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Trump Media & Technology (NASDAQ:DJT) is continuing to rally, soaring 11.5% before the bell on Wednesday, although the firm's near $8B valuation seems excessive as it has never turned a profit. The risk of its biggest shareholder, former U.S. president Donald Trump, cashing in on the gains also looms large.
DJT surged as much as 59% in its volatile market debut on Tuesday, before paring gains to end 16% higher. "There are political motivations driving DJT," Steve Sosnick, chief strategist, Interactive Brokers. "I've always believed its most devoted investors viewed it as a call option on the MAGA movement."
Trump owns ~78.8M DJT shares, meaning his nearly 60% stake was worth around $5B. However, these are just paper gains, as Trump can't sell these shares given a six-month lock-up period.
Recall that Trump is facing a cash crunch as he battles criminal indictments and civil charges. In a small relief, Trump won an appeal to hold off on the collection of $454M related to his civil fraud judgment, if he puts up $175M within 10 days.
Now, to turn his DJT shares into cash, Trump would need approval from the board and underwriters for a waiver of the lock-up period. The board includes his son Donald Trump, Jr. and former officials from his administration.
But if such a waiver is approved and Trump sells a significant portion of his shares, Trump Media's (DJT) stock would tank.
Trump may also seek to use his DJT stake as collateral to get a loan, although chances of securing funds this way are likely low.
Investing Group Leader Jonathan Weber warned that the gains in Trump Media (DJT), which owns Truth Social, would be speculation-driven until the social media platform can show resilient user growth and improving financials.
Trump Media (DJT) also warned that it expects to incur "significant" losses in the foreseeable future, adding it may never generate sufficient operating revenues to achieve profitable operations.