Investors are lining up to bet on the collapse of Trump Media and Technology Group, former President Donald J. Trump's social media company. The company debuted on the stock market last week under the ticker “DJT.” This stock has been called the “mother of all meme stocks” due to its high volatility and lack of fundamental fundamentals. Wednesday's closing price values the company at about 1,600 times annual earnings. “By comparison, the Facebook owner's stock trades at about eight times sales, and the Google owner's stock trades at six times sales,” Fast Company notes. The New York Times reports: Trump Media is the most “shorted” special purpose acquisition vehicle in the country, according to financial data firm S3 Partners. Short sellers bet that a stock's price will fall. They do it by borrowing a company's stock, selling it on the market, hoping to buy it back later at a lower price, then returning the stock to the lender and pocketing the difference as profit. The demand for short sales in Trump Media, the parent company of social media platform Truth Social, is so great that stock lenders can charge huge fees and short sellers won't make a profit unless the stock price falls significantly. It is difficult to raise it. Still, there is a lot of interest in taking part in this bet. “They're looking for this stock to crater quickly,” said Ihor Dusaniowski, managing director of predictive analytics at S3. Traders lost $126 million in bets against Trump Media last month, according to S3.
On Monday, Trump Media released updated financial information, revealing little revenue, high losses, and a statement from an independent auditor who expressed “significant doubts” about the company's financial viability. did. This appeared to spur investors to bet on the company as the stock price fell from its highs. But short sellers find trading in Trump Media difficult and costly. The company has about 137 million shares, but only about 5 million of them are available to short sellers. Mr. Trump owns about 60% of the stock, and company executives also own some shares. Company insiders tend not to lend stock to short sellers. Supply is even tighter because major asset managers such as BlackRock, Vanguard and State Street, which regularly lend out stock, are not major holders of Trump Media.
Of the roughly 5 million shares available, 4.9 million have already been lent out, S3 said. As with any loan, when a shareholder lends their stock to a short seller, there is a fee, usually expressed as an annual percentage rate on the current value of the stock. Fees for borrowing stocks are typically a few percent. For Trump Media, that percentage rose to 550 percent, Dusaniowski said. Trump Media stock is currently trading around $50. That means a month-long short sale would cost more than $20 per share. The stock would need to fall by almost half by early May for short sellers to break even.
There are other wrinkles as well. One major broker said most of the short sales were not outright bets on Trump Media. Since the advent of meme stock trading and the villainy of short sellers who only win if popular companies lose, large investors have become wary of making such trades. Instead, the demand driving the current deal is designed to capture the difference between DJT's stock price and outstanding “warrants,” which allow holders to trade at a fixed price as long as regulators approve the new shares. You will be given the right to acquire new shares. Due in part to that uncertainty, these warrants are now trading below $19, with a list of hedge funds among their recent holders. Even after taking into account the high cost of borrowing stock, assuming the rights are registered as shares, you can profit from the $30 difference between the value of your existing shares and the rights. Masu.