Trump Media suspects illegal short sellers targeting stocks
Trump Media’s leadership claimed the company was being targeted by illegal short sellers seeking to depress the stock price.
Cheddar
As a trading company, Donald Trump’s social media company has become a way for investors to bet on the former president’s chances of retaking the White House.
Since its IPO in March following a merger with a special purpose acquisition company, shares of Trump Media & Technology Group have fluctuated sharply in line with the political success of the company of the same name.
Following Vice President Kamala Harris’ rise to the top of the Democratic ticket, Trump’s poll numbers have declined, along with shares of Trump Media, which owns the Republican candidate’s preferred social media outlet, Truth Social.
The stock fell to a new low since the merger on Tuesday, closing at $20.99. It has lost more than 40 percent of its value in the last 30 trading days.
What happens if Trump sells DJT shares
In regulatory filings, Trump Media has made clear how important Trump is to the company’s brand and warned that the company’s value “could be diminished” if Trump’s popularity wanes.
Now another factor is weighing on the stock. Trump will be able to monetize his book fortune in less than a month. Trump Media has also called Trump’s sale of DJT shares one of the biggest risks to its business.
Trump Media is a major contributor to Trump’s wealth. Its market value is around $4 billion, although the company is making losses and hardly generates any revenue.
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Trump owns about 60 percent of the company’s outstanding shares. He is expected to be able to start selling shares as early as September 20, when the six-month lock-up period that prevented insiders from selling their shares is expected to end.
Trump has made no indication as to whether he intends to sell shares in Trump Media, and his campaign declined to comment.
While selling the shares could help Trump pay his mounting legal bills, it could also pit him against supporters who have already put money into the stock and could be seen as a vote of no confidence in the company.
The prosecutor in the case concerning Trump’s interference in the federal election obtained a new indictment against Trump on Tuesday.
What more Trump Media shares mean for investors
Another key factor in the decline in Trump Media shares is a deal struck in July between Trump Media and Yorkville Advisors to register and sell new shares worth up to $2.5 billion, says Jay Ritter, a finance professor at the University of Florida.
On the one hand, the deal could increase the cash per share on the company’s balance sheet from $1.50 to around $4.50 per share, Ritter said.
“This increase would reduce the downside potential for the stock,” he said.
However, there is a caveat.
“Any upward trend for the company depends on developing a business strategy to generate revenue and profit,” Ritter said. “So far, the company has not been able to find a successful strategy.”
In addition, according to Ritter, additional shares issued under the Yorkville agreement could put pressure on the share price.
Even if Trump does not sell shares after the lock-up period, other insiders could do so, increasing the free float even further, he added.
“The price could fall in part due to the anticipation of these share sales,” Ritter said.