Former President Donald Trump’s social media venture made a splashy debut on the stock market, with shares surging by 16% on its first day of trading. Trump Media & Technology Group Corp., the parent company behind the Truth Social platform, saw its market value skyrocket to $7.85 billion, boosting Trump’s personal stake to a whopping $4.6 billion.
The fervor surrounding Trump Media’s initial public offering (IPO) was palpable, driven in part by small-time investors eager to support the former president or capitalize on the company’s hype. However, experts caution that the euphoria may be short-lived, with potential risks looming.
Despite the enthusiastic reception, Trump Media faces significant challenges ahead. The company reported a staggering loss of $49 million in the first nine months of last year, with minimal revenue and substantial interest expenses. Its regulatory filings highlight the inherent risks of investing in a new social media platform, including the high failure rate of such ventures and the uncertainty of turning a profit.
Moreover, Truth Social’s user base pales compared to industry giants like TikTok and Facebook, raising concerns about its ability to gain traction in a crowded market. While the platform boasts roughly 5 million active users, its long-term viability remains to be determined, especially in an industry where achieving critical mass is essential for success.
Analysts like Jay Ritter from the University of Florida’s Warrington College of Business warn of potential pitfalls ahead, including the possibility of a sharp decline in the stock price. Ritter suggests that investors could see their holdings plummet by as much as 95%, echoing concerns about the sustainability of Trump Media’s business model.
The comparison to meme stocks like GameStop and AMC Entertainment further underscores the speculative nature of Trump Media’s stock. Brian Dunn of Cornell University’s Institute for Compensation Studies cautions that small investors could be left holding the bag if the hype surrounding the company fades.
Despite the skepticism, Trump remains bullish on Truth Social’s prospects, touting its success and expressing his unwavering support for the platform. However, the company’s heavy reliance on Trump’s popularity and influence poses additional risks, as any negative developments involving the former president could have detrimental effects on its fortunes.