After a great start on Wall Street, it’s back to reality in the stock market for Trump’s media conglomerate

(BFM Bourse) – The company Tump Media Technology, which oversees social network Truth Social, fell 21.5% on Monday after auditors expressed doubts about the company’s going concern.

The arrival of Trump Media Technologies on Wall Street through a merger with SPAC, a listed investment vehicle without operational activities that eases 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 a spectacular divergence, finally gaining 16%. Then 14.2% in the following session.

But the “hype” surrounding the Trump media has died down. And the return to reality is violent. On Monday, when the European markets were closed, the shares fell by more than 20% (-21.47%) following the publication of new documents of the American policeman with the Securities and Exchange Commission (SEC). It still lost about 3% in pre-opening trading on Wall Street this Tuesday.

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heavy damage

As reported by The Guardian and Bloomberg, these documents reported unfavorable accounts for the company of the former American president, who, according to these papers, owns 57.6% of the capital of this company.

Revenue for 2023 barely reached $4.1 million while net loss exceeded $58.2 million, according to two media outlets.

Documents released by the SEC also cast a shadow over the company’s future. The audit firm responsible for examining Trump Media’s accounts explained that the company’s “financial condition” raised “substantial doubt about its ability to continue as a going concern.”

The company itself highlights among its risk factors that it “may be subject to greater risks than typical social media platforms due to the centrality of its offerings and the involvement of President Trump.” “These risks include active frustration of users, harassment by advertisers or content providers, criticism of Truth Social for its moderation practices on the TMTG (Trump Media, Editor’s Note) platform (…), and increased risk of lawsuits from shareholders. Group lists.

A “meme stock”

In any case, these documents further underscore the murky connection between the multi-billion dollar company’s valuation (around 8.5 billion market capitalization) and its financial statements more worthy of a penny stock.

“The gap between Trump Media’s share price and the company’s underlying performance suggests that some investors are using it to support Donald Trump’s re-election campaign.” Bloomberg writes.

The development of Trump media action is reminiscent of “meme stocks”. That means stocks that individual investors buy into without much focus on fundamentals, but through an emotional connection, as happened 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 rising companies like heroes. , investors in the same stocks invest in their companies’ business activities.” Interested,” said Morningstar’s John Rekentler.

This expert decides that Trump media is more like “cryptocurrency”. “Like bitcoin, people buy Trump media not based on future cash flow, but because they expect its value to rise and they feel connected to the asset,” he says. – That.

Julian Marion – ©2024 BFM Bourse