Trump Loses $1.3 Billion as Social Media Stock Tumbles After Surge

Former President Donald Trump's media company, Trump Media & Technology Group, faced a steep decline in stock value after weeks of rapid growth not linked to company fundamentals. The owner of Truth Social saw its share price plunge by 22.3% on Wednesday, marking its most significant one-day loss since going public. This decline edged out the prior record drop of 21.5% in April.

Before the drop, Trump’s stake in Trump Media was valued around $5.9 billion, thanks to an inflated stock price topping $51 per share. By the close of trading Wednesday, the value had fallen to approximately $4.6 billion, resulting in a $1.3 billion hit to Trump’s net worth in a single day.

Analysts and traders remain puzzled over what caused the abrupt fall, as Trump Media hasn’t issued any substantial news that would account for the sharp decline. Some investors attributed the slide to technical trading factors, while others pointed to a loss of momentum in what has become a "meme stock."

The stock has been unusually volatile throughout the year. Over just a five-week period from late September, Trump Media’s stock price quadrupled. Investors on Wall Street fueled the rapid increase, placing speculative bets on Trump’s potential return to the White House. By Tuesday, the rally had pushed Trump Media’s market value to $10.3 billion, even briefly exceeding the implied value of Elon Musk’s social media platform, X, formerly known as Twitter.

Despite its impressive valuation, Trump Media’s fundamentals reveal a stark contrast. Truth Social currently has only 698,000 monthly active users in the United States, according to Similarweb data. In comparison, X has around 70 million monthly active users in the U.S. across iOS and Android platforms, about 100 times Truth Social’s user base. Similarly, Meta’s Threads has roughly 20 times the user count of Truth Social.

'Head-Scratcher' Valuation and Meme Stock Status

Trump Media’s market valuation has left experts questioning its sustainability. Even with a valuation of over $8 billion, the company’s revenues remain modest at just $1.6 million for the year, particularly when compared to other media giants. For instance, Paramount Global, a company with a lower market cap, has generated over $14 billion in revenue this year.

According to Dan Ives, a senior equity analyst at Wedbush Securities, “Fundamentally the valuation is a head-scratcher, but we have seen similar trends in other meme stocks like AMC and GameStop over the past few years.” Ives pointed out that Truth Social’s market value may reflect investor sentiment regarding the upcoming election rather than the company’s underlying performance.

On Wednesday, Matthew Tuttle, CEO of Tuttle Capital Management, attributed the sell-off to Trump Media’s failure to breach key resistance levels. “It’s the way the game is played with these types of stocks,” he noted, explaining that more experienced traders often cash out, leaving less-experienced traders holding overvalued shares.

One factor that has buoyed Trump Media’s price is the high cost of borrowing shares to short. Tuttle described borrowing expenses as “completely insane,” making it nearly impossible for investors to bet against the stock effectively.