In a surprising development, the shares of a social media company associated with former President Donald Trump have seen significant declines after five-week adjustments totally uncorrelated with the firm’s business activities. Trump Media & Technology Group, which owns Truth Social, is reported to have dropped by 22.3 % its share price on Wednesday. This unexpected reversal was the worst drop endured by Trump Media’s shares within a single day since the firm listed on the exchange in March which beat the previous 21.5 percent losses on April 1.
Over the past several months, Trump Media’s worth has increased exponentially owing to the beliefs, hopes, and feelings on Wall Street that Trump would be victorious in the next election. The stock had increased four times that amount from 23 September until trading closed on Tuesday, creating a market value for Trump Media of 10.3 billion dollars. On Tuesday, estimates indicated that Trump held about $5.9 billion worth of shares in the company. Nevertheless, a day later, by the end of the market, the value of his shares had descended to $4.6 billion which translated to a $1.3 billion drop in one day.
Most of the recent increase in their stock price can be ascribed to speculation as opposed to anything rooted in actual business developments. Trump Media has not provided any major updates which would warrant the daily prices. Accordingly, the analysis of the stock price movement became largely a reflection of how investors were feeling about Trump winning the elections. Thus, the stock of Truth Social has been more of a ‘meme stock’, showcasing bizarre patterns of movement that do not need any news or announcements in order to rise or fall.
In technical terms, the selling pressure seems to be caused by the backbone erosion and sector rotation. Commentators have always responded that the falls had something to do with the stock hitting certain resistance levels and declining thereafter. The previous few weeks saw almost a straight line rally of Truth Social stock, hence the significance of the reversal on Wednesday makes sense. Because the stock advanced without any fundamental business expansion to rationalize its price, analysts without stressed tees have described its valuation as a ‘head-scratcher’.
As a matter of proportion, when put in the context of other media organizations of similar worth, the fundamentals of Trump Media are quite average. For example, leading CBS’s parent company, Paramount Global, has earned over $14 billion this year but has a valuation lower than Trump Media’s. Conversely, the parent company of Truth Social has earned only $1.6 million in 2024 so far, yet the market cap of her company briefly overtook that of X. the social network bearing the brand of Elon Musk, the former owner of twitter. This is even with the knowledge that the X app has about 70 million active users in the United States on ios and android as per Similarweb, whereas Truth social has around 698, 000 active monthly users.
Further underscoring the disconnect in valuation, Meta’s new platform, Threads, has around 20 times the user base of Truth Social, yet Trump Media remains valued as though it’s a significant social media contender. Analysts draw parallels between the stock’s behavior and other “meme stocks” such as AMC and GameStop, which have similarly seen wild valuation swings disconnected from their business realities. Wedbush Securities’ senior equity analyst Dan Ives noted that while Truth Social has far fewer users than other platforms, the proximity of the election has turned its stock into a litmus test for some investors betting on the outcome of the presidential race.
The problem with technical strategies in trading the stock of Trump Media Inc. only causes more fluctuations in the stock. Matthew Tuttle, Tuttle Capital Management CEO, points out the major expenses involved in shorting Truth Social, making shorting extremely unappealing for investors. The shorting factors for the stock are said to be ‘absolutely crazy’ thus rendering shorting impracticable. Consequently, the shares are very volatile since only adventurous buyers who are prepared to take there volatility in the prices up or down come in.
Tuttle elaborated that experienced traders know how to mitigate these risks, for instance, by taking their profits and leaving the other investors to endure the fluctuations of the stock. This strategy again affirms that stocks of Trump Media and other similarly placed firms are seen as more speculative vehicles than a calm equity performing according to the sound business calculations.
Wednesday’s loss provides insight into how the volatility of Trump Media is mainly borne out of the greater fool speculation evident in some stocks, particularly those associated with celebrity figures such as Mr. Trump. It is not clear if the social media app will find a normal range or be as sporadic as it has been this year, but the drop on Wednesday shows the dangers for investors who decide to play with such a stock which is more about user base rather than any real business.
