The stock has bigger problems than whether the former president sells his stake or not.
When a stock is down more than 60% in just three months, you know there’s probably something seriously wrong. That’s the kind of tailspin that Trump Media & Technology Group (DJT 5.51%) is in right now. While there was a lot of bullishness and excitement around the stock earlier this year, that has come to a grinding halt.
One thing investors have been worried about that could make things even worse for the stock is the prospect of Donald Trump selling his shares of the business. Recently, however, he has vowed not to do so. But while that might be encouraging and seem like a vote of confidence for investors, here’s why it may not save the stock from plunging even further.
Trump says he doesn’t plan to sell his stake, but that hasn’t been saving the stock
Last week, the lockup period ended that would have allowed insiders such as Trump to sell their shares of the company. Lockups are to ensure that insiders don’t sell their shares immediately after the stock goes public. They typically last six months, and Trump Media stock went public on March 26.
But earlier in the month, the former president tried to assure investors that he was not going to unload his 60% stake in Trump Media stock as soon as the lockup period expired. He said he had “absolutely no intention of selling” and that “a lot of people think the reason it’s down is a lot of people think I’m going to sell, and if I sell, it’s not going to be the same.”
His words, however, have failed to stop the stock’s free fall. And that’s because there are much bigger issues around Trump Media than just whether or not Trump holds on to his shares of the business.
The company is deeply unprofitable and that might not change anytime soon
Trump Media does not have a lot of revenue flowing through and it’s burning through cash. Moreover, its social media platform, Truth Social, doesn’t report its user growth, or daily or monthly active users.
Some estimates peg the social media platform as having just 5 million monthly users. Many prominent platforms have hundreds of millions of monthly users. And even if at least Truth Social were growing at a fast rate, investors would expect to see a metric related to that — but that isn’t the case.
If the social media platform isn’t popular and growing rapidly, then that’s a problem, as that is what advertisers look for when buying ads. If there aren’t a lot of eyeballs on an app’s screen, then it’s of little value for advertisers who want to reach a wide audience.
In its most recent quarter, which ended on June 30, Trump Media generated just $837,000 in revenue — nowhere near the $19.5 million in operating expenses it incurred during the period. Without drastic growth in its business, it’s near impossible at this point to envision a scenario in which the business gets anywhere near profitability.
Trump Media stock isn’t worth taking a chance on
At a market cap of $3 billion, Trump Media stock looks extremely overvalued for what it offers investors in return for its high price tag. Many view the stock as a speculative bet on the former president’s chances of winning the next election. When hopes were high, so too was the stock price. Now, the reverse appears to be taking place, especially with Trump coming off an unimpressive debate recently with Democratic candidate Kamala Harris.
But even an election win for Trump might only temporarily boost this speculative stock. Trump Media isn’t a solid business that’s making a whole lot of money today, and there doesn’t seem to be much hope of turning a profit in the near future, and that’s what should be most important to investors — not whether Trump sells his stake in the company or if he wins the election.
At the end of the day, investors are still investing in a business, and Trump Media doesn’t appear to be doing all that well. Investors will likely be better off pursuing other growth stocks instead.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
