Trump’s Social Media Stock Is Plummeting: Two Possible Reasons

The stocks of Trump Media & Technology Group, which operates Truth Social—Donald Trump’s alternative to Twitter—have taken a significant dive. Once valued at about $9 billion earlier this year, investors now assess the company’s worth at around $4 billion, with shares closing at just above $20 each, marking the company’s lowest value since its public debut in March.

This decline raises questions about what’s influencing this downward trend. Notably, Trump Media is classified as a meme stock. Investor interest isn’t necessarily tied to the company’s financial performance, which remains minimal at best. Instead, its perceived worth fluctuates based on collective sentiment and expectations, a precarious basis that can shift unexpectedly.

Despite the unpredictable nature of such stocks, we can observe some underlying factors that contribute to the ongoing decrease in stock price. A significant concern for many investors is Trump’s diminishing popularity among potential voters. With Kamala Harris now opposing him in the upcoming election, Trump’s approval ratings have been on a downward trajectory. Polling experts, including those from The New York Times and pollster Nate Silver, suggest he may be viewed as an underdog in the race.

This potential decline in his electoral prospects might have a direct impact on the stock. If DJT shares are seen as a reflection of his chances to win the election, then the recent polling trends could explain the stock’s struggles.

In addition to concerns about Trump’s political future, there is speculation about his potential sale of shares in the company. Currently, Trump holds approximately 60% of Truth Social, equating to a stake valued at about $2.4 billion. Trump is currently restricted from selling shares due to a typical lock-up period following the company’s public offering. However, this period is set to expire around September 20, leading to fears that he may sell off a portion of his holdings shortly thereafter. Such a move could provoke a selling spree among other investors, further driving down the stock price.

However, there are arguments against the theory that widespread selling could be imminent. The lock-up period has been known since Truth Social’s initial public offering, raising the question of why investors would feel the need to abandon the stock now. Furthermore, if Trump were to sell a substantial number of shares, it might send a strong signal that could result in a dramatic drop in stock value. This action could dissuade all but the most loyal investors from remaining in the stock.

This situation creates an interesting dilemma for Trump. Should he maintain his current stake, potentially preserving the company’s value, or attempt to cash in his holdings and risk causing a significant decrease in worth? It’s possible both circumstances—a decline in Trump’s political viability and the potential for a share sell-off—are contributing to the stock’s struggles. There may also be other factors at play that have yet to fully emerge.

What remains evident is that individuals who purchased Trump stock around late March and have not divested their shares have experienced declines of over 50%. While this isn’t investment advice, it is clear that caution is warranted.

Source: Business Insider