New York CNN —
Former President Donald Trump’s social media stock is suffering a sudden decline after an outrageous rally over the past five weeks that has nothing to do with the company’s actual business.
Shares of Trump Media & Technology Group, the owner of Truth Social, plunged 22.3% on Wednesday. This was Trump Media’s worst one-day loss since going public in March, narrowly surpassing the 21.5% loss on April 1.
Mr. Trump’s controlling stake in the company was valued at about $5.9 billion when it closed above $51 on Tuesday. By the close of trading Wednesday, the value of President Trump’s stock had fallen to $4.6 billion. In other words, Trump lost $1.3 billion in net worth in one day.
While the exact cause of the plunge in Trump Media’s stock price is unclear, the company’s stock price has become a proxy for traders predicting the outcome of the election. Trump media did not release any significant news to explain the steep decline.
Some traders blamed the surge on technical factors and a loss of momentum in what had become a meme stock.
Trump Media stock has been unusually volatile throughout the year. A company’s official announcement is not required for stock prices to rise or fall dramatically.
Until Wednesday, it was moving in one direction: straight up.
From September 23rd to Tuesday’s final bell, Trump Media’s value quadrupled. The breathtaking rally was prompted by Wall Street’s bet that Trump would win the White House.
The huge profits boosted Trump Media’s value to $10.3 billion as of Tuesday’s close. This means it temporarily surpassed the implied value of X, the Elon Musk-owned social network formerly known as Twitter.
This is despite the fact that X, as Truth Social, has about 70 million monthly active US users on iOS and Android, according to data from Similarweb shared with CNN. That’s about 100 times more than Truth Social’s 698,000 monthly active users in the US.
Even Meta’s relatively new X competitor, Threads, has a user base about 20 times larger than Truth Social, according to Samelweb.
Trump Media’s fundamentals remain very modest for a company valued at more than $8 billion.
For context, CBS owner Paramount Global, which Trump Media recently surpassed in market capitalization, has generated more than $14 billion in revenue so far this year.
But Trump Media generated just $1.6 million in revenue this year.
“Basically, valuations are a headache,” Dan Ives, senior equity analyst at Wedbush Securities, told CNN in an email. “But over the past few years, the story of other meme stocks such as AMC and GameStop has “We’ve seen it follow a similar trajectory,” he said in an email. “Truth Social is a fraction of X and other social media platforms in terms of user numbers, but with the election a week away, the stock has become a litmus test for some investors in the race for the White House. .”
Matthew Tuttle, CEO of Tuttle Capital Management, said Wednesday’s decline was due to Trump Media stock’s failure to break through key resistance to upside.
“This is how this game is played,” Tuttle told CNN. “Smart traders know that if they make money, they’re going to be very successful. And they let the unsmart traders hold the bag.”
Tuttle noted that one of the factors that drove Trump Media’s stock price higher was the fact that it was very expensive to borrow stock to bet on it. He described the “absolutely insane” financing costs of borrowing stock.
“This makes it virtually impossible to short this,” Tuttle said.
