Former President Donald Trump is on the cusp of scoring a major financial bonanza – at least on paper.

As long as Trump Media & Technology Group’s share price doesn’t spectacularly implode before Tuesday’s closing bell, Trump is on track to receive another 36 million shares as the owner of Truth Social.

This milestone is on track to be hit after the market closes on Tuesday.

Even though Trump Media is losing money and Truth Social is very tiny, those new shares Trump is in line to receive would be valued at about $1.3 billion at current prices.

Trump’s net worth has been on a roller coaster ride ever since his social media company finalized its deal to go public late last month. The former president is the dominant shareholder in a stock that has been called a “meme stock on steroids.”

Although Trump Media’s share price has been cut in half since peaking on March 27, it’s still trading comfortably above levels that would trigger certain performance provisions in the merger agreement.

According to SEC filings, Trump Media can issue additional shares to pre-merger shareholders such as the former president if the dollar volume-weighted average price equals or exceeds $12.50 for any 20 trading days within any 30 day trading period beginning on March 25.

The full earnout of 40 million shares would be triggered if that price metric equals or exceeds $17.50 over the same timeframe.

Tuesday marks the 20^th trading day and Trump Media’s share price has not traded below the $17.50 level at any point since the clock started on March 25.

“It seems almost certain to me that the earnout conditions will be satisfied at this point, given how high the share price has been,” said Michael Ohlrogge, an associate professor at the NYU School of Law.

Trump’s dominant stake

The merger agreement calls for Trump to receive 90% of those earnout shares, translating to 36 million additional shares.

That would give Trump an even more dominant stake of 114.75 million shares, amounting to 65% of the total outstanding shares, according to filings.

Of course, Trump Media’s share price is subject to extreme volatility, meaning the value of this stake can swing wildly.

There are also practical and legal restrictions that would likely prevent Trump from cashing in this stock anytime soon.

According to filings, the earnout shares Trump appears to be in line to receive are subject to the lock-up restrictions that prevent insiders from selling or borrowing against their stock for months after the merger closed.

Even if Trump was able to get around this lock-up agreement, experts say it would be practically difficult for him to sell a sizable chunk of his stake without causing a crash in the share price. After all, Trump is the largest shareholder, chairman and most popular user on Truth Social.

‘Grossly overvalued’

Even though Trump Media’s share price has retreated since spiking to $66 last month, experts warn it remains overvalued based on fundamental metrics.

One common way to value stocks is to compare its price relative to its revenue.

The average social media stock trades at a price-to-sales ratio of roughly 10x, according to Matthew Kennedy, senior IPO strategist at Renaissance Capital. That peer group includes Facebook owner Meta, Pinterest, Snap, Reddit and Rumble.

By comparison, Trump Media is trading at north of 1,200 times sales, according to Kennedy.

“The stock appears to be grossly overvalued,” said Jay Ritter, a finance professor at the University of Florida.

Ritter, who has been studying IPOs for four decades, expects Trump Media’s share price to eventually plunge to just $1 or $2 per share.

Ohlrogge, the NYU professor, said Trump Media’s share price is “responding primarily to non-rational factors.”

For instance, Ohlrogge pointed to how the stock plunged last week after the company indicated it plans to register new shares.

“There should have been nothing surprising about that filing since it was just doing precisely what the company said it would do after it went public…There was no real rational reason to have a negative impact on the price,” he said, adding that the price reflects the “whims and sentiments of very uninformed traders, driving the price this way and that.”

In a sign that Trump Media is worried about its share price, the company took the unusual step last week of telling its shareholders how to avoid their stock from being loaned to short sellers betting against it.

Trump Media updated a FAQ section on its website to include the short-selling prevention tips.

“That is highly unusual,” said Peter Byrne, a securities lawyer at Cooley who focuses on companies going public. “We don’t typically see companies publish information like this.”

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The U.S. government moved closer to banning the video social media app TikTok after the House of Representatives attached the measure to an emergency spending bill on Apr. 17, 2024. The House voted on each of the four components of the bill, and the one affecting TikTok passed 360-58 on Apr. 20, 2024. The packaging is likely to improve the bill’s chances in the Senate, and President Joe Biden has indicated that he will sign the bill if it reaches his desk.

The bill would force ByteDance, the Chinese company that owns TikTok, to either sell its American holdings to a U.S. company or face a ban in the country. The company has said it will fight any effort to force a sale.

The proposed legislation was motivated by a set of national security concerns. For one, ByteDance can be required to assist the Chinese Communist Party in gathering intelligence, according to the Chinese National Intelligence Law. In other words, the data TikTok collects can, in theory, be used by the Chinese government.

Furthermore, TikTok’s popularity in the United States, and the fact that many young people get their news from the platform – one-third of Americans under the age of 30 – turns it into a potent instrument for Chinese political influence.

Indeed, the U.S. Office of the Director of National Intelligence recently claimed that TikTok accounts run by a Chinese propaganda arm of the government targeted candidates from both political parties during the U.S. midterm election cycle in 2022, and the Chinese Communist Party might attempt to influence the U.S. elections in 2024 in order to sideline critics of China and magnify U.S. social divisions.

To these worries, proponents of the legislation have appended two more arguments: It’s only right to curtail TikTok because China bans most U.S.-based social media networks from operating there, and there would be nothing new in such a ban, since the U.S. already restricts the foreign ownership of important media networks.

Some of these arguments are stronger than others.

China doesn’t need TikTok to collect data about Americans. The Chinese government can buy all the data it wants from data brokers because the U.S. has no federal data privacy laws to speak of. The fact that China, a country that Americans criticize for its authoritarian practices, bans social media platforms is hardly a reason for the U.S. to do the same.

I believe the cumulative force of these claims is substantial and the legislation, on balance, is plausible. But banning the app is also a red herring.

In the past few years, my colleagues and I at UMass Boston’s Applied Ethics Center have been studying the impact of AI systems on how people understand themselves. Here’s why I think the recent move against TikTok misses the larger point: Americans’ sources of information have declined in quality and the problem goes beyond any one social media platform.

The deeper problem

Perhaps the most compelling argument for banning TikTok is that the app’s ubiquity and the fact that so many young Americans get their news from it turns it into an effective tool for political influence. But the proposed solution of switching to American ownership of the app ignores an even more fundamental threat.

The deeper problem is not that the Chinese government can easily manipulate content on the app. It is, rather, that people think it is OK to get their news from social media in the first place. In other words, the real national security vulnerability is that people have acquiesced to informing themselves through social media.

Social media is not made to inform people. It is designed to capture consumer attention for the sake of advertisers. With slight variations, that’s the business model of all platforms. That’s why a lot of the content people encounter on social media is violent, divisive and disturbing. Controversial posts that generate strong feelings literally capture users’ notice, hold their gaze for longer, and provide advertisers with improved opportunities to monetize engagement.

There’s an important difference between actively consuming serious, well-vetted information and being manipulated to spend as much time as possible on a platform. The former is the lifeblood of democratic citizenship because being a citizen who participates in political decision-making requires having reliable information on the issues of the day. The latter amounts to letting your attention get hijacked for someone else’s financial gain.

If TikTok is banned, many of its users are likely to migrate to Instagram and YouTube. This would benefit Meta and Google, their parent companies, but it wouldn’t benefit national security. People would still be exposed to as much junk news as before, and experience shows that these social media platforms could be vulnerable to manipulation as well. After all, the Russians primarily used Facebook and Twitter to meddle in the 2016 election.

Media and technology literacy

That Americans have settled on getting their information from outlets that are uninterested in informing them undermines the very requirement of serious political participation, namely educated decision-making. This problem is not going to be solved by restricting access to foreign apps.

Research suggests that it will only be alleviated by inculcating media and technology literacy habits from an early age. This involves teaching young people how social media companies make money, how algorithms shape what they see on their phones, and how different types of content affect them psychologically.

My colleagues and I have just launched a pilot program to boost digital media literacy with the Boston Mayor’s Youth Council. We are talking to Boston’s youth leaders about how the technologies they use everyday undermine their privacy, about the role of algorithms in shaping everything from their taste in music to their political sympathies, and about how generative AI is going to influence their ability to think and write clearly and even who they count as friends.

We are planning to present them with evidence about the adverse effects of excessive social media use on their mental health. We are going to talk to them about taking time away from their phones and developing a healthy skepticism towards what they see on social media.

Protecting people’s capacity for critical thinking is a challenge that calls for bipartisan attention. Some of these measures to boost media and technology literacy might not be popular among tech users and tech companies. But I believe they are necessary for raising thoughtful citizens rather than passive social media consumers who have surrendered their attention to commercial and political actors who do not have their interests at heart.

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I’m not saying that I am the next Jim Cramer, but I had a point when I wrote just a few weeks ago that former President Donald Trump’s social-media company was probably not going to be an awesome stock pick. Was this completely foreseeable and deeply obvious? Absolutely.

Trump Media & Technology Group, which owns the conservative Twitter clone Truth Social, went public via SPAC in late March. (For those not familiar, a SPAC, or special-purpose acquisition company, is a shell company that goes public with the intention of buying an actual company later. In the Trump case, the shell company Digital World Acquisition purchased TMTG.) When the merger was completed, the stock — which trades under the ticker DJT — popped to over $70 a share. TMTG’s market cap topped $9 billion, and the former president’s net worth, on paper, jumped to $7 billion.

And then, DJT popped again, but this time in the bad, bubble-bursting way. Its price fell, and then it fell again, and then it fell some more. The stock staged a bit of a rally at the end of last week, but it’s still well off of its March highs. As of the end of trading on Friday, TMTG was trading at $36.38 down 54% from its peak and 41% since I wrote about it three weeks ago. Correspondingly, the former president’s related wealth gains have come back down to earth. People on Truth Social feel pretty bad about it. Short sellers, if I had to guess, feel pretty good, even if Trump’s company is trying to prevent them from betting against it. Anyone investing in TMTG is in for a bumpy ride.

While Trump is a political figure, Trump Media’s stock price is not really a political story. Sure, there are some fervent followers who believe that buying the stock is akin to supporting the Republican presidential candidate. More broadly, though, TMTG’s fall from grace is more of a business story with a hint of cultural weight that let it achieve some meme-stock-like status.

The thing about TMTG is that it is not a good business. Its total revenue was $4.1 million in 2023, which is a little more than what a single McDonald’s franchise makes in a year, and it lost $58 million the same year. When the stock was near its highs, it was trading at something like 2,000 times the company’s annual revenue. That is a lot. Nvidia, the high-flying vanguard of the artificial-intelligence revolution and one of the hottest stocks this year, is trading at about 35 times its revenue.

Besides required financial information, Trump’s media outfit won’t disclose central data points that would give a better picture of how well it is — or, likely, isn’t — doing. As my colleague Peter Kafka has pointed out, TMTG refuses to tell investors how many people are signing up for Truth Social, whether they’re sticking with the platform, or what’s happening in ad sales. In regulatory filings, the company says it “believes that adhering to traditional key performance indicators, such as signups, average revenue per user, ad impressions and pricing, or active user accounts including monthly and daily active users, could potentially divert its focus from strategic evaluation with respect to the progress and growth of its business.” In other words, it doesn’t think publicly disclosing how things are going will be good for its business prospects, which, I mean, tracks to the extent that the truth is probably bad. (To be clear, other publicly traded social-media companies, such as Reddit and Meta, do not keep a lot of this kind of information under wraps.)

For all the gloominess now, Trump’s media company says it has bigger and brighter days ahead. On Tuesday, TMTG announced that it planned to launch a streaming-TV platform where creators who can’t find an audience for “unjust” reasons “won’t be cancelled.” The same day, its stock price fell by 14%, though the next day it bounced.

TMTG isn’t going under tomorrow. Its CEO, Devin Nunes — yes, that Devin Nunes, the former US representative from California — has said it has millions of dollars in the bank thanks to the boost from going public. He’s also trying to push back against short sellers in an attempt to keep those betting against the company at bay.

All in all, for shareholders, this is not a fun roller-coaster ride. The stock is on a steady downward trajectory, and things aren’t looking good. The company has filed plans to issue more shares, which would raise even more cash for operations but dilute the value for current shareholders. Trump himself, who owns more than half of the company’s shares, is subject to a lockup period that prevents him from selling those shares for six months. This is pretty standard practice for SPACs to prevent pump-and-dumps. The board could speed that up and let him and other insiders sell earlier, which would give the former president a quick cash injection but almost certainly depress the stock’s price more. Why hold on to the stock when even its namesake is giving it up? So DJT will likely circle the drain even faster once major shareholders are allowed to sell, and it’s not really clear how the company plans to turn that around. Trump, for his part, has some bigger fish to fry, like competing in an election and hanging out in court.

That TMTG’s stock price has fallen isn’t surprising. It’s not a successful business, and it’s not clear how many people are ever going to want to hang out on Truth Social, let alone how many businesses would want to advertise there. The speed of the stock’s plunge, however, is a bit of a shock. It wasn’t a given that the gravity of reality would be such a strong, immediate force. But for now, the Trump Media & Technology Group illusion seems to be coming undone.

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Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.

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