Preet Bharara:

From CAFE and the Vox Media Podcast Network, this is Stay Tuned In Brief. I’m Preet Bharara. On March 26th, Trump Media & Technology Group, the company that owns former President Donald Trump’s social media platform, Truth Social, became publicly traded. Its stock ticker is DJT. On its first day of trading, the company’s stock price soared reaching an estimated valuation of $8 billion. Less than one week later, the stock plummeted falling more than 20% after an SEC filing revealed that the company had lost over $58 million in 2023 and brought in only $4.1 million in revenue. Its volatile debut has prompted many to label it a meme stock. Joining me to discuss is Felix Salmon, chief financial correspondent at Axios. Felix, welcome to the show.

Felix Salmon:

Thank you very much for having me.

Preet Bharara:

So let’s start simple. The company, Trump Media & Technology Group, what does it do?

Felix Salmon:

It runs a tiny social network called Truth Social.

Preet Bharara:

Yeah. And that’s about it.

Felix Salmon:

That’s it, yeah.

Preet Bharara:

Doesn’t sell clothing or web services?

Felix Salmon:

Doesn’t sell limited edition sneakers.

Preet Bharara:

Bibles, does it sell any Bibles?

Felix Salmon:

Doesn’t even sell Bibles. Just because it’s Trump-connected does not mean it’s Truth Social connected.

Preet Bharara:

I see. Okay. I should timestamp this for people. We’re recording this on Thursday, April 4th, so a lot can happen between now and when people listen to this podcast. But how would you describe the initial valuation of the company, the current valuation of the company, and the likely valuation in the immediate future?

Felix Salmon:

I would answer all three questions with extraordinarily high. Yeah. As you said, this is a company that has almost nothing in revenues, $4 million in revenues, like your average corner shop probably does that. It managed to lose more than $50 million on those $4 million in revenues. It really needed this money from the merger where it went public with the special purpose acquisition company just to keep the lights on and have enough cash to keep on losing money. It has no prospect of making money at any point in the foreseeable future. So the company itself is worthless, we can assume, but the stock…

Preet Bharara:

But not on paper.

Felix Salmon:

The stock is a whole other thing. The stock is something that people can bet on. They can bet that it’s going up. They can bet that it’s going down. They can buy options. And that is exactly what people used to do with GameStop back in January 2021 and it’s what they’re doing with DJT right now. And the one thing that we know for sure is that all the way from now through November, this election noise is just going to get louder. Trump is going to become a bigger and bigger part of everyone’s consciousness. You’re not going to be able to escape him. There’s going to be this ticker on the stock market called DJT, which people are going to play as a way of basically betting for or against Donald Trump. And yeah, it’s going to be a crazy game. A lot of people are going to lose a lot of money and it’s going to be a lot of noise and very distracting.

Preet Bharara:

We’re going to break all this down. But explain to me why it’s the case without revealing any trade secret of our own podcast. Why, as a proportional matter, I’m not worth 2 to $3 billion.

Felix Salmon:

It’s because-

Preet Bharara:

Keeping the revenue that we make.

Felix Salmon:

Yeah, exactly. I can hazard a guess.

Preet Bharara:

My family has been asking me this question. I don’t have an answer.

Felix Salmon:

Exactly. Your business, CAFE, is probably making more money in revenues than Truth Social. And yet you’re not worth $2 billion and that is because you’re not a meme stock. Have you ever considered becoming a meme stock?

Preet Bharara:

This is still Biden’s fault. I haven’t decided to become a… I mean, did someone decide to become a meme stock? Do you think the actual play here-

Felix Salmon:

Yes.

Preet Bharara:

… two or three years ago for Donald Trump? So this was a deliberate creation of a meme. The other stocks that you mentioned that you described as meme stocks and others described as meme stocks, didn’t begin that way. Those were actual businesses that had ongoing business operations. And at some point, some subset of the population decided that they wanted to trade in them for various reasons that were untethered to the performance of the companies. But are there other companies that began and originated as meme stocks?

Felix Salmon:

Not that I can think of. I will say that there were a couple of meme stocks. Hertz was one, Bed Bath & Beyond was another that became meme stocks only after they had filed for bankruptcy. And at that point, you can pretty much assume that the valuation of the stock is zero, but still they would go up massively and become these crazy meme stocks in the short term. So there were edge cases there. But this is the only one I can think of where people really came out in attempt to create a vehicle for people to just bet on vibes, bet on the Trump vibes. And you can tell that they wanted it to be a meme stock by looking at the ticker symbol they chose. They picked DJT as a ticker symbol because that was the most meme friendly way to get people to play this stock in that fashion.

Preet Bharara:

You mentioned that this was a product of a SPAC. I had thought that SPACs were no longer a thing. Was I wrong about that?

Felix Salmon:

No, you’re pretty much right about that. But remember, this merger was announced, the SPAC acquiring Trump Media & Technology Group. That merger was announced in October 2021, I believe. It was a long time ago, back when SPACs were a thing. And this SEC doesn’t allow just anyone to SPAC. They force you to file a whole bunch of filings and make sure that you’re some vague semblance of a legitimate company before they let you actually consummate the merger and go public. And that whole process of going from announcing the merger to actually executing the merger took from 2021 to 2024. So that’s why this weird throwback SPAC thing is happening right now. It’s just because it took forever for them to actually finish the process of what’s known as deSPACing.

Preet Bharara:

Right. That sounds vaguely dirty.

Felix Salmon:

It’s extremely dirty.

Preet Bharara:

So Donald Trump, based on the volatile changing, but still a very high valuation of his company, is now worth an additional several billion dollars. Explain to folks, can he decide tomorrow to liquidate his position and go home and use that money on his campaign or on a plane or for his own purposes or not?

Felix Salmon:

The short answer is basically yes. Technically, he is locked up for six months, so he’s not really allowed to sell any stock until October. But to all intents and purposes controls this company. The board is his son and various other loyalists and MAGA types. So if he went up to the board and said, “Listen, can you waive this lockup and let me sell stock tomorrow?” They would almost certainly say yes and let him do that.

Preet Bharara:

What would be the consequence of that? So if Donald Trump decided this is my personal money-making vehicle, I’m strapped because I have these bonds to put up with respect to these judgments and the civil matters. I have criminal lawyers to pay and all of that, and he gets his familial and personally loyal board to waive the lockup and he sells. Can he sell all of it?

Felix Salmon:

In theory, sure.

Preet Bharara:

In theory, he can sell all of it. In that hypothetical, he’s established this company worth billions of dollars. He sells his entire stake. I believe he has about 57%.

Felix Salmon:

Correct.

Preet Bharara:

First of all, will there be a market for 50% of the shares of this company?

Felix Salmon:

I should imagine that if he started selling that many shares pretty quickly, that force of selling would bring the price down, but there’s a price-

Preet Bharara:

Buy a lot, would it not?

Felix Salmon:

This is a meme stock. And meme stocks work according to their own weird internal logic. And for all we know if Trump came out and announced with great fanfare that he was going to be selling the stock and that anyone who wanted to support him should be buying it off him, I don’t know, maybe it would go up. Meme stocks do not behave like normal stocks. In any normal state of the world, the major shareholders selling a large chunk of their shares would cause the shares to go down. That’s-

Preet Bharara:

The crater. The shares would crater in normal situation, right?

Felix Salmon:

The shares would crater. That would be normal. That would probably be what would happen in this case too. But right now, in the stock market, in this crazy world that we’ve been in since the pandemic, all bets are off.

Preet Bharara:

Okay. So let’s talk about another scenario. Let’s say he doesn’t sell, doesn’t ask for a waiver of the lockup. It sounds like your answer is going to be, it’s just unpredictable because meme stocks are. So all these questions relating to predictions about consequences if certain events come to pass maybe are impossible to answer, but I’m going to try anyway, Felix. If Donald Trump loses the election and he’s no longer the same central fixture in our lives that he’s going to be the next few months, what do you think the effect of that is on the stock?

Felix Salmon:

For me, I think of DJT the stock as a way of playing the Trump vibes and how strong the Trump vibes are in the economy. If he loses the election and slowly fades from public consciousness, I can’t imagine that DJT is a sort of vibe meme stock would continue to be particularly valuable. So yeah, my base case is that that would bring the value of the stock down significantly.

Preet Bharara:

Unless I guess a contrary scenario is he loses, but he claimed that the election was stolen just like he claims it was in 2020. He’s not running for president again, or at least not for another four years when he’s well into his 80s. But he becomes the voice of the opposition to a second Biden term and there might be a lot of interest in that, right?

Felix Salmon:

Well, we’ve seen that over the past four years, right? So the question is how relevant has Trump been over the past four years, and how much would people have been paying attention to his meme stock over the past four years? I can’t really answer that counterfactual. My guess is that he will have some attention and that the stock will continue to trade at some objectively ludicrous non-zero valuation, but that it would be lower than the heights that we will see probably around the election.

Preet Bharara:

Okay. What about the other scenario? Donald Trump wins the election, becomes president again in 2025? It’s the first question is, and maybe you’re not the right person to ask this question of and I should have a better answer myself. Does he have to divest from the company as president or should he?

Felix Salmon:

Should he is an easy one. Yes, absolutely, he should. If you look at the emoluments clause, I think it’s pretty clear that it says that he should, and it would be illegal not to because the company becomes this really easy way to basically drive money directly to Trump and to effectively bribe him.

Preet Bharara:

By foreign investors you mean?

Felix Salmon:

Yeah, exactly. If the Kingdom of Saudi Arabia buys $100 million worth of advertising on Truth Social, they know that he owns 58% of that company. He can see them making that buy. It’s clearly a way of them paying money to the President of the United States. It violates all manner of principles and laws. But what we saw during Trump’s first term was that the emoluments clause seems to have no teeth, and no one is ever going to enforce it. So I’m not holding my breath for his divestment to ever happen.

Preet Bharara:

So we’ve been talking about meme stocks and I guess they have been a matter of discussion only in recent years, unless I’m forgetting something from the past. As a general matter, notwithstanding your I think completely correct thesis that meme stocks don’t follow the normal laws of gravity and physics and economics. One has to presume that a meme stock can’t remain such for an indefinite period of time for years and years, or can it? I mean, in other words, at some point, doesn’t even a very popular and dramatically rising meme stock have to give way to the fact that there’s very anemic revenue?

Felix Salmon:

At some point, yes. But the question is how long that takes. When GameStop-

Preet Bharara:

What’s the date? Could you tell us what is the day of the week and the time that that will happen, so we can plan our portfolios?

Felix Salmon:

One thing I can tell you is, and again, I’ve just learned this by looking at GameStop. GameStop is still trading at a super high valuation compared to before it became a meme stock and that was four years ago. So these things can stay elevated for a while. And in a world where DJT becomes completely crazy and goes up to $500 a share, then yeah, it could lose $400 of that valuation and crash down to $100 a share and still be worth twice as much as it is today. Anything is possible.

Preet Bharara:

I guess that’s right. What does it tell you, and what should it tell the public generally, in the investing public specifically, that it appears the company does not want to release certain metrics, including numbers of users? Is that a red flag or not?

Felix Salmon:

If you want to invest in the company, that’s a very red flag. If you care about the company as a corporate investment, then yeah. The fact that it’s not releasing its monthly average users or daily average users and has in fact come out and said, it’s never going to release those numbers. It’s like, “No, I want to know about this company if I want to invest in it.” So yeah, I don’t think it affects the stock very much because as I say, when you’re playing the stock, you’re playing the stock, you’re not playing the company. But from a corporate governance perspective, that’s definitely a red flag. Yes.

Preet Bharara:

With the proviso that you are not here to provide investment advice, I guess you must say that all the time. I’m nonetheless going to ask you the question and I know what the answer is based on what you said so far in the show and what you hinted at before we started recording. I’m going to make this about me, not the listening audience. Should I today spend a lot of energy shorting this stock betting against this stock?

Felix Salmon:

So the first thing I’ll say is that it would be very expensive. In order to shorten stock, the first thing you need to do is you need to borrow stock from someone who holds it. And then what you do is you take that stock that you’ve borrowed, and you sell it in the open market. Right now, if you want to borrow a DJT stock, that will cost you about 500% in annual interest that you need to pay to the holder just to borrow the stock. So shorting is a very expensive and very dangerous proposition because while it can’t drop more than $48, because it’s only trading at $48 a share, it can go up an unlimited amount. So if you then need to cover that short, if you need to buy it back in the future in the hope of making a profit because it’s lower than 48, you might actually wind up having to buy it back at a price much higher than 48.

And given that DJT is, to all intents and purposes, a random number generator and it will just trade at wherever it trades, the number that you wind up having to cover your short at could be much, much higher than the number it is trading at right now.

Preet Bharara:

I mean, in an ordinary universe, if many, many people respected people in particular are publicly known to have shorted its significant stock and also shorted that stock based on sound analysis like lack of revenue, lack of transparency about users and that sort of thing, that would normally have a depressing effect on the stock, right?

Felix Salmon:

I’m not sure about that. The fact that they’ve sold the stock in the past and therefore got their short position it’s a sign that the stock has already been subject to selling pressure. So where we’re seeing it right now is post-selling pressure. Now, at some point, all of those people who are short are going to have to cover their shorts, which means they’re going to have to buy back the stock. And so in the future, there will be buying pressure. So weirdly speaking, in the stock market, if there’s a large, short interest in the stock, that’s often taken as a sign that it might go up.

Preet Bharara:

And you’re not going to make a prediction with any specificity about what happens here. I’ve now answered that three times.

Felix Salmon:

Well, actually, I’m just going to say now it’s going to be on April the… No, let’s say August the 14th. We’ll see a very volatile crash in DJT stock, definitely.

Preet Bharara:

Why August 14?

Felix Salmon:

I’m just making that up.

Preet Bharara:

Oh, I started to put that in my calendar, was going to alert my broker. What’s this business relating to a Russian-American involvement in this company and this stock?

Felix Salmon:

As I say, from a corporate governance perspective, Truth Media & Technology Group is, I believe the technical term is a shit show. There’s been enormous amounts of litigation already. There will continue to be litigation. No one’s entirely clear how it managed to cobble its way through to going public in the first place, but it did get there in the end. They tried to raise $1 billion through something called the public investment in private equity and that fell through. This is not the best people in the world running this company. It’s a mess. And do I believe that there’s something vaguely Russian in there somewhere? I could easily believe it, but yeah, it’s just very messy.

Preet Bharara:

And finally, we also learned in the last few days that the company has filed suit in Florida to push out two of its co-founders. What’s that about?

Felix Salmon:

That’s just part of the mess.

Preet Bharara:

It’s just part of the mess. Okay.

Felix Salmon:

Basically, these two guys were hired to set up the company. And as part of the deal, they got 8.5% of the company. And now, they’re like, “We own 8.5% of the company and that’s worth $600 million. So hey, we’re dynastically wealthy, isn’t this amazing?” And Trump himself basically are saying, “But wait, you didn’t actually do very much work,” which is true, they didn’t. Maybe you don’t deserve 8.5% of this now very valuable company. And so he’s trying to sue to take that stock back. I have no idea whether he might. You’re the lawyer, you have a better idea whether that’s the color based on the-

Preet Bharara:

I haven’t looked at it yet. I got my hands full with all the other cases. It’s amazing that a person who’s involved in so much litigation chooses to bring another litigation. Final question, sir. Are you now or have you ever been yourself a member of Truth Social or a user of Truth Social?

Felix Salmon:

I have never once gone to that website. No, I have not. Have you?

Preet Bharara:

I have not. I have not and I don’t plan to.

Felix Salmon:

We are both entirely unqualified to talk about Truth Social and so you know what-

Preet Bharara:

The funny thing is, it seems to me that anything that’s of note that he posts on Truth Social gets repeated on cable television and other social media sites anyway. So it doesn’t seem to be… Even if you’re in the business of journalism and covering the volatile utterances of the former president, it doesn’t seem like you really need to be on that side to do so.

Felix Salmon:

It’s just outsourced that to some point in turn at MSNBC.

Preet Bharara:

Exactly. Your words, not mine. Felix Salmon will be following this. Thank you for your insight. It was great to have you on the show.

Felix Salmon:

Thank you.

Preet Bharara:

For more analysis of legal and political issues making the headlines, become a member of the CAFE Insider. Members get access to exclusive content including the weekly podcast I host with former U.S. Attorney Joyce Vance. Head to cafe.com/insider to sign up for a trial. That’s cafe.com/insider. If you like what we do, rate and review the show on Apple Podcasts or wherever you listen. Every positive review helps new listeners find the show. Send me your questions about news, politics, and justice. Tweet them to me @PreetBharara with the hashtag #AskPreet. You can also now reach me on Threads. Or you can call and leave me a message at 669-247-7338. That’s 669-24-Preet. Or you can send an email to letters@cafe.com. Stay Tuned is presented by CAFE and the Vox Media Podcast Network. The executive producer is Tamara Sepper. The technical director is David Tatasciore. The deputy editor is Celine Rohr. The editorial producer is Noa Azulai. And the CAFE team is Matthew Billy, Nat Weiner, Jake Kaplan, and Claudia Hernández. Our music is by Andrew Dost. I’m your host, Preet Bharara. Stay tuned.