By Trump Media & Technology (DJT) stock price has imploded. It has crashed to $17, its lowest point since January, and by almost 80% from its highest point earlier this year. Its market cap has dropped from over $9 billion to about $3.5 billion.
Lockup expiry is coming
The DJT stock price will likely continue falling this month as the lock-up expiry is set to expire. In the aftermath, Donald Trump, the majority owner of the company will be free to sell his stake.
Odds are that Trump will start selling immediately because of the difficult situation he finds himself in. He needs liquid cash to fund his campaign, pay for legal fees, and pay for the past penalties.
Additionally, Trump will want to sell his stake because of the stock’s performance in the past few months.
Most importantly, he knows very well that TruthSocial is not doing well, which explains why he has started to use X and Facebook to reach a wider audience.
In most cases, stocks tend to drop sharply ahead of a lockup expiration as insiders start to exit their trades.
Trump Media financial results
The recent performance of the DJT stock is in line with what I predicted a few months ago. In that note, I said that while DWAC was a good and highly successful stock, DJT would face more challenges.
As a blank check company, DWAC’s quarterly and annual documents were relatively vague. This is very different from Trump Media, which is an operating company that is required by law to publish accurate documents each quarter.
The most recent results showed that the company was struggling. Its quarterly revenues came in at $836,000, a drop from the $1.1 million it made in the same period last year. Also, its half-year revenue dropped to $1.6 million.
While Trump Media is a fairly new company, these numbers mean that it has not gained traction among users and advertisers. Its revenue would have been much higher if was popular with the two parties.
Trump Media is a cash incinerator, which is understandable for a company in its position. Its net loss came in at over $16.3 million. As part of its development, Trump Media launched its CDN network and has recently unveiled its streaming solution.
On a path towards bankruptcy?
Trump Media faces numerous challenges ahead. First, there are signs that Donald Trump will not win the general election in November. Recent polls show that Trump and Kamala Harris are neck-and-neck in six swing states.
One reason why the DJT stock is popular with traders is the view that the company will thrive if Donald Trump wins the election. Now, if he loses, there is a chance that activity in its platform will dwindle.
Second, TruthSocial is still a small part of the tech industry. Data by SimilarWeb shows that its website had just 15 million visitors in July. In contrast, Gab, a smaller right-leaning platform had almost 7 million users while Reddit had 3.56 billion. Reddit is now valued at over $9.6 billion.
Third, Trump Media is a potential dilution machine because of its balance sheet. The company ended the last quarter with over $343 million in cash and short-term investments. While this is a lot of money, the company is expected to burn most of it because it is not bringing in any meaningful revenues.
Trump Media has already started raising cash from investors. Last week, it registered 5 million shares for sale to fund its streaming ambitions. Before that, it announced $105 million raised in warrants. I believe that this dilution will continue for a long time.
Additionally, there are signs that Trump’s recently launched streaming service is not doing well. To become a successful player in streaming, the company will need to spend a lot of money to attract talent in its platform.
The other important reason why Trump Media may file for bankruptcy is that it will never attract large advertisers. In the last few years, large spenders have avoided airing their ads in right-leaning platforms like Fox News, Rumble, and TruthSocial. Without these advertisers, it will be difficult for the company to succeed.
DJT stock price analysis
The daily chart reveals that the Trump Media stock price has been in a strong bearish trend in the past few months. Most recently, the shares crashed below the key support level at $22.60, its lowest level in April this year.
Trump Media shares have also formed a death cross chart pattern as the 200-day and 50-day moving averages crossed each other. Therefore, the path of the least resistance is downwards, with the next immediate level to watch being at $14.52, its lowest point in October last year.
In the future, I believe that DJT may become a penny stock before eventually filing for bankruptcy. However, the risk for shorting Trump Media stock is that it has a highly dedicated fanbase, meaning that it will likely have some short-term short squeezes.
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