Remember in the Road Runner cartoon, how Wile E. Coyote would always sprint off the edge of a cliff, and only fall after he glances down to find the ground no longer beneath his feet?
That's kinda what happened for investors in Trump Media & Technology Group, the troubled owner of Truth Social, on Monday.
ICYMI: Trump Media shares fell 21% after the company disclosed that it nearly ran out of cash last year and might not have survived without the influx of capital it received through last week's merger with a shell company that allowed it to trade publicly.
Even with Monday's stumble, the stock is still up about 200% over the past six months, giving it a $6.6 billion valuation that defies logic. It also gave the former president, who owns a 54% stake in the company, a huge boost in his personal wealth, though he lost about a $1 billion in Monday's selloff alone, my colleague Matt Egan wrote.
Look, Wall Street often doesn't mind propping up money-losing startups, so long as there's a good amount of cash coursing through the operation and some kind of well articulated path to profitability. That's not what's happening here.
Trump Media, aka TMTG, generated just $4.1 million — with an "m" — in revenue last year. That means the stock is trading at about 1,500 times its annual revenue. Not even the frothiest of AI stocks come close to that level of disconnect.
"It's not possible to even pretend that the equity value has any relation to the underlying business," Axios' Dan Primack wrote. "At this point, owning TMTG is basically an in-kind donation to Donald Trump."
Meme Stocks 101
As I wrote last week, when the Trump Media enthusiasm switched from a simmer to a boil, this is classic meme stock behavior. The folks piling into the stock are driven by something else, something closer to religious fervor or whatever we want to call that Extremely Online force that turns otherwise rational actors into activists and agitators.
That makes it all but impossible to predict how this whole thing will shake out. Keep in mind: All of this internet-fueled trading that we obliquely refer to as meme stock-ery is relatively new — we didn't even have a word for it until January 2021, when a rash of individual amateur day traders got together on Reddit to send GameStop shares to the moon.
But if history repeats, or even echoes, with Trump Media, investors may want to buckle up. GameStop's stock crashed within days of surging past $100, and we all thought it was over.
Most of us underestimated just how dedicated the Reddit crew was to not just the stock but the David-vs-Goliath narrative that surrounded it. It took three years for GameStop to come back to Earth.
Bottom line: Monday's crash is hardly game over for Trump and his social media company. (The Coyote always falls, dusts himself off and resumes his chase, after all.) But the next several days, weeks and months — possibly years — are likely to be a roller coaster.
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