Serious risks exist. Hope for truth Social improvements faded with the weak results of the second quarter earnings report. Without an earnings call by management, shareholders were not given any information about future plans and expectations of how things might improve.

The key question is: “Why no positive outlook presentation?”

The answer probably lies in the ownership numbers. Donald Trump owns well over 50% of Trump Media’s shares, making him the “controlling” shareholder with superior rights. As a result, the other, minority shareholders are at risk of exclusion. On page 39 of the April 15 prospectus, this was explained in the 46-page list of “risk factors”:

• “President Donald J. Trump has significant influence over key decisions because of his control over a substantial portion of TMTG’s voting stock.
• “As a … majority shareholder, President Donald J. Trump is entitled to vote his shares in his own interest, which may not always be in the general interest of TMTG shareholders.”

Although Trump Media’s board must keep the interests of all shareholders in mind, it is legally permitted to focus on the wishes of Donald Trump because it alone represents the majority of shareholders.

Of course, CEO Devin Nunes also attaches great importance to Trump’s wishes.

So what are the main risks?

First, there is a risk of heavy selling in September when lock-up periods expire.

Aside from Donald Trump’s large holdings, minority shareholders hold all other restricted shares. Many of these shareholders did not choose to invest in DJT. Instead, they received their shares as payment for services, as repayments of cash loans, or as low-cost or free positions from Digital World Acquisition’s acquisition and merger activities. Therefore, without a strong investment case to hold their shares when they become saleable, we can expect liquidations – especially if the stock remains weak.

Second, there is the risk of early insider selling

Although Donald Trump owns a large number of restricted shares, the board may grant him an exception that allows him to sell sooner. Why would he want to sell? He has enough shares he could sell while still maintaining his majority position, so selling now would allow him to take advantage of current prices and raise cash ahead of the expected sales of others in September.

If he chose to do so, when would such sales become public? The SEC requires insiders to report purchases and sales monthly, with reports due by the 10th of the following month. So if he were to receive an exemption this month, in August, for example, any sales within the first ten days of September would become public.

Note: If such a report is published, it will be before the lock-up period ends later in the month. This will give non-locked-up shareholders time to sell their shares before the lock-up period ends.

Third, there is a risk of brand erosion

The main pillar of Trump Media’s still high share price is the Donald Trump brand. The usual fundamental pillars (sales, earnings, book value and growth) remain well below DJT’s current price. Without the Donald Trump brand, a fundamental valuation would result in a low single-digit price.

So why might the brand be eroding? There are two main issues for that. First, Trump Media’s stock has fallen 70% in less than six months since the March 25 merger, suggesting all is not well with the company. Second, Donald Trump is away from the company while he is running for president, raising questions about when and if he will return.

Fourth, the stock has entered a risky position

This chart shows the uncertainty of the stock. It is already hitting the gap between $25 and $17.50. The drop may not look scary, but it is a significant 30% loss. More importantly, it would send the stock back to the January lows, which would negate all the excitement before and after the merger. At that point, many fans would be faced with the possibility of DJT continuing its downtrend until it hits its low fundamental level.

Conclusion: Without fundamental support, every stock is at risk of crashing

The Trump brand has strong appeal for Trump Media investors. However, any non-fundamental support may wane if current investors continue to incur losses and potential investors shy away.