Donald Trump's Truth Social Shows 55% Increase In Site Traffic Since IPO As Stock Rockets 123% From Lows Amid Short Squeeze Speculation

May 14, 202418:00 UTC

DJT

RDDT

GME

AMC

Truth Social, through its public entity Trump Media & Technology Group Corp DJT, has been on an incredibly volatile run since officially going public in March. Following its IPO, the company reached highs of $79.38 before going on a monthlong sell-off to $22.55. The stock has since rallied as much as 138% since its lows, closing at over $54 last Thursday before taking a breather down to $50.99 on Friday.

The volatility is attributed to two factors. The initial downfall was from an objectively overvalued valuation following its IPO. At its high, the company was valued at over $8 billion. Despite this, the company only had $751k in revenue for the quarter ending in December while sitting on a $9 million loss. The Axios estimates Truth Social has roughly five million monthly active users.

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Comparatively, Reddit Inc. RDDT is also currently worth about $8 billion, but its recent quarter showed $249 million in revenue and $18.53 million in net income. Recent estimates put Reddit at 73 million monthly active users.

By several metrics, Truth Social is objectively overvalued hence the initial nearly 80% drop in the company. Like many initial public offerings, companies will rise fast as investors flock to acquire a stake in the company. This often creates an initial steep rise in the stock, which causes short-term investors to flood the stock hoping to make money on its way up, just as happened with DJT.

An inflated valuation coupled with those same short-term investors selling off caused the initial sell-off. Another huge factor was a swath of investors opening massive short positions on the company. An inflated valuation coupled with an army of political dissidents caused a swath of investors to line up and open massive short positions on the company.

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When investors open short positions on a company, they sell the stock first causing the price to go down. As it drops, they make money when they buy the stock back. When a lot of investors short a stock, it will cause a short-term price decline, but those same investors eventually need to buy the stock back. If the stock doesn't decline, shorts can be open to unlimited liability as the price climbs, eventually resulting in the account being margin-called and the broker requires the account to purchase the stock back. This is what's called a "short squeeze.'

Notable names like GameStop Corp. GME and AMC Entertainment Holdings Inc. AMC were notably a part of short squeezes from early to mid-2021 causing their stock to rocket over 1500%.

DJT has begun using these same tactics intentionally in an attempt to keep its stock price afloat and is likely a contributing factor in the recent climb from its yearly lows. DJT's CEO, Devin Nunes, has begun issuing statements blaming the decline on short selling, telling shareholders how to lock up their shares, sending letters to Congress calling for an investigation, and informing the Nasdaq of suspected stock manipulation from naked short selling.

According to Webull, as of April 30, there were 5.35 million shares sold short and growing. At its current share price, that means $272 million in stock is currently being sold short and will eventually need to be bought back. The short interest has doubled since February and continuing to climb.

Another contributing factor could be the increased attention and underlying growth of the platform itself, however. In February, Truth Social had roughly five million website visits according to SimilarWeb. In March, the same month as the DJT's initial public offering, the company grew over 55% to 7.74 million visitors. In April, it declined to 6.5 million which is still a 30% growth from February. With more publicity from Trump's ongoing trial and the upcoming election, the platform could see a continued surge of users from the ongoing bouts of publicity.

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