An underappreciated aspect of Donald Trump’s career is how lucky he has been. He was born into a rich family, and his father, the outer-borough real-estate developer Fred Trump, financed his early sallies into Manhattan real estate. In the early nineteen-nineties, when Donald Trump’s casino and real-estate empire were sinking under a huge debt burden, the banks that had lent him gobs of money decided to keep him afloat, reconfiguring his loans and limiting him to a monthly personal allowance of four hundred and fifty thousand dollars. A decade later, when Trump was again facing financial challenges, the entertainment division of NBC decided that he was the right man to host a reality show about business, “The Apprentice,” which gave him a national platform. We all know the rest of the story from there.
Now, as he faces more than half a billion dollars in fines and interest as a result of his two recent civil trials, Trump appears to have lucked out again, with Wall Street delivering him a huge financial windfall. At the start of this week, Trump’s loss-making social-media company, Trump Media & Technology Group, completed a merger with a financial shell company, Digital World Acquisition, which took Trump Media public. On Tuesday, stock in the combined company started trading on the Nasdaq under the symbol DJT. It closed the day valued at roughly eight billion dollars. The stock rose even further on Wednesday, before falling back a bit on Thursday. Going into the Easter weekend, the company had a market capitalization of close to $8.4 billion, and Trump’s stake—78.8 million shares—had a notional value of a bit under $4.9 billion.
Based on standard financial metrics, Trump Media & Technology Group, whose main asset is the social-media site Truth Social, isn’t worth anything like $8.4 billion. It looks like a classic bubble stock, whose market value has severed ties with its actual business prospects. The company originated in 2021, after Trump was barred from Facebook and Twitter (now known as X) following the January 6th attack on Capitol Hill. Two former “Apprentice” contestants approached the former President with a proposal to start a social-media site of his own. Truth Social launched in February, 2022, and it didn’t exactly go viral. According to the Internet-analytics firm SimilarWeb, between December, 2023, and February, 2024, Truth Social had about 1.5 million monthly visitors, compared to eight hundred and sixty-seven million for X and 29.4 million for Threads, the Twitter-like Facebook offshoot that launched last year.
In the first nine months of the previous year, according to the official prospectus that Digital World Acquisition filed before this week’s stock listing, Truth Media & Technology Group generated revenue of $3.4 million and racked up net losses of forty-nine million dollars. Assuming that its revenues didn’t spike dramatically at the end of last year, its current market valuation is more than eighteen hundred times its 2023 revenue. This is clearly abnormal. According to Yahoo Finance, the corporate parent of Snapchat, Snap, a much bigger social-media site than Truth Social, trades at four times its annual revenues. Reddit, which itself issued stock for the first-time last week, trades at about nine times its annual revenues.
So what’s keeping up the stock price of Trump Media & Technology Group? Part of the answer is convenient timing. It started trading at a moment when the financial markets are soaring, lifting the values of many risky assets. During the past few weeks, tech stocks, Bitcoin, and even gold have hit new highs. New stock offerings and deals like the one between Trump Media and Digital World Acquisition are notoriously sensitive to over-all investor sentiment. When the stock market is in a down period, they tend to dry up completely. When investors are feeling frisky, such deals and offerings tend to come in bunches, and some enjoy big initial gains, but they can still be very volatile. On its first day of trading, Reddit’s stock jumped nearly fifty per cent, valuing the company at roughly ten billion dollars. On Wednesday and Thursday, however, the stock tumbled by almost twenty-five per cent, leaving it below its offering price.
Something even more dramatic could easily happen to the new Trump stock, but for the moment it seems to be buoyed by small investors, some of them Trump supporters. Perhaps they genuinely believe that the company can grow into a social-media behemoth, particularly if Trump gets reëlected and uses Truth Social as his daily (or hourly) means of communication. In many ways, though, what’s happening brings to mind the so-called meme stocks, like GameStop, AMC Entertainment, and Bed Bath & Beyond, which soared in value during the COVID-19 pandemic. In January, 2021, GameStop’s stock rose to more than eighty dollars: it’s now trading at about twelve dollars and fifty cents. In early 2021, AMC Entertainment’s stock briefly rose above five hundred dollars; it’s now trading at under four dollars. In January, 2021, Bed Bath & Beyond’s stock reached a high of more than thirty-five dollars. It’s now worthless, because the company filed for bankruptcy last year.
One lesson of the meme-stock phenomenon (and countless earlier speculative episodes) is that bubbles don’t necessarily pop as quickly as you’d think. In the case of GameStop, some Wall Street short sellers, who try to make money by betting against overvalued stocks, relearned this lesson the hard way. (After they shorted the stock, the meme traders bid its price up further, imposing heavy losses on them.) But the main takeaway from the meme-stock episode was that outrageously overvalued stocks do eventually correct, and the challenge facing their proprietors is to turn some of their transient paper wealth into real dollars before it vaporizes. That’s the position Trump is in now.
The obvious move is to sell some of the shares that he owns, but doing this isn’t so straightforward. Like most deals of this nature, the Truth Social–Digital World Acquisition merger has a “lock-up” provision that could prevent insiders from selling any stock for five or six months. If the company’s board, which includes a number of Trump family members and cronies, tries to waive this provision, alarmed investors could tank the stock before Trump has a chance to cash out. James Mackintosh, a Wall Street Journal columnist, conducted a caustic examination of other ways in which Trump could theoretically exploit his current position to raise cash, such as using his stock as collateral for new bank loans, forcing Trump Media & Technology to pay him large licensing fees on the grounds that the company would be worthless without his name attached to it, or even having Trump Media buy Mar-a-Lago for a princely sum. None of these options would be unproblematic, but Mackintosh advised Trump, “Get as much cash out as quickly as you can, before the memes evaporate.”
It’s safe to assume that Trump is already thinking along these lines. Likely, he’s still figuring out what to do. On the one hand, he’s often ridden his luck before, and in financial terms he’s never had a potential bonanza quite like this one. On the other hand, he must know that a wrong move, or a shift in over-all market sentiment, could prove extremely costly. During a stock bubble, as the late economist Paul Samuelson once remarked to me, we are dealing with the physics of avalanches. ♦
