Trump Media (DJT) stock faces a mountain of risks: avoid

The Trump Media & Technology (NASDAQ: DJT) stock price has lost momentum in the past few months as concerns about the company have continued. It dropped for for five straight days and was trading at $32. This drop has brought its market cap to about $5.5 billion. 

Trump Media & Technology faces substantial risks

The DJT share price has crashed in the past few days as concerns about the company and the ongoing campaign continued. 

In terms of the election, there are signs that Donald Trump’s campaign is losing momentum even after his better performance in the last debate. 

The biggest risk is that Joe Biden could be forced out of the race. In a statement on Thursday, the influential Disney family said that it will not provide more support to Democrats unless Biden drops out of the race.

Popular left wing publications like the New York Times, Washington Post, and CNN have also warned that Biden could lose. Also, there is an unease among most elected officials. 

Therefore, the general view is that Biden will drop out and be replaced by the likes of Kamala Harris, Gretchen Whitmer, Michele Obama, or Gavin Newsom. If this happens, there are chances that Democrats and many moderates will elect them over Donald Trump.

A Trump loss in the election is a bad thing for the DJT stock because the company’s premium valuation is mostly because of hopes that Truth Social will become popular if Trump is re-elected. 

If he loses the election, there is a likelihood that the social media platform will not see a lot of action, which will affect its growth. 

Remember, Trump Media is one of the most overvalued companies in Wall Street. The most recent financial results showed that its revenue stood at less than $1 million in the first quarter while its net loss rose to over $327 million. 

Streaming ambition might not work out

The other major risk for Trump Media & Technology is that its streaming ambitions might not succeed. 

In a statement this week, the company said that it acquired WorldConnect Technologies in an all-stock deal. The acquisition will give it a content distribution network (CDN) for streaming of linear TV via Truth Social. This streaming solution will then be launched as a standalone app.

Moving into the streaming business might seem as a good option at first. However, history shows that succeeded in the streaming sector is difficult. Indeed, companies like Warner Bros. Discovery and Paramount have all reported substantial losses in the past few years. 

It is unclear how its streaming business will be structured. What is clear is that it is quite expensive to produce content that people love. A good example of this is The Daily Wire, which spends millions of dollars annually paying content creators like Jordan Peterson and Matt Walsh. 

More risks for the DJT stock

DJT chart by TradingView

As I have written before, Trump Media’s core challenge is that its social media platform is very tiny and that it will not attract big advertisers like Disney, Unilever, Colgate-Palmolive, and Procter & Gamble. These firms have boycotted other conservative leaning media platforms like Fox and Rumble. 

The other crucial risk is that the company will likely need to raise substantial cash in the coming years. It leafy has a standby equity purchase agreement, which lets it issue up to $2.5 billion shares to Yorkville Advisors in the next three years. $2.5 billion is a lot of money for a company valued at over $5 billion. 

Therefore, a combination of these factors, and the fact that Trump may lose the election, makes DJT stock highly risky. As such, I suspect that the stock will collapse to the next key support level at $22.63, its lowest point in April and 27% below the current level.