Truth Social owner Trump Media & Technology Group has gone ice-cold.
The conservative social media company has lost roughly half its market value since May 30, the day former President Donald Trump was convicted of 34 felony counts in a hush money trial. Trump Media鈥檚 volatile share price (DJT) tumbled another 5 per cent on Friday , leaving it down by a staggering 50 per cent in the span of just three weeks.
The severe selloff has erased nearly US$3 billion from the estimated net worth of Trump, the controversial company鈥檚 leading shareholder and chairman.
The weeks-long selloff accelerated in recent days as Trump Media announced it received approval from regulators for a move that threatens to water down the holdings of shareholders.
Despite the tumbling share price, some experts are warning Trump Media remains vulnerable to further losses.
鈥淭he stock is still wildly overpriced,鈥 said Jay Ritter, a finance professor at the University of Florida who has studied capital markets for the past four decades.
The problem is that even after the recent selloff, Trump Media is still valued in the billions of dollars, and yet it generates very little revenue.
Trump Media recorded revenue of just US$770,500 in the first quarter, the second-straight quarter of sub-US$1 million revenue. Not only that, but Truth Social remains a tiny player in social media, dwarfed by Elon Musk鈥檚 X (formerly Twitter), Reddit and even Instagram鈥檚 Threads.
鈥淭his is a development-stage company with a multi-billion-dollar valuation,鈥 said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.
That鈥檚 why some experts have dismissed Trump Media as a meme stock similar to GameStop and AMC that trades on momentum and hype, not fundamentals.
鈥淲hen a company鈥檚 stock drops significantly, you typically start to see value investors take interest, but that鈥檚 not the case with meme stocks,鈥 said Kennedy.
Trump Media was already having a bad June, and then it got even worse when the company announced the Securities and Exchange Commission approved its registration statement. The green light from regulators clears the way for early investors to exercise warrants they hold in the company to buy more shares.
The move was long-expected, and it could raise nearly US$250 million for Trump Media 鈥 cash the company can use to build its nascent ad platform or buy a smaller firm.
鈥淭oday marks another milestone for Truth Social,鈥 Trump Media CEO Devin Nunes said in a statement on Tuesday. 鈥淲ith our S-1 declared effective, we鈥檙e expecting to be well positioned to energetically pursue TV streaming, other enhancements to the platform, and potential mergers and acquisitions.鈥
However, the exercising of the warrants will also likely dilute the holdings of existing shareholders by dramatically increasing the supply of shares outstanding in the company. Trump Media can issue 21.5 million additional shares.
鈥淭he price of these meme stocks is determined by supply and demand 鈥 something that is true for any stock but more so for when a stock is trading so far above its fundamental value,鈥 said Ritter, the finance professor.
Trump is the dominant shareholder in the company, owning 114.75 million shares, or nearly 65 per cent. His stake was bumped up in late April when a bonus, known as earnout shares, was triggered by the company鈥檚 share price staying above certain levels.
Trump鈥檚 stake, which can鈥檛 be sold in the near-term, is now valued at about US$3.1 billion. That鈥檚 down from US$6 billion as recently as May 30.
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