(BFM Bourse) – The company Tump Media Technology, which oversees the social network Truth Social, plunged 21.5% on Monday after auditors expressed doubts about the company’s continued activity.
The arrival of Trump Media Technology on Wall Street via the merger with a SPAC, a listed investment vehicle without operational activities which facilitates the IPO process, was made with flying colors, on March 26.
The action of Donald Trump’s media company, which oversees his social network “Truth Social”, then jumped and experienced spectacular variations to finally gain 16%. Then 14.2% the following session.
But the “hype” around Trump Media has died down. And the return to reality is violent. On Monday, while the European markets were closed, the stock fell by more than 20% (-21.47%) following the publication of new documents with the Securities and Exchange Commission (SEC), the American policeman of the Stock Exchange. This Tuesday it still lost nearly 3% in pre-opening trading on Wall Street.
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Heavy losses
As noted by The Guardian and Bloomberg, these documents reported inglorious accounts for the company of the former American president, who, according to these papers, owns 57.6% of the capital of this company.
Revenues barely reached $4.1 million for 2023 when the net loss exceeded $58.2 million, according to the two media.
The documents published by the SEC also cast a shadow over the future of the company. The audit firm in charge of examining Trump Media’s accounts explained that the company’s “financial situation” raised “significant doubt as to its ability to continue its activity.”
The company itself highlights in its risk factors that it may be “subject to greater risks than typical social media platforms due to the focus of its offerings and the involvement of President Trump.” “These risks include active discouragement of users, harassment of advertisers or content providers, increased risk of hacking of the TMTG (Trump media, Editor’s note) platform (…) criticism of Truth Social for its moderation practices, and increasing shareholder lawsuits,” the group lists.
A “meme stock”
In any case, these documents further underline the dizzying disconnect between the valuation of a multi-billion dollar company (around 8.5 billion market capitalization) and its financial statements more worthy of a penny stock.
“The gap between Trump Media’s stock price and the company’s underlying performance indicates that some investors are using it to signal support for Donald Trump’s re-election campaign.” writes Bloomberg.
The evolution of Trump Media’s action was reminiscent of that of “meme stocks”. That is to say a stock on which individual investors position themselves without dwelling too much on the fundamentals, but through an emotional connection, as was the case with Gamestop in 2021.
“Many observers have called Trump Media a ‘meme stock,’ but that label doesn’t fit. Stock memes are either well-established companies that have stagnated, like the stars of 2021, or growing companies, like the heroes “In either case, investors in the same stocks are interested in the business activities of their companies,” said Morningstar’s John Rekenthaler.
This expert judges that Trump media is more like “a cryptocurrency”. “As with bitcoin, people buy Trump Media not based on future cash flow, but because they expect its price to rise and they feel connected to the asset,” he says. -he.
Julien Marion – ©2024 BFM Bourse