Finance

These investors think Trump’s new IPO will fail


Former President Donald Trump is clearly enjoying a financial victory with his media startup, Trump Media & Technology Group. Companies Listedpossibly this week, Trump’s ownership stake Sales price could exceed $3 billion.

But many investors seem to think Trump’s venture will fail. Trump’s new startup will go public through merger with Digital World Acquisition Corp (Devak), A special vehicle Been trading since 2021. DWAC shares surged from an opening price of $10 to a 2022 high of $98 after revealing plans to merge with Trump’s startup.

The stock has since fallen back to around $50, and there’s still a lot of negative sentiment yet to be priced into the stock. “There is a strong belief (Trump’s pun) that the stock price will fall significantly in the short term,” Ihor Dusaniwsky, managing director at S3 Partners, said in an email.

this Short Interest in DWAC Stock Betting that prices will fall rather than rise is about 11% of shares outstanding, according to S3 data.That’s high, but not unprecedented: average short interest in public companies is concentrated in 3% to 4% rangebut if traders believe a stock is destined to fail, short interest can reach 40% or more.

But there are very few shares of DWAC available to execute short trades, making shorting the stock extremely costly. This means that rising short interest is a strong indicator of a negative view on the company’s prospects. “There are new short sales,” Dusanievsky said, “but short sellers will continue to engage in the trade even though they pay more than 200 times the average stock borrowing rate for U.S. short sales.”

DWAC has essentially become meme stocks, a viral sensation that attracts investor interest beyond what a company’s fundamentals would typically suggest. This apparently stems from Trump’s notoriety and the fervent belief among some supporters in his “Make America Great Again” movement.

Many buyers push up DWAC’s price Individual investors express loyalty to Trump himselfBut there’s plenty of anecdotal evidence that other buyers are betting on the bubble and hoping to sell before it bursts.

“DWAC will drop to $2.50 after the merger,” An investor posted on the Reddit meme stock channel WallStreetBets. Another person who recommends holding stocks for the long term is a “MAGA bagholder” who essentially ends up putting money in Trump’s pocket.

Short sellers betting against DWAC have lost money so far this year as the stock has risen in anticipation of the merger closing and Trump’s reappearance in the public markets. But there are several reasons to think Trump Co. will be in trouble and shareholders will suffer once the company fully goes public.

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CHICAGO, ILLINOIS - MARCH 25: In this photo illustration, Truth Social, the social media platform of Republican presidential candidate former President Donald Trump, is shown on a tablet on March 25, 2024 in Chicago, Illinois. The company is expected to trade tomorrow on the Nasdaq market under the symbol DJT. Trump reportedly owns about 58% of the company, which could be worth about $3 billion.  (Illustration by Scott Olson/Getty Images)

Former President Trump’s social media platform, Truth Social, is expected to be listed on the Nasdaq market tomorrow under the trading symbol DJT. (Scott Olson via Getty Images)

First, Trump’s company’s main business, the Truth social networking app, is a money-losing niche player with no clear advantages over competitors like X and Facebook, aside from Trump’s own divisive appeal. little income Millions of dollars have been lost since its launch in 2022.

Another risk is Trump’s own financial stake in the company, which will trade under the ticker DJT – with Trump Casino Company, which went bankrupt in 2004Trump will own at least 55% of the combined company, worth at least $3.3 billion at its current valuation. But Trump may have a strong incentive to sell shares to pay more than $500 million in legal fees and penalties related to the four criminal cases he is handling and the two civil cases for which he is being assessed.

Trump has to wait six months Under the terms of the merger, he must sell any stock in the public company before selling it. But that still gives him until October to sell shares. Corporate boards could also waive the rule, which seems reasonable given that the board is made up of Trump cronies and his cronies. son, Donald Jr.;

If Trump sells shares in his company, or investors even think he might sell shares, that would put downward pressure on the stock price, as typically happens when any insider sells stock. If Trump dumps large amounts of stock to raise money quickly, stocks could plummet in value.

Shares have already been volatile on news related to Trump’s personal finances. On March 25, a New York court reduced the amount Trump must pay during his appeal of a civil conviction for commercial fraud from $464 million to $175 million. DWAC shares jumped nearly 20% on the news as it suggested Trump may be less likely to sell shares in his company to raise money. For publicly traded stocks, that’s very sensitive to one’s financial health, and it’s likely to go in the opposite direction if or when Trump suffers a setback.

The third risk is that Trump, the likely 2024 Republican presidential candidate, loses to current President Joe Biden in November. A second loss to Biden would leave the 77-year-old Trump with little political future except as a political opportunity. Honorary Chairman of the Republican Party. The Truth Society ceased to be a “place” for Trump supporters to talk and became a remnant of the Trump movement. Trump’s company is certainly a unique way to monetize your political belief in Trump. Results of the 2024 presidential election.

Rick Newman is a senior columnist Yahoo Finance. Follow him on Twitter: @rickjnewman.

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