Trump’s new social media company looks like a meme stock

Former President Donald Trump has clearly scored a financial windfall with his media startup, Trump Media & Technology Group, which trades under his initials, DJT. The firm's value soared when it went public on March 26, with the stock up more than 16% on the day. Trump's ownership stake could fetch more than $4 billion.

DJT is basically a meme stock, a kind of viral sensation that attracts investor interest beyond what the company’s fundamentals would ordinarily suggest. That obviously stems from Trump’s notoriety and the fervent belief some supporters have in his “make America great again” crusade.

The Trump company, which went public through a merger with Digital World Acquisition Corp. (DWAC), a special-purpose vehicle that’s been trading since 2021, has little revenue and lost $41 million during the last two years, according to S&P Capital IQ. Many buyers pushing up the stock price have been individual investors expressing loyalty to Trump himself.

But many investors are betting the Trump venture will flop. “There is huuuuge conviction (Trump pun intended) that there will be a significant decline in the stock price in the short term,” Ihor Dusaniwsky, managing director at S3 Partners, said in an email.

The short interest in DJT stock — bets that the price will fall rather than rise — is about 11% of outstanding shares, according to S3. That’s high, but not unprecedented: Average short interest in public companies is in the 3% to 4% range, though short interest can reach 40% or more if traders think a stock is doomed.

But there are very few DJT shares available to execute short trades, which makes it extremely costly to bet against the stock. That means elevated short interest is a strong indicator of negative views of the company’s prospects. “There is very little stock available to support new short sales,” Dusaniwsky said. “But short sellers are staying in this trade even while paying over 200 times the average stock borrow rate for a US short trade.”

And there’s plenty of anecdotal evidence that other buyers are betting on a bubble and hoping to sell before it pops. The stock “is dropping to $2.50 after the merger,” one investor posted on Reddit’s meme stock channel, WallStreetBets. Another suggested anybody holding the stock for the long haul is a “MAGA bagholder” who will basically end up putting money into Trump’s pocket.

Short sellers betting against DJT have lost money so far this year, since the stock has risen in anticipation of the finalization of the merger and Trump’s reemergence on public markets. But there are several reasons to think the Trump company will struggle and shareholders will suffer.

First, the Trump company’s main business, the Truth Social networking app, is a money-losing niche player that has no obvious advantage against competitors such as X and Facebook other than the divisive appeal of Trump himself.

Another risk is Trump’s own financial stake in the company, which has the same ticker symbol as a Trump casino company that went bankrupt in 2004. Trump owns at least 55% of the company, and his stake jumped by more than $1 billion as the stock popped when it went public. But Trump could have a strong incentive to sell shares to pay legal fees associated with four criminal cases he’s battling and two civil cases where he’s been assessed more than $500 million in penalties and fees.