Exciting News for Donald Trump: Potential $1 Billion Boost for Truth Social

Former President Donald Trump is on the verge of a significant financial windfall – at least on paper. If Trump Media & Technology Group's stock price holds steady until Tuesday's closing bell, Trump stands to gain an additional 36 million shares as the owner of Truth Social.

This milestone is expected to be reached after the market closes on Tuesday. Despite Trump Media facing financial losses and Truth Social being relatively small, the new shares that Trump is set to receive would be worth approximately $1.3 billion at the current prices.

Trump's net worth has been fluctuating since his social media company went public recently. As the major shareholder in a stock labeled as a "meme stock on steroids", the former president has experienced ups and downs in his financial status.

Even though Trump Media's stock price has dropped by fifty percent since reaching its peak on March 27, it is still trading above the levels that would activate specific performance clauses in the merger deal.

Trump Media has the option to issue more shares to pre-merger shareholders like the former president based on SEC filings. This can happen if the dollar volume-weighted average price reaches $12.50 or higher for at least 20 trading days within a 30-day period starting from March 25.

If the price metric hits $17.50 or more during the same timeframe, the full earnout of 40 million shares will be activated.

Tuesday is the 20th trading day since Trump Media's share price began on March 25. The share price has stayed above $17.50 throughout this period.

Michael Ohlrogge, an associate professor at NYU School of Law, believes that the earnout conditions will likely be met, considering the consistently high share price.

Trump’s dominant stake

The merger agreement calls for Trump to receive 90% of those earnout shares, translating to 36 million additional shares.

Trump would have an even bigger ownership stake if he acquires 114.75 million shares, making up 65% of all outstanding shares, as stated in the filings.

It's important to note that the share price of Trump Media can fluctuate greatly, causing the value of this stake to vary significantly.

There are also practical and legal restrictions that would likely prevent Trump from cashing in this stock anytime soon.

Former U.S. President Donald Trump attends a campaign event on April 02, 2024 in Grand Rapids, Michigan.

Former U.S. President Donald Trump attends a campaign event on April 02, 2024 in Grand Rapids, Michigan.

Spencer Platt/Getty Images

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‘This thing is going crazy.’ Why Trump Media stock is subject to extreme turbulence

According to documents, Trump seems set to receive earnout shares that are restricted from being sold or used as collateral for a certain period after the merger.

Experts believe that even if Trump found a way to bypass this restriction, it would be challenging for him to sell a large portion of his shares without significantly impacting the share price. This is because Trump holds the largest stake, serves as chairman, and is the most prominent user on Truth Social.

‘Grossly overvalued’

Even though Trump Media’s share price has retreated since spiking to $66 last month, experts warn it remains overvalued based on fundamental metrics.

One popular method for valuing stocks is by looking at their price compared to their revenue.

According to Matthew Kennedy, senior IPO strategist at Renaissance Capital, the typical social media stock has a price-to-sales ratio of around 10x. This group of peers consists of companies like Meta (Facebook), Pinterest, Snap, Reddit, and Rumble.

According to Kennedy, Trump Media is currently trading at over 1,200 times sales. Jay Ritter, a finance professor at the University of Florida, expressed his view that the stock seems to be significantly overvalued.

Ritter, who has been studying IPOs for four decades, expects Trump Media’s share price to eventually plunge to just $1 or $2 per share.

Trump Media gives short-selling prevention tips

Ohlrogge, a professor at NYU, mentioned that the share price of Trump Media is influenced mostly by non-rational factors.

He gave an example of how the stock dropped last week when the company announced its intention to issue new shares.

One America News Network has settled a defamation lawsuit brought against it by the voting technology company Smartmatic.

One America News Network has settled a defamation lawsuit brought against it by the voting technology company Smartmatic.

Drew Angerer/Getty Images

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Pro-Trump network OAN and Smartmatic have settled their 2020 election defamation case. According to a statement from Smartmatic's CEO, the filing for the settlement was expected, as the company had previously announced its intention to take legal action. He also mentioned that the negative impact on the company's stock price was not based on rational reasons, but rather on the actions of uninformed traders.

Trump Media recently showed concern about its share price by taking a rare step. Last week, the company decided to inform its shareholders on ways to prevent their stock from being borrowed by short sellers who are betting against it.

To ensure transparency and provide guidance, Trump Media updated the FAQ section on its website with tips on how to prevent short-selling.

“That is highly unusual,” said Peter Byrne, a securities lawyer at Cooley who focuses on companies going public. “We don’t typically see companies publish information like this.”

Editor's P/S:

The article highlights the financial complexities and uncertainties surrounding former President Donald Trump's stake in Trump Media & Technology Group. While the company's stock price has experienced significant volatility, Trump stands to gain a substantial number of shares, potentially worth billions of dollars. However, the practical and legal limitations surrounding the sale or use of these shares cast doubt on their immediate liquidity. The article also raises concerns about the overvaluation of Trump Media's stock, with experts warning of a potential plunge in share price.

This situation underscores the speculative nature of meme stocks, which are often driven by non-rational factors and can experience extreme price swings. Trump Media's decision to provide tips to shareholders on preventing short-selling further illustrates the company's concerns about its share price and the potential impact of negative sentiment. Ultimately, the fate of Trump's financial windfall will depend on the continued performance of Trump Media and the broader market conditions.