Trump Media’s stock plunged as the six-month lockup period ended, allowing major investors to liquidate their holdings.
At a Glance
- Former President Donald J. Trump and other investors can now sell their shares in the parent company of Truth Social.
- A six-month lockup agreement preventing the sale of shares expired at 4 p.m. Eastern time on Thursday.
- Trump Media’s shares fell nearly 6 percent on Thursday.
- Mr. Trump stated he has no intention of selling his shares, worth close to $1.8 billion.
- Other large investors, controlling over 20 million shares, may start selling their shares.
Lockup Period Expiry
Trump Media’s stock dropped significantly on Thursday due to the end of a six-month lockup period, which previously prevented major stakeholders from unloading their shares. Former President Donald J. Trump and other significant investors now face the option to sell their stakes in the company. As the lockup ended at 4 p.m. Eastern time, shares closed at $14.70, down nearly 6 percent.
This decline underscores Truth Social’s continuous struggle to establish a stable user base and attain positive user engagement—factors critical for the platform’s long-term viability.
Trump, who holds a 57 percent stake valued at approximately $1.8 billion, assured investors that he has no plans to sell his shares. Despite his confidence, other major stakeholders, who collectively own over 20 million shares, might choose to liquidate their holdings. The end of the lockup period has thus introduced new challenges and uncertainties to the company’s financial stability and market performance.
Initial Public Offering
Trump Media initially went public via a reverse merger with Digital World Acquisition Corp, debuting on Nasdaq in March. Shares briefly soared above $60 but have since experienced significant depreciation, falling by more than 76 percent from their post-merger highs. This volatility has often correlated with political events and Trump’s own media appearances.
“Any new shares that are sold into the market will make it easier for bearish investors to short Trump Media’s stock,” said S3 Partners.
Despite launching as an alternative platform following Trump’s ban from major social media outlets, Truth Social has not yet managed to attract a substantial user base, with less than a million daily active users reported as of April. This low engagement directly affects revenue, which remains highly dependent on ad sales. The company’s reliance on a small user base makes it difficult to secure high-value advertising contracts.
Legal and Financial Challenges
The stock price experienced another blow when a Delaware court ruled that Trump Media had breached a contract with ARC Global, resulting in the allocation of approximately 800,000 more shares to early investor Patrick Orlando. Such legal and financial setbacks have contributed to further fluctuations and dips in Trump Media’s stock value.
The market’s perception of large-scale sell-offs by major shareholders has made it easier for bearish investors to short the stock. This increase in short-selling potential poses another obstacle for the company as it tries to stabilize. Amid these challenges, Trump Media carries a market valuation aligned more closely with analyst predictions, suggesting about $3 billion in market capitalization despite the financial and operational hurdles.
Outlook
Looking ahead, Trump Media faces the tall order of improving user engagement, boosting advertising revenues, and navigating the legal issues stemming from contractual disputes. While Trump’s affirmation not to sell his sizable stake might provide temporary confidence, the market’s perception and the potential actions of other large investors will play crucial roles in the coming months.
As Trump Media navigates its post-lockup phase, the effectiveness of its strategies to strengthen its market position will be critical. Retail investors and company stakeholders will need to closely monitor both the financial performance of Truth Social and broader political events that invariably influence the company’s stock trajectory.
