Donald Trump’s meme stock soared in March, but has now crashed.
Experts say its explosive rise and spectacular fall show how powerful people can wield their influence to create large amounts of stock market wealth – but it doesn’t last long without a real business behind it.
Take off, crash
Trump Media & Technology Group owns Truth Social, the former president’s social media platform. The parent company recently went public via a SPAC merger and its shares soared as high as $79 on March 26.
That price valued TMTG at about $11 billion, or about 2,700 times the $4.1 million in revenue it posted last year, which fueled a net loss of $58 million.
However, a disappointing performance update and plans to issue shares sent the stock down about 70% from its peak, just below $23 as of Tuesday’s close. The company’s market value now stands at around $3 billion.
Trump, who owns at least 58% of TMTG, saw the value of his stake climb to more than $6 billion and then fall below $2 billion in less than a month.
The former president briefly joined the Bloomberg Billionaires Index and even secured a place among the world’s 300 richest people. He has since completely disappeared from the rich list since his net worth plummeted.
Destined to fall
Michele Costola, a researcher at Ca’ Foscari University in Venice who studies meme stocks, told Business Insider that TMTG’s actions could reflect Trump’s popularity and his supporters’ confidence in him — or could speak to the perception of the market of its current political power.
“Undoubtedly, TMTG is closely linked to Trump’s personality, suggesting that the driving force behind his price fluctuations could be seen as a reflection of public perception, based on positive or negative news about him” , did he declare.
Costola compared Trump’s company to publicly traded European soccer clubs whose stock prices rise and fall depending on whether they win or lose.
“We can draw a parallel with TMTG stock, tying its market value to Trump’s political performance and the results of the lawsuits he is involved in,” he said.
Trump might be able to convince his base to invest in TMTG and make him rich, said Imran Yousaf, an assistant professor at China’s Wenzhou-Kean University who studies meme stocks.
“Given Donald Trump’s large fan base, particularly during election cycles, he could exert significant influence on specific actions, such as the Truth Social action,” he said.
But he stressed that it probably wouldn’t last unless there was a compelling product or service, because a company’s stocks tend to reflect its long-term fundamentals.
“Hype and Speculation”
Indeed, Warren Buffett is known to say that the stock market is a voting machine in the short term, but a weighing machine in the long term.
Yousaf compared TMTG stock to cryptocurrencies where “hype and speculation often overshadow fundamentals in determining valuations.”
People training and stoking the fear of missing out by using funny images and videos can spur buying frenzies like the GameStop craze in 2021.
But Yousaf said it was “difficult to gauge how much memes alone can boost his stock.” The sharp rise in Truth Social’s price will definitely be a short-term phenomenon as it is not fully supported by fundamentals.”
On Tuesday, TMTG announced plans to launch a streaming platform featuring news, religious and family programming that it says has been canceled or removed by other media outlets.
“There is a lot of great content out there that just can’t find an audience for unfair reasons, and we want to let these creators know that they will soon have a guaranteed platform where they won’t be canceled” , CEO Devin Nunes said in a press release.
businessinsider
