2024-04-15 21:25:00
(CNN) –– Shares of Trump Media & Technology Group plummeted again on Monday after the company announced another possible large influx of shares. The struggling company is losing money rapidly and a new stock offering could help it stay afloat.
But there is a downside to returning to the market with more shares: the 21.5 million additional shares announced for sale this Monday would add more than 15% to those already publicly available from the owner of Truth Social. That would substantially devalue the holdings of existing shareholders, including that of former President Donald Trump. And it means the price of millions of shares would fall.
This new measure seeks to register all actions related to the merger that allowed Trump Media to go public, including those that are linked to guarantees. Warrants give the holder the right to buy shares of a company at a certain price.
“The belief is that they are going to exchange the warrant for a stock and then immediately sell that stock,” said John Rekenthaler, vice president of research at Morningstar.
Matthew Tuttle, chief executive of Tuttle Capital Management, says leadership would be “stupid” not to sell more shares, although the move will upset shareholders.
TMTG shares fell more than 18% Monday afternoon. The stock price had soared in recent months in anticipation of the merger of a blank-check acquisition company with Trump’s media business. But it has lost more than 60% of its value since its peak on March 26, the day after the merger was completed and it began trading publicly as TMTG.
Still, the stock’s decline from this recent move will likely be temporary, Tuttle says.
“This is going to make some people angry. Other people might see it and try to buy the fund,” he said. “As long as Trump is in the news in some way, this is going to be a meme stock. People are going to trade it.”
Shareholders, including Trump, have already seen the value of their holdings decline since the company went public.
Anyone who bought Trump Media at its closing high of $66.22 on March 27 has lost more than half their money. The sharp declines have taken a toll on Trump’s net worth. The former president’s stake was valued at $5.2 billion at the closing high of Trump Media’s stock price. As of Monday morning, it had plummeted to about $2.3 billion. Trump’s net worth fell by about $400 million on Monday as stocks plummeted.
The new measure also seeks to register more than 146 million shares held by some shareholders for resale, including Trump’s total of 114.8 million shares: 78.8 million current shares and the potential 36 million shares that could awarded if the price remains above a certain level.
Although they won’t be able to sell those shares immediately, this decision means they are one step closer to being able to do so once the rest of the bans are lifted, including a six-month lockup period, says Michael Ohlrogge, associate professor at the School of Law from New York University.
Why Trump Media Stock Is So Volatile
There are several reasons behind the stock’s surprising volatility. The company is linked to Trump, a polarizing political figure whose association with the stock has drawn scrutiny. Trump Media’s public debut also marked the former president’s return to Wall Street after years of regulatory and legal hurdles.
Experts have warned retail investors to be careful if they decide to trade the stock, especially since the company does not have the fundamentals to support its sky-high valuation. Trump Media lost $58 million in 2023 and made just $4.1 million in revenue.
Trump currently owns more than 57% of the company’s shares. Unless he bought shares in the new public offering, Trump would own just under half of the company’s publicly traded shares after it issues more shares.
But the company needs money. He has said he has substantial doubts about his ability to continue operating. The company generates little revenue, is losing millions of dollars, and is also losing many of its users.
Although the stock offering was not directly related to Trump’s criminal trial that began Monday, the company said in a warning to potential investors that Trump’s ongoing legal proceedings pose a risk to the company’s reputation and brand. .
“President Donald J. Trump is the subject of numerous legal proceedings. “An adverse outcome in one or more of the ongoing legal proceedings could adversely affect TMTG,” the company said. “If President Donald J. Trump were unable to devote significant time to Truth Social, TMTG’s business would be negatively affected.”
CNN’s Matt Egan contributed to this report.
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