US election: It’s D-Day for Trump ... and his media empire

The case for owning shares in Trump Media & Technology Group boils down to the political fortunes of its namesake. Going by that, the moment of truth for the loss-making social media site has arrived as Americans head to the polls Tuesday.

Trump Media has swung wildly in recent months as it loosely tracked election betting markets ahead of the US presidential election.

They spiked higher after the attempted assassination of Donald Trump in Pennsylvania in July, then slumped when Democrat Kamala Harris entered the race and narrowed the polling gap against her Republican opponent. There have been seven double-digit moves in the past eight trading sessions as polls continue to show the two candidates in a virtual dead heat.

The big swings were on display late in Tuesday’s session when shares quickly plunged 18 per cent in a matter of minutes. The stock ended the session down just 1.2 per cent, but a rush of selling triggered three trading halts within 15 minutes.

A Trump win, the thinking goes, could potentially drive users to Truth Social, an X-like site that the former president uses as his primary conduit to the public. The website has struggled to attract new users and advertisers since Trump Media debuted on the stock exchange after a blank-check merger. If Harris prevails, the likelihood that it continues to languish is high.

“The run-up seems to be driven by meme-stock type enthusiasm for Trump in general,” said NYU law professor Michael Ohlrogge. “It’s reasonable to think that would increase as a result of Trump winning the election. If Trump were to lose I’d anticipate a pretty big drop in share price.”

Trump Media shares more than doubled in October as betting markets showed gamblers favoured the Republican, even as high-quality polling showed little change from the deadlock that prevailed since Harris entered the race. The company is worth more than Whirlpool and Harley-Davidson despite bringing in revenue of less than $US1 million ($1.5m) in the second quarter. The disconnect from the polls — and particularly the company’s fundamentals — make the election a major catalyst.

Options set to expire on Friday show the stock has an implied annualised volatility of over 700 per cent — roughly triple its already eye-popping 10-day volatility of 236 per cent, data compiled by Bloomberg show. For reference, its historical volatility over the past month is more than quadruple that of Bitcoin and Nvidia.

Whatever happens in the election, long-term prospects for Trump Media are difficult to tease out, according to professors and investors who follow the shares.

A victory for Trump may not equate to a more valuable company, especially since Trump Media is unprofitable and has struggled to grow its user base, Ohlrogge said.

“A lot of people seem to think that if Trump wins the election, it is going to magically make Truth Social far more valuable,” he said. “I don’t see much reason to believe that.” The company’s inability to deliver meaningful gains in users and revenue, despite the close election, make it “hard to see Trump winning the presidency as making a particularly big difference,” he said

Likewise, a loss may not sink Truth Social entirely, given Trump’s popularity among his political base. Companies including MicroStrategy and Tesla have shown that larger-than-life leaders “can move stocks”, said Matt Tuttle, CEO of Tuttle Capital Management.

Short sellers have long circled Trump Media, according to data from analytics firm S3 Partners. The firm says that more than 97 per cent of all borrowable shares are already used to bet against the company, with fewer than 1 million shares available to borrow to support more bearish bets.

“Either the lack of stock-loan borrow supply, or high financing costs to short the stock, or the high volatility in the name has reigned in any attempt of a large rush of short selling,” said S3’s Ihor Dusaniwsky.

If Trump Media shares rally after the election, it could prompt investors to rush to the exit before losses grow, he said in a message. Bearish investors are down $US149m this year, though it has been a roller coaster with a swing of more than $US300m in paper losses and profits.

When the stock rises, it is based on the idea that Trump’s campaign has gained steam. When it stumbles, it usually parallels declines in industries that are perceived to benefit from a Trump re-election. The company’s underlying business remains detached from its $US6.8 billion valuation, market watchers say.

The shares swung violently Monday despite a lack of substantive news. An initial decline of 5.5 per cent was erased when the shares jumped as much as 17 per cent before ending the day 12 per cent higher. While they’re up 179 per cent from a September closing low, the stock is down more than 40 per cent from its initial closing price.

“You could call it a meme stock, you could call it a cult stock, but it’s a stock that is not trading on its fundamentals today,” said Stanford University law professor Michael Klausner. “But perhaps people are betting on its fundamentals if Trump wins.”

Bloomberg