A 'cash crunch' at Trump Media & Technology Group; GameStop and AMC Entertainment stocks crushed; I was right about Sam Bankman-Fried's sentencing; Podcast episode with climber Alex Honnold
1) I'm back again with more on former President Donald Trump's digital-media company – and things aren't looking good.
As a reminder, last Tuesday I discussed Trump Media & Technology Group (DJT), which owns social media site Truth Social. Trump Media & Technology just went public by merging with a special purpose acquisition company ("SPAC").
Before we go any further, I'll stress that once again I am not expressing any political opinions. I'm analyzing this stock – and warning my readers about it – just as I did with other meme stocks like GameStop (GME) and AMC Entertainment (AMC).
As an investor (rather than a speculator), I always look at the financials. So last week, I shared the latest income statement DJT reported in its prospectus with the comment that "DJT's numbers are... grim":
So in the first three quarters of last year, the company had revenue of $3.4 million (not billion, which is what you would expect for a company worth $9.7 billion) and expenses of about $14 million, resulting in an operating loss of $10.6 million.
The company hadn't yet reported fourth-quarter and annual numbers, so I wrote:
Let's be generous and assume that DJT had a blowout fourth quarter and generated $5 million of revenue last year. That means the stock is trading at nearly 2,000 times revenue!
Well, yesterday the company filed its income statement for the full year. And as I expected, my estimate was far too generous – the company's revenues barely exceeded $4 million. Here's a portion of the exact income statement from the filing:
By subtracting the numbers for the first three quarters from the full-year numbers, we can see that Trump Media & Technology only generated about $752,000 of revenue in the fourth quarter. That's almost 33% below the $1.1 million per quarter average in the first three quarters of the year.
But expenses accelerated... They jumped by $6.0 million from $13.9 million in the first three quarters – an average of $4.6 million per quarter – to $19.9 million.
No wonder the company faced a cash crunch and the stock crashed 21% yesterday, as this Wall Street Journal article noted: Trump Media Shares Tumble After Recent Cash Crunch Disclosed.
Other than the obvious – a money-losing business in steep decline and an absurdly (at least by 10 times) overvalued stock – the main risk that anyone foolish enough to own this stock should be thinking about is whether Trump might start selling his 57% stake in the company.
Puck's William Cohan discussed the various ways this could play out in his recent article, A Paramount Twist & Trump's Meme Windfall Options. Excerpt:
Trump Media & Technology Group could do a registered secondary sale of Trump's stock, but a secondary sale – meaning that a big owner of the company's stock wants to sell – tends to drive down a stock's price in the market.
Or he could sell his stock in a special private placement to a "sophisticated" investor, generally anyone with a net worth of more than $1 million, although this too would likely drive down the price. (Of course, this is a meme stock – and a Trump meme stock – so all bets are off as to typical shareholder reactions to such things.)
Trump could also do a private 144A sale of his stock six months after the merger, which wouldn't require a lock-up waiver. But since he is deemed to be an "affiliate" of the "controlled company," according to the merger prospectus, Trump would be restricted to selling only a small amount of his stock, limited to the greater of 1 percent of the total number of [Trump Media & Technology's] Class A shares outstanding of 135.8 million, or around 1.4 million shares, or the average weekly trading volume of the stock during the four-week period prior to the sale.
Assuming that 1 percent of the shares outstanding is the higher number, Trump could sell around $87 million worth of stock in a 144A offering – about enough to cover his legal judgment to E. Jean Carroll, if he ends up losing his appeals. (The average weekly trading volume could be higher for [Trump Media & Technology], but that remains to be seen, obviously.)
My conclusion hasn't changed from what I wrote last week:
DJT looks like a meme stock and reminds me of GameStop (GME) in its heyday in 2021. And like with GameStop, the ending seems certain: huge losses for retail investors sucked in by the hype and action.
Don't be one of them.
2) Speaking of stocks I've long been warning my readers to avoid...
Two of these at the top of the list in both my January 27, 2021 "Short Squeeze Bubble Basket" and my January 4, 2022 "Dirty Dozen" were GameStop and AMC.
GameStop reported dismal earnings last week – with revenue tumbling about 19% year over year – and the stock hit a 52-week low yesterday of $11.55 per share during intraday trading.
Meanwhile, AMC shares hit an all-time low yesterday of $3.12 during intraday trading – down a staggering 95% from their 52-week high and more than 99% from their all-time high.
Investors didn't like the news that they are being further diluted (As Barron's reports: AMC Tumbles After Stock Sale Announced. The Box Office Downturn Is Biting.) and (correctly, in my opinion) fear bankruptcy is looming (Yahoo Finance has the story here: AMC Cinema's Senior Lenders Meet to Discuss Chain's Debt Options).
What's happening here isn't unusual – it's what typically happens to meme stocks...
Stay away from GME and AMC.
3) Notorious crypto fraudster Sam Bankman-Fried was sentenced to 25 years in prison last week, right in line with what I predicted.
In my October 16 e-mail, two weeks before he was convicted, I wrote:
Mark my words, Bankman-Fried will be convicted and be sentenced to at least 20 years in prison.
4) I enjoyed a recent 100-minute podcast episode with the world's most acclaimed climber, Alex Honnold...
In it, in addition to climbing exploits, he discussed very personal things like his parents' terrible marriage and his own marriage. It's on YouTube here, or you can listen to it here.
Honnold is an inspiring athlete – and a really nice guy. I've met him twice: in December 2019 at the New York City premiere of Free Solo in IMAX, when I told him he inspired me to try to climb El Capitan (which I did the following June). He replied: "That's rad, dude!" Here's a picture of us chatting afterward:
I met him again two years later when I was in Ecuador.
I was in a small lodge at the base of Cotopaxi, preparing to climb it the next day, when Honnold and more than a dozen of the world's top climbers walked in. They were there as part of the destination wedding of two of their own, Adrian Ballinger and Emily Harrington.
Here are pictures of us from that day and a view of Cotopaxi:
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.