DWAC Stock s Nosedive as Trump

Turmoil in the Market: DWAC Stock’s Nosedive as Trump Media’s Crucial Merger Vote Faces Legal Storms and Financial Uncertainty
Story by Isaac Jones •
03/26/24


Shares of Digital World Acquisition Corp. ended trading on Friday about 14% lower than their opening price following approval from the shell company’s shareholders for a merger with the social media firm owned by former President Donald Trump. DWAC started the day at $44.20 per share but swiftly declined post-vote. By market close, DWAC shares were at $36.94 each, a decrease of $5.87, or 13.71%. The newly combined Trump Media might be listed as DJT in the upcoming week. Trump holds the majority of shares in the new entity, valued at more than $3 billion based on DWAC’s initial price last Friday.


Shareholders’ approval had been anticipated as a bullish signal for the new entity, poised to trade under the ticker DJT – Donald Trump’s initials. The endorsement seemed to offer a glimmer of financial reprieve for Trump, who holds the majority of shares in the newly merged company. However, the subsequent stock plunge has cast uncertainty over the actual market value of his stake, as well as the overall stability of the new company.

The decline in DWAC’s share price was a stark contrast to the previous surge of more than double this year in anticipation of the merger, indicating heightened investor anxiety regarding the newly formed company’s future. Moreover, a total of 11% of the tradable shares of DWAC were reportedly being sold short, signifying a bet by some investors that the share price would further diminish.

Trump’s own financial landscape is complicated by an imminent $454 million bond in a civil fraud case. His public stance on social media suggested he would not liquidate assets to cover the bond, emphasizing the cash would be channeled towards his presidential campaign. The lock-up period typical in SPAC transactions, which prevents insiders from selling shares for six months post-merger to ensure market stability, further restricts Trump’s immediate liquidity and ability to leverage his stake to address legal financial obligations.

The legal and regulatory challenges facing the merger have also been a cause for concern among investors. Ongoing litigation seeking to block the merger, and the risks outlined in Digital World’s filings – such as the possibility that Trump may vote in his own interest as a controlling stockholder, not necessarily aligned with other shareholders’ interests – have added layers of uncertainty to the deal. Furthermore, the financial fundamentals of Trump Media, which reported a loss of $49 million in the first nine months of last year, have raised doubts about the company’s valuation and the prospects of its flagship product, Truth Social.

The downside for Trump is that this investment isn’t as easily convertible to cash as it seems. Converting those potential profits into actual money would pose a significant challenge for him.

In reality, Trump’s ownership in this firm is notably less liquid than his real estate assets, as per Charles Whitehead, a law professor at Cornell Law School.

Moreover, analysts suggest that the market is significantly inflating the value of Trump Media without solid fundamentals to support it.

As a result, Trump would face considerable difficulty selling off the stocks or using them as collateral.

“The stock price is clearly a bubble,” Yale law professor Jonathan Macey told CNN. “No rational investor would take the stock at face value, especially if they had to hold it for any length of time.”

SEC filings show that Trump Media generated only $1.1 million in revenue in the third quarter, resulting in a $26 million loss for the company.

Relevant articles:

– DWAC stock tumbles more than 12% after Trump social media merger approved by shareholders

– Trump is about to get $3 billion richer after deal is approved to take his company public. But it won’t solve his cash crunch, CNN, Fri, 22 Mar 2024 16:07:30 GMT

– Donald Trump’s Stock Drops After DWAC Merger News, Newsweek, Fri, 22 Mar 2024 15:24:55 GMT

– Trump’s social media company approved to go public, potentially netting former president billions, Yahoo Finance, Fri, 22 Mar 2024 15:20:08 GMT

***
Trump's Stock Gets a Warning From Jim Cramer
Story by Alexander Fabino •

03/27/24
Former president Donald Trump and CNBC's Jim Cramer attend an event hosted by NBC Universal. Cramer has called DJT "overvalued" as the stock is detached from Wall Street fundamentals.
Former president Donald Trump and CNBC's Jim Cramer attend an event hosted by NBC Universal. Cramer has called DJT "overvalued" as the stock is detached from Wall Street fundamentals.
© Michael Loccisano/FilmMagic
In a stock market where fundamentals often outweigh sentiment, Trump Media & Technology Group Corp debuted this week and is blurring the line between investing and political allegiance.

The stock, flagged by CNBC's Jim Cramer as "overvalued," is the latest instance of the "meme stock" phenomenon, with its valuation drawing skepticism from seasoned market observers.

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Trump Media & Technology Group—trading under the DJT ticker—has emerged as election stock, attracting attention far beyond traditional financial metrics. With a market cap that belies its modest revenue and operational losses, DJT's trajectory is being propelled by a mixture of Trump's ardent supporters and speculative traders.

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Experts say that the mix, alongside significant short interest and the backdrop of Trump's reduced bond in his high-profile New York fraud case, sets the stage for a stock story that is as much about the 2024 election cycle as it is about investment logic.
"Like him or hate him, know that this stock is overvalued," Cramer tweeted, echoing sentiments shared by other market observers like Matt Tuttle, founder of Tuttle Capital Management, who previously told Newsweek that there will be "tons of volatility" in the stock in the run up to the November presidential elections.

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Said pointedly, experts like CNBC's Robert Frank believe this is a stock that is being moved by retail investors and Trump supporters and is completely detached from Wall Street-proven fundamental analysis.

"This is the combination of a meme stock, and the first purely political stock," Frank said on CNBC's Squawk Box on Wednesday. "It's like this new hybrid that people can express their excitement for politics, and their excitement over the stock, without regard to any of the fundamentals."

Newsweek has sought comment from DWAC through its designated investor relations channel.

Indeed, the financials underlying Trump Media & Technology Group and its stock price suggest a fairly wide discrepancy. Despite commanding a market capitalization of $9.84 billion at the time of writing, the company reported mere revenues of $3.4 million over the first nine months of 2023, alongside losses totaling $49 million.

Those figures stand in contrast to the company's soaring stock price at $68.01 per share, a phenomenon characteristic of meme stocks, which are driven more by sentiment than by solid financial fundamentals.

Contributing to the volatility is the substantial interest from retail investors, who, driven by allegiance to Trump or speculation on election outcomes, have shown a willingness to invest in DJT irrespective of its financial grounding.

That willingness places DJT alongside other meme stocks according to CNBC's Bob Pisani, characterized by high retail participation and a detachment from fundamental analysis.

"What does Reddit, Trump Media & Technology or 'DJT' as we call it, and GameStop all have in common? They all have strong retail participation. So called meme stocks are having a moment again," Pisani said during CNBC's Squawk Box on Wednesday.

DJT's meme stock status is magnified by the considerable portion of its float being shorted. Data from S3 partners reveal that 11.69 percent of DJT's float is shorted, indicating a bet against the stock's long-term viability by investors skeptical of its meteoric rise.

However, for the former president, the completion of the merger and its positive stock performance thus far couldn't have come at a better time.

Trump, who owns 58 percent of DJT, must pay a $175 million bond to put his civil-fraud judgment on hold during his appeal. That number is far less than the $5.7 billion windfall that he just came into.

Despite the allure of newfound wealth through his company's public offering, Trump does face constraints on liquidating his shares due to standard market regulations that prohibit selling or borrowing against shares within the first six months post-listing.

However, that can change as the restrictions could be circumvented with approval from the company's seven-member board, which comprises individuals closely aligned with Trump, including his son, Donald Trump Jr., and former high-ranking officials from his administration.

In the midst of judgments and windfalls, the former president alerted his followers on the newly public social media platform assuring them that the $175 million bond—a reduction from an initially staggering $450 million—will be promptly addressed.

"We will abide by the decision of the Appellate Division, and post either a bond, equivalent securities, or cash," Trump said on Truth Social. He further criticized the original decision as "ridiculous and outrageous," reflecting his contentious relationship with the legal proceedings.

With the judge providing an additional 10 days for the bond to be posted, extending the deadline to April 4, the immediate necessity for Trump to liquidate his newly valuable stock holdings seems diminished.

And according to CNBC's analysts, Trump would have a hard time finding a bank that would lend him money on his shares due to the company's recent market debut and its inherent volatility.

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