Trump Media (DJT) stock: avoid this future dilution machine

By:
on May 26, 2024
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  • Trump Media & Technology stock has jumped by over 100% from its April lows.
  • The company recently published weak financial results that revealed steep losses.
  • It is now working on a streaming application to boost its ecosystem.

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Trump Media & Technology (NASDAQ: DJT) stock price has been in the spotlight in the past few weeks as investors watched its financial results, the recent Trump trial, and presidential polls. It was trading at $45.8 on Friday, up by over 101% from its lowest point in April. 

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Prepare for dilutions

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Donald Trump’s social media company is not doing well as the number of users in its ecosystem slows and losses mount.

The most recent results showed that its adjusted EBITDA came in at minus $12.1 million as its net income stood at minus $327 million in the first quarter. Most of these losses were related to its merger activity with Digital World Acquisition Corp (DWAC). Revenue was just $770k during the quarter.

Trump Media is now focusing on product development, especially the launch of its streaming application. According to its statement, this launch will be done in three phases, starting with the launch of Truth Social’s CDN for streaming live TV. 

The next step will be the release of a stand-alone Truth Social OTT streaming app on smartphones and other devices. Finally, the company will release Truth Social’s streaming apps for home television.

I believe that the company’s fundamentals are not good. First, Truth Social has not become a popular application because X (Twitter) has reduced its bias against conservatives and has started paying creators. 

Therefore, most of Truth Social’s biggest users are focusing on X, which has a wider audience of people across the political spectrum.

Second, as we have seen with Rumble, Fox News, and Newsmax, it is hard for large companies to advertise on right-wing media companies. This means that Truth Social will depend on smaller advertisers like MyPillow.

Third, launching a successful video streaming platform is expensive. We have already seen that with companies like Paramount, Warner Bros. Discovery, and Comcast. Streaming platforms like DailyWire spend millions of dollars each year on content.

Further, I suspect that Trump Media will start dilution in the coming years. The company has over $233 million in cash, which will start falling as its losses mount. As such, since DJT has a market cap of over $6 billion, I suspect that the management will start to sell shares either in 2024 or in 2025.

Trump Media’s lock-up expiration is also coming up in the next few months, which could see a wave of selling, including from Trump himself. 

Is it safe to buy DJT stock?

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Trump Media has weak fundamentals and is severely overvalued compared to other companies like Reddit, X, Pinterest, and Snap. 

However, this is not a call to short the stock because it is often affected by external factors like the presidential election polling data and Trump trials. It is also a popular meme stock, meaning that it can experience short-squeezes as we saw earlier this month.

Therefore, there is a risk of buying the stock because of its weak fundamentals. There is also a risk of shorting it because of its short-squeeze potential. As a result, I would stay in the sidelines and watch out how it evolves.

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