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Trump risks tanking Truth Social's stock price if he cashes out

Filip De Mott   

Trump risks tanking Truth Social's stock price if he cashes out
  • Donald Trump's social media platform Truth Social is set to go public next week.
  • His 60% stake in the company is valued at over $3 billion.

Hot on the heels of Reddit's recent IPO, yet another social media firm is going public this month.

Truth Social, a platform developed by former president Donald Trump, has finally secured approval to merge with its shell company Digital World Acquisition Corp. The firm should make its Wall Street debut as soon as Monday, trading under the ticker symbol DJT.

In some form, it's a well-timed market kickoff for Trump, whose approximately 60% stake in the company be worth more than $3 billion. Cashing in those holdings or borrowing against them could ease Trump's financial strains, including legal fees and the $457 appeal bond he faces from a New York civil fraud verdict.

The windfall could also close the fundraising gap that exists between him and Joe Biden. The presidential incumbent currently has a trove that is three times bigger than Trump's.

Standing in the way is a provision in the merger's SEC filing, which states that Trump is not allowed to sell or borrow against any of his shares for six months. But he could very well get a waiver from the company's board, which consists of close allies like his son Donald Trump Jr. and former Rep. Devin Nunes.

But there's a big catch: If Trump chooses to cash out his shares, it could prompt other investors to make a beeline for the exits, sending Truth Social's stock tumbling.

After all, many DWAC investors don't appear to be trading on fundamentals, especially as Truth Social isn't reputed for high usage or revenue. Without the merger, its survival has been questioned, having suffered a net loss of $23 million in the first half of 2023.

Instead, it's moving more like a meme stock, with Trump's base of retail-trading supporters leading purchases in the company's shares. Historically, holders of meme names have been fickle and not likely to adopt a buy-and-hold strategy, which could put Truth Social on shaky footing if an exodus does transpire.

"I am proud of all you guys. Now we can sit back and watch the patriots work their magic as $DJT blossoms on the world stage. Enjoy the show!" Social Truth user KookyBar said after the merger, writing in a forum dedicated to DWAC.

But single-day loss of as much as 12% on Friday caused many in the forum to call out short-sellers, corruption, and pump-and-dump traders, highlighting the type of panic that could spread if the stock falls further.

DWAC shares are up 120% year-to-date, and closed on Friday around $38. At a price of $40, the newly formed Truth Social entity would be worth more than $5 billion, with Trump owning a majority of the stock.