Trump’s Stock Down Over $3 Billion – Dropping 50% Following First-Day Peak

Former President Donald Trump’s social media company has continued to experience a sharp decline in the stock market. The valuation that had exceeded $10 billion just two weeks ago, now appears to be fleeting.

10% Decline

Shares of Trump Media & Technology Group plummeted another 10% on Monday, reaching a new low as the stock continued its decline after the highs seen during the opening week.

On Monday late afternoon, shares of Trump Media, the company behind Trump’s social media platform Truth Social, were trading at $36.33. This marked a significant drop from the stock’s opening day high of $79.38 per share on the public markets.

Reduction In Market Capitalization

The decline has reduced the company’s market capitalization to approximately $5 billion – a significant decrease considering the highs of over $8 billion during the initial trading week.

Trump Media’s stock showed some recovery later in the day, closing down 8.4% at $37.17 per share.

The Downward Spiral Began Last Week

The decline in the company’s stock began last week following the disclosure of significant financial losses in 2023. The company reported a loss from operations of nearly $16 million and interest expenses of $39.4 million. The total revenue was just $4.1 million.

This compares to a loss from operations of $23.2 million, interest expenses of $2.0 million, and revenue of $1.5 million in 2022.

Negative Cash Flow and Operating Losses

In a filing with the Securities and Exchange Commission, Trump Media disclosed that it “lacks the financial resources it needs to sustain operations for a reasonable period of time.”

The company anticipates ongoing negative cash flow and operating losses “for the foreseeable future.”

David Nunes Believes the Company Is Still “Well Positioned”

During an interview with Fox News, Trump Media CEO and former U.S. House member, David Nunes, stated that despite the growing concerns regarding the company’s profitability, it is still “well positioned.”

Nunes said, “Why are we well positioned? Because we have no debt.”

Not Having Any Debt

Nunes said during the Fox News interview, “We’re coming out of this with no debt, a platform that works really, really well that communicates to millions of people, and then we have $200 million in the bank.”

Nunes did not provide any information about when the company might become profitable.

Trump Media Went Public Last Month

Towards the end of last month, Trump Media went public on the Nasdaq under the ticker symbol DJT. The debut happened following the company’s merger with Digital World Acquisition Corp.

According to analysts, the initial surge in the company’s stock was primarily driven by people’s support for Trump rather than having anything to do with the company’s fundamental business prospects.

The Chances Of A Windfall Are Reducing

The declines are diminishing the potential of a windfall for Trump who could have sold his shares to raise funds for his 2024 presidential campaign and the recently incurred additional legal expenses.

Even then, lock-up restrictions spanning six-months would prevent Trump from borrowing or selling against his shareholding.

Trump’s Assertions

Last Thursday, in a post on Truth Social, Trump touted the financial stability of the company. Trump asserted that the company holds more than “$200 million in cash and zero debt.” He also asserted that Truth Social’s follower count was “growing fast.”

It is evident that Trump made attempts to indicate that the company was growing despite any concerns that may have been raised due to the financial disclosures.

Potential For Violating Regulations

According to Michael Klausner, a Professor of Law at Stanford Law School, Trump’s assertions could potentially violate regulations set by the U.S. Securities and Exchange Commission (SEC), the regulatory body overseeing the stock market.

On Monday, Klausner told Newsweek that Trump’s account of a financial windfall as intrinsic to Truth Social, instead of a lifeline provided by DWAC, along with the claim that the platform’s follower count was rapidly growing, provides a misleading view of the company’s viability.

Securities Fraud

Klausner said to Newsweek, “A false statement of ‘material’ information is securities fraud.”

Klausner also gave a warning that this can turn out to be a case of “pumping.”

The Case of Pumping

Klausner explained, “Pumping is a term used to refer to such a statement, but not necessarily by a company insider, as in Trump’s case.”

This could potentially constitute a violation of the Securities Exchange Act of 1934, which regulates statements made by company owners that can potentially impact investor decisions.

The Term “Growing Fast” May Be Misleading

Klausner also pointed out that Trump’s usage of the term “growing fast” ambiguous and potentially misleading unless it is backed by actual growth metrics of the company. Overall, Trump’s statements seem to be contradicting the revelations of the company’s financial challenges.

Klausner said, “If it is growing slowly and Trump calls it ‘fast’ there is some room for the SEC or a court to decide. It would be a judgment call.”

Trump’s Statements Are Contradictory to The Platform’s Financial Situation Prior To The Merger

In a conversation with Newsweek, Kin Lo, Associate Professor of Accounting, Sauder School of Business, said that Trump’s claims present a sharp contrast to Truth Social’s actual financial situation before the merger with DWAC. Truth Social was dealing with a significant burn rate, with expenses exceeding revenue by $58 million against only $4.1 million in revenue.

Lo said, “The company had only $2.5 million in cash, and $70.1 million in liabilities as [of] December 31, 2023.”