Truth+. Unlike traditional social media, Truth Social does not release detailed performance metrics, creating additional challenges for investors looking to gauge the company’s standing.

The stock performance has largely been disappointing. After peaking above $60 in March, it quickly fell to around $16, only to bounce back to nearly $18 recently. While typical share prices fluctuate with a company’s profitability, TMTG’s stock seems more influenced by perceptions of Trump’s electoral prospects, frequently swinging dramatically day-to-day.

During a press conference, Trump alluded to the possibility that stock performance may be tied to fears about his potential share sales. He expressed confidence that he will not sell his shares, stating, “No, I’m not selling. I love it. I use it as a method of getting out my word.” This assertion momentarily boosted the stock by nearly 12%.

In the event Trump decides to sell his shares, he must inform the U.S. Securities and Exchange Commission within two business days, as major investors with significant ownership are required to report their transactions.

Typically, when large shareholders sell shares immediately after a lock-up period, the market can react negatively. Companies often prepare for such events by arranging follow-on offerings to mitigate sudden stock supply spikes. Experts note that while it’s common for major shareholders to sell a modest quantity of their holdings over time, immediately parting with a significant portion is uncommon.

Concerns regarding TMTG’s stock price remain, with predictions suggesting that it could plummet by over 80% due to the disconnect between the company’s financial health and its valuation. Rising anxiety among shareholders may lead to a more significant sell-off if Trump or other large investors believe it’s prudent to act quickly.

This scenario raises the stakes for the future of TMTG, as movements from key shareholders could drive the company’s stock price even lower, regardless of Trump’s decisions on his own shares.