The Rise And Fall Of Truth Social: Key Insights On DJT's Market Journey

About a month ago, Donald Trump's social media company, Truth Social, went public through a Special Purpose Acquisition Merger (SPAC). In simple terms, prior to the merger, Donald privately owned a company that owned Truth Social. Shareholders in a publicly-traded shell company voted to approve a merger with Trump's private company. In the end, through the magic of SPAC, a new public company began trading on the NASDAQ under the ticker symbol "DJT."

DJT ended its first trading day with a price per share of $56. It ended its second trading day with a price per share of $66. Donald Trump owns 60% of DJT. When the company was trading at $66 per share, its market cap was over $9 billion. At that level, Donald's paper equity in the company was worth around $5.5 billion. That pushed Donald Trump's net worth to an all-time high of $7 billion. Having a net worth of $7 billion also briefly made Donald one of the world's 500 richest people for the first time in his life.

Unfortunately, that point is looking like it might have been the zenith of DJT. And look, it's still very early in the game, but things are definitely not looking good…

Fortune Cut In Half

As we stated a moment ago, on March 27, DJT's share price hit $66. On Tuesday, DJT closed at $22.84. The company's market cap has dropped from $9 billion to $3.64 billion. That's a 60% drop. Trump's paper equity has gone from being worth $5.4 billion to $2.16 billion.

Why? What has happened? That's a funny question. Under normal circumstances, DJT never should have had a $9 billion market cap in the first place. In 2023, Truth Social lost $58 million on $4.1 million in revenue. Those numbers alone should have prevented it from ever being public, let alone having a $9 billion market cap. Or even a $1 billion market cap.

Making matters worse, on Monday, the company announced it was issuing another 21.5 million shares to the public to raise money. When a company issues new shares, the current shareholders get diluted. For example, if there are 100 shares of CelebrityNetWorth and I own 75 of those shares, I own 75% of the company. If CNW issues 50 new shares, there would suddenly be 150 total shares, and yet I still own 75. So, my 75% stake would be worth 50%.

Worst of all for DJT stockholders was a filing made this week. This filing could allow certain insiders (including Donald) to sell their shares very soon, as opposed to waiting until September when their previously-agreed-upon six-month lockup would expire. If this plan goes forward, the company could allow for tens of millions of shares that would have otherwise been frozen for the next six months to be sold imminently. If you are one of the insiders who is granted special early selling privileges, are you going to take advantage of this special privilege or continue to hold? Donald Trump could REALLY use some liquid cash right now to help his legal fights and fund his Presidential campaign. Hedge funds that are also in this group are also not likely to stick around to see what the next few months bring for the stock.

So, at a time when the hype around this very hyped meme stock appears to be fading, tens of millions of new shares could flood the market soon. The real question now is whether the drop from $66 to $22 has already "baked in" the fear or if there's more fear and downside on the way. I have no idea. For a potential history lesson, let's look at the most famous meme stock of all time:

GameStop: A Cautionary Tale

GameStop's stock price went hyper-sonic in January 2021. The price per share went from $4 to $81 in a matter of days. The initial hype quickly faded, and by mid-February, the stock was back down in the $13 range. Still highly respectable compared to $4!

Things went wild again a month later, with the price jumping back up to the $40-50 range. Unfortunately if you bought GameStop at any point during the mania, you are not happy right now. Over the last few years, the price per share has steadily marched right back down to $10. Still respectable compared to its pre-mania $4 price per share, but not so great in comparison to $50, or $80.

AMC: Another Example of Volatility

The other famous meme stock, AMC, followed almost the exact same trend. In June 2021, AMC rocketed from $37 to $230 over a matter of weeks. It dropped to a still-insane $130 by August, then jumped back up to $200. But that would prove to be the best of times. In the years since AMC's stock price has been on a death march down to its current $2.72.

Will DJT follow the same chart? I have no idea! I set a reminder for myself to look back at this article in six months and exactly one year. I'll do updates at both points to see what ended up happening. And in the meantime, we will keep you posted on any other major jumps or drops.