Fiery Flash: Volatility in Trump Media & Technology Group (TMTG)

Our Fiery Flash of the week is a one-of-a-kind company: Trump Media & Technology Group (TMTG). Shares of the company have experienced significant volatility, dropping by 22% in the past five trading days and 46% from their October 29 high. Despite these declines, the stock remains up by 27% over the last month and 58% year-to-date. Pretty volatile, isn’t it? The current market capitalization stands at approximately $6 billion USD, notably below its peak valuation of $11.2 billion USD.

TMTG is a media and technology company founded by former, and now new elect, U.S. President Donald Trump. TMTG went public through a merger with Digital World Acquisition Corp (DWAC). Trump currently still owns close to 53%, after selling close to 5% since March 2024. The company's primary product is Truth Social, a social media platform launched in 2022, which initially was positioned as an alternative for Twitter, now owned by Trump's election buddy Elon Musk. TMTG is also in the process of launching its own TV streaming platform. 

On Monday, the company published its third-quarter results, reporting revenues of $1 million, a decline of 5.6% year-on-year. This brings year-to-date revenues to $2.6 million, down 22.5% compared to the same period last year. Operational expenses surged to $18 million in the past quarter, resulting in a quarterly operational loss of $23.7 million and in a year-to-date operational loss of $140.7 million. The net loss for the quarter was slightly lower, at $19.2 million, thanks to interest earned on the $673 million in cash, mostly proceeds from the SPAC IPO. Year-to-date operational cash flow, after deducting capital expenditures, amounted to a negative $57.7 million.

TMTG’s shareholder base has limited institutional ownership, with approximately 10.2% of outstanding shares, suggesting that most shareholders are individual investors. Given the emerging nature of the business, these shareholders appear to trade the stock less on financial fundamentals and more as a symbolic expression of their support for Trump. For some, it may also represent a speculative bet on the company's potential growth tied to Trump’s return to the White House. However, in this context, the recent decline in the share price over the past week seems to contradict the outcome of the presidential election.

A possible explanation for the recent sell-off could be the "animal spirits" instinct of traders, buying the rumor and selling the news. It could also stem from concerns that, with Trump now serving a second term as U.S. president, he might sell his majority stake in TMTG to avoid a potential conflict of interest, as suggested by The New York Times. Additionally, some investors may be seeking clarity on how the relationship between Trump and Elon Musk will evolve and whether there will be enough room for their respective social media platforms to coexist. According to various sources, X Holdings' latest valuation hovers around $9.4 billion, approximately 79% below the $44 billion Musk paid for Twitter. In 2021, Twitter generated more than $5 billion in revenue; by 2023, X's estimated revenue had declined to $2.3 billion.