Boosted by a fervent following, Donald Trump made a lively debut on the Nasdaq stock exchange on Tuesday with his company, Trump Media & Technology Group.
Shares of Trump Media & Technology Group surged enthusiastically from the opening bell, maintaining most of their gains until late in the trading day.
However, a late selloff brought the company's value down to nearly $8 billion at market close, comparable to Lyft and Etsy.
Trump, the presumptive GOP presidential nominee and the largest shareholder in Trump Media, experienced a remarkable trading day.
The company's shares peaked at $79.38 before closing at $57.99, near their daily low.
His 60% stake in Truth Social’s parent company, now trading as DJT, is valued at approximately $4.5 billion on paper.
Additionally, if the stock price remains above $17.50 per share for an extended period, tens of millions of additional shares would be issued, primarily to Trump.
While enthusiasm was high among Trump supporters, stock market observers were more cautious. They believe that Trump Media's valuation is disconnected from its business realities.
Truth Social, its flagship product and Trump’s preferred platform, is a minor player in the social media landscape dominated by giants like Facebook's Meta. Despite launching in 2021, Trump Media has incurred significant losses and generated minimal sales. It has also struggled to attract advertisers and users.
The company's success can be largely attributed to Trump himself, who is one of Truth Social's most active users with nearly 6.8 million followers. He boasts 34 million followers on Facebook, 24 million on Instagram, and over 87 million on Twitter.
"It's difficult to justify this valuation using any reasonable metrics," said Derek Horstmeyer, a finance professor at George Mason University.
The one-day surge resembled the behavior of meme stocks like GameStop in recent years. Trump supporters rallied on social media to drive up the stock even before its merger with Digital World Acquisition Corp., a special purpose acquisition company (SPAC), was completed.
Trading volume was exceptionally high, with more than 52 million shares traded compared to a public float of about 28 million shares. Nasdaq even temporarily halted trading following the opening bell due to the intense activity.
University of Florida finance professor Jay Ritter noted that many buyers and holders are motivated by ideological reasons and intend to hold the stock for a long time.
However, Ritter cautioned that the Trump Media bubble could burst, comparing the situation to the GameStop saga where stock prices eventually collapsed after a surge driven by online traders.
Trump's gains from his Trump Media shares have provided him with crucial financial support as he appeals a civil fraud judgment. A New York appeals court recently granted Trump an extension to post a reduced bond of $175 million.
The surge in Trump's net worth, at least on paper, has propelled him into the world's wealthiest 500 people on the Bloomberg Billionaires Index for the first time.
The decision to name Truth Social's ticker as DJT may be strategic, as research suggests that familiar and easily pronounceable ticker names can positively influence stock performance.
Digital World Acquisition, the SPAC that merged with Truth Social, is a publicly traded shell company designed to acquire or merge with private companies and take them public.
Truth Social was launched by Trump after he was banned from major social media platforms following the January 6, 2021, attack on the Capitol.