A newly prominent stock has emerged on Wall Street, attracting considerable interest from investors, with its primary shareholder being former President Donald Trump.
Trump’s social media venture, Trump Media & Technology Group, commenced trading on the Nasdaq on Tuesday (March 26) under the ticker DJT, experiencing an immediate surge in value, with a 40 percent gain in early trading.
The merger between Trump Media — the parent company of Truth Social, Trump’s primary platform for engaging supporters and addressing critics — and a cash-rich public shell company was finalised on Monday, following a significant rise in the shell company’s stock price leading up to the deal.
This surge has been fueled by fervent trading activity since the merger proposal was made in 2021. Trump Media now boasts an estimated market value exceeding $6 billion, surpassing that of established corporations like Alaska Airlines, Western Union, and American Eagle Outfitters.
The primary beneficiary of this market activity is Trump, who holds approximately 60 per cent of Trump Media’s shares, with his stake valued at over $4 billion.
Before the merger, shares of the shell company — Digital World Acquisition Corporation — had been indicative of investor sentiment towards Trump. This sentiment is likely to persist with the merged companies, particularly given Trump’s ongoing presence in the news with pending trials and potential presidential campaign activities.
From a conventional standpoint, Trump Media’s valuation appears unusually high. The company generated only $3.3 million in revenue from advertising on Truth Social during the first nine months of the previous year, with a recorded loss of $49 million.
This translates to a market value for Trump Media that is more than 1,000 times its estimated annual revenue. While investors sometimes assign optimistic valuations to small, loss-making companies in anticipation of rapid growth or speculative market behavior, such valuations are typically not seen at this magnitude.
In comparison, other social media companies trade at significantly lower price-to-sales ratios than Trump Media: Reddit stands at around 10, Meta at 7, and Snap at 6, according to FactSet. Even high-performing tech stocks like Nvidia and ARM trade at price-to-sales ratios of approximately 25.
Investors who have shown interest in Digital World’s stock have predominantly been individual investors, rather than institutional investment firms and hedge funds. On a message board dedicated to supporters of the merger on Truth Social, individual investors celebrated Trump Media’s debut under its new stock symbol.
Given its trading patterns, Trump Media shares similarities with so-called “meme stocks” like GameStop and AMC Entertainment, which experienced significant surges in value driven by groups of amateur investors during the pandemic.
Kristi Marvin, a former investment banker and editor of SPACInsider, which monitors the market for special purpose acquisition companies, commented, “It’s difficult to predict how this will trade, but it certainly exhibits characteristics of a meme stock, so we might observe considerable volatility.”
Digital World was established as a special purpose acquisition company (SPAC), with the sole objective of raising capital from investors and subsequently merging with an operational business to create a publicly traded entity.
Large investors who acquired shares of Digital World, or now Trump Media, would not be obligated to publicly disclose their holdings until mid-May.
(With inputs from agencies)
