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Former President Donald Trump could offload his 114.75 million shares of Trump Media & Technology Group, or about 60% of the company’s outstanding stock, on Friday. While the move would line his pockets, it could spell trouble for the already troubled stock.
Trump’s stake in the public company behind his right-wing social media site Truth Social is under a six-month lockup period that could end as early as Sept. 20 — if the stock stays above $12 for for any 20 trading days starting Aug. 22. At that point, Trump could sell all or part of his holdings.
If shares fall below $12, then the first day Trump would be able to sell would be Sept. 25, regardless of the stock’s value. Lockup agreements are commonly used by newly-public companies to prevent executives and insiders from selling off their shares, and consequently putting added pressure on investors, in the first few months of trading.
Despite the considerable windfall that a sell-off could generate, Trump said last week that he has “absolutely” no plans to dump his stake in the company.
“The reason I built it is because I don’t want to have my voice shut down,” Trump said during a news conference at his golf course near Los Angeles. “A lot of people think that I will sell my shares, you know, they’re worth billions of dollars, but I don’t want to sell my shares. I don’t need money.”
DJT’s rollercoaster
Trump Media went public on the Nasdaq on March 26 under the ticker DJT after completing its merger with Digital World Acquisition Corp., a special purpose acquisition company, or SPAC.
Since then, its share value has swung from a peak of $79.38 to a low of $21.33. At the height of the hype just after its debut, the company had a market value of roughly $8 billion — billions more than what it is today.
But John Rekenthaler, vice president of research at Morningstar MORN+1.54%, said Trump Media stock is still “extremely overvalued” — a major reason he believes Trump may seize on the chance to sell his shares.
What happens if Trump sells?
The Republican presidential nominee stands to make billions in profits from any sale. At a share price of about $23, where it currently stands, Trump could get about $2.7 billion by selling all of his shares in the company.
“This is great news for Donald Trump,” Rekenthaler said. “It’d be greater if the price were higher, but he put relatively little money into this thing, and he’s got, in theory, well over $2 billion to realize.”
“This is very likely to be his single most successful enterprise,” he added, referring to the potential massive cash out.
Trump currently has a net worth of about $4.5 billion, with much of that coming from New York City real estate and his stake in Trump Media, according to Forbes’ estimates.
While it’s not certain whether Trump will sell, Rekenthaler said the end of the lockup period provides Trump a golden opportunity given Trump Media’s less than ideal business performance.
The company reported a net loss of $16.4 million in the second quarter. In that same period, its revenue plunged 30%, from $1.19 million a year earlier to $836,900. Despite its more than $4 billion market valuation, the company has consistently bled money: In May, Trump Media reported a loss before income taxes of $327.6 million for the first quarter and just $770,500 in revenue.
“He’s got to know his is a better deal when you have the cash in the hand than the equity shares,” Rekenthaler said. “This stock is a sell from a sense of business fundamentals.”
Trump has already enjoyed a considerable windfall from his Trump Media holdings. In April, Trump received $1.8 billion in earnout shares thanks to a provision that granted him 36 million earnout shares if the company’s dollar volume-weighted average price (DVWAP) — the average share price for a period of time, weighted by volume of shares — stayed at at least $12.50 for a minimum of 20 trading days within any 30 trading day period following the merger.
But a selloff could put further downward pressure on the share price, which last week hit new post-merger lows. In a regulatory filing in June, Trump Media cited Trump’s divestment from the company as one of the top risks to its business.
Trump Media is what Rekenthaler calls an “affinity stock.” In other words, much of its market success has been dependent on the company’s connection to the former president.
“It’s purchasing his brand,” Rekenthaler said. “But he’s not going to have a brand if he loses a second straight presidential election.”
The company itself has said in regulatory filings that its “success depends in part on the popularity of its brand and the reputation and popularity of” Trump, and that “adverse reactions to publicity relating to [Trump], or the loss of his services, could adversely affect TMTG’s revenues and results of operations.”
In recent months, news related to the former president has driven much of this volatility. The stock spiked and sank on Trump’s conviction in his New York hush money trial and his debate performance against President Joe Biden in June, as well as last month’s assassination attempt at a campaign rally in Pennsylvania.
The presidential election could also drive major DJT stock movements. Rekenthaler said a Trump loss in November would cause the stock to “go to zero.”
The lockup lawsuit
Co-founders and former Apprentice contestants Andy Litinsky and Wes Moss are held to the same lockup agreement as the former president. In February, the pair sued Trump to stop him from raising the number of total Trump Media shares from 120 million to 1 billion, a move that would dilute their combined 8.6% stake in the company.
A Delaware judge in April allowed Litinsky and Moss to amend the lawsuit, adding an allegation that Trump subjected them to the lockup agreement in retaliation for their falling out.
Trump Media then sued Litinsky and Moss right back, arguing that they should give their stock in the company because of the messy Truth Social rollout and delayed DWAC merger.
Patrick Orlando, former CEO of DWAC, is also under the same lockup deal as Litinsky, Moss, and Trump.