Shares of Trump Media & Technology Group (NASDAQ: DJT) have been sliding in recent months, hitting new lows as investors have turned bearish on this once high-flying stock.
It might seem like a good buying opportunity for fans of the former president, but they will want to take a closer look at the business since there is still plenty of risk, and the stock could fall even lower in the months ahead.
Lockup agreements are ending soon
Former President Donald Trump is the majority owner of Trump Media, and as of this writing, a lockup agreement prevents Trump and other insiders from selling their shares of the company since it went public so recently.
But later this month, potentially as early as Sept. 20, those agreements will begin to expire, and it could be an opportunity for the former president to cash out.
Many investors could be anticipating such a move and are selling their shares before the potential insider sell-off later this month. If Trump does cash out a significant chunk of his stake in the company, that could trigger stop losses and give investors even more motivation to dump their own shares.
Trump remains the face of the company, and investors will likely interpret any sale on his part as a sign he doesn't have confidence in the stock. Investors often look to insider transactions to gauge the sentiment of people within the company. The more shares Trump sells, the more bearishly investors are likely to interpret the news.
Why the stock could struggle either way
Beyond the lock-up expiration, Trump Media could still be heading lower for the simple reason it resembles a meme stock rather than a solid long-term investment. Not only is the business generating little in revenue (just $0.8 million in the second quarter) but the number of users on its social platform are also likely modest as Trump Media does not report many key metrics.
The company says it is "focused on developing Truth Social by enhancing features and user interface rather than relying on traditional performance metrics like average revenue per user, ad impressions and pricing, or active user accounts, including monthly and daily active users."
Some estimates suggest Truth Social could have 5 million active users. By comparison, X (formerly Twitter), which Trump was active on in the past, had an estimated 368 million monthly active users as of last year. Meta Platforms, which owns Facebook, WhatsApp, and Instagram, has billions of active users.
No one expects Truth Social to be anywhere near those numbers in its early stages, but failing to report user count is a red flag. For social media stocks, such numbers are a key metric for both investors and advertisers, since they help demonstrate just how popular a platform is and how much value it possesses.
The absence of such reporting suggests Truth Social isn't growing as well as management might have hoped, which again supports the possibility that Trump sells at least a portion of his holdings sooner rather than later.
Through the first six months of the year, Truth Social incurred an operating loss totaling $117 million, and it used up nearly $31 million in cash from its day-to-day operating activities. While it still has cash and cash equivalents totaling $344 million, which should be plenty to keep the business running, its financials could worsen as it ramps up spending on growth initiatives, including the launch of its TV streaming platform.
The bottom could be even lower
Without a fast-growing user base -- and with the company likely struggling to post a profit for the foreseeable future -- there's plenty of reason Trump Media stock could continue to see new lows. There's simply not much of a business to invest in today, and this is a stock whose free fall could be far from over.
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Trump Media Stock Hits a New Low, and This Might Not Be the Bottom was originally published by The Motley Fool