‘Clearly a bubble’
The bad news for Trump is that this stake is not as liquid as it sounds. Those paper gains would be very difficult for Trump to translate to actual cash. In fact, Trump’s shares in this company are in many ways even less liquid than his real estate holdings, according to Charles Whitehead, a law professor at Cornell Law School.
First, experts say the market is drastically overvaluing Trump Media based on the company’s fundamentals. That means Trump would have a hard time dumping the stock or even pledging it as collateral. “The stock price is clearly a bubble,” Yale law professor Jonathan Macey told CNN. “No rational investor would take the stock at face value, especially if they had to hold it for any length of time.”
SEC filings indicate Trump Media’s revenue amounted to just $1.1 million during the third quarter. The company posted a loss of $26 million that quarter.
Truth Social’s shrinking user base
Not only that, but Truth Social appears to be shrinking. The number of Truth Social’s US monthly active users on iOS and Android is down 39% year-over-year, according to Similarweb data shared with CNN earlier this month. Truth Social remains much smaller than X (formerly Twitter), which is also shrinking but at a slower pace.
And yet Trump Media is being valued north of $6 billion on a fully diluted basis, which includes all stocks and options that could be converted to common stock, according to Jay Ritter, a finance professor at the University of Florida. Ritter said the current market price is hard, if not impossible, to justify.
“It is grossly overvalued,” said Ritter. “It qualifies as a meme stock for which the price is divorced from fundamental value…Meme stock investors are usually buying on the basis of the greater fool theory of investing: It is overvalued today, but I hope to make money selling it to an even greater fool tomorrow at an even higher price.”
Insiders can’t sell right away
But even in the unlikely event that Trump found a taker for those shares, experts say he is likely not allowed to sell or pledge that stock – at least not yet. As is typical in a deal like this, certain shareholders are subject to a lock-up period that prevents insiders from immediately selling. “No one wants to buy into a company where the largest shareholder – and really the face of the biggest product – is selling,” said Whitehead.
In this case, key shareholders of Trump Media, including its management team, have agreed not to sell their common stock for six months to maintain “important stability to the leadership and governance” of the company, according to SEC filings. Not only does that lock-up agreement prevent these key shareholders from selling their stock for six months, it says they have agreed not to “lend, offer, pledge…encumber, donate” that stock during the period.
If the share price stays above $12 for a period of time, it’s possible that insiders can sell or pledge their stock 150 days after the deal closes. "The lock-up is meant to stop insiders from selling immediately after the merger,” said Xavier Kowalski, a former partner at Schulte Roth & Zabel who is now a lecturer in the finance department at the University of Florida. “It also stops them from pledging the stock, like with a margin loan. So it’s going to be difficult to find a way to use those shares to get cash for now.”
Banks may balk
Moreover, there are additional lock-up restrictions contained in an amended charter that experts say appear to include Trump. That lock-up also restricts certain shareholders from immediately selling after the deal closes. "If his shares are covered by the charter’s lockup provisions then, absent an amendment to the charter, President Trump cannot pledge this stock. Full stop,” Whitehead said.
And amending the charter would be tricky – even for Trump and his outsized sway over the company. That’s the kind of thing that would have to be disclosed ahead of time because it would impact potential buyers of the stock. “He can’t do this quietly. If President Trump today intends to amend the charter and they are not disclosing this intention, that’s a problem,” Whitehead said. “Presumably, they would need to take the position after the vote approving the merger that President Trump woke up and suddenly said, ‘Hey, let’s amend the charter.’”
Now even if Trump overcame these potentially insurmountable obstacles, there is no guarantee any bank would take this stock as collateral in a loan. "If I’m a bank, I’m going to be troubled by the idea of a significant shareholder pledging his stake,” Whitehead said. “Any bank doing a proper credit analysis must be sensitive to the fact that this stock may very well tank if it turns out that President Trump is looking to sell down the position.”
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