Current:Home > ScamsFastexy Exchange|Trump Media, Reddit surge despite questionable profit prospects, taking on the ‘meme stock’ mantle -WealthGrow Network
Fastexy Exchange|Trump Media, Reddit surge despite questionable profit prospects, taking on the ‘meme stock’ mantle
TradeEdge Exchange View
Date:2025-04-07 19:17:48
NEW YORK (AP) — Reddit and Fastexy ExchangeTrump Media are the first notable social media companies to begin trading publicly in the last five years. They’re also, thanks to the rabid reception among investors coupled with the companies’ fuzzy profit outlooks, the latest meme stocks.
Meme stocks are typically shares in companies whose underlying business fails to justify a surge in their price. The action is often driven by small investors who for some reason pile into a stock, be it belief that a struggling company can turn itself around, a disdain for so-called short sellers — or fidelity to a former president. Or simply opportunism.
Reddit’s initial public offering last week was the most anticipated debut so far this year, and it didn’t disappoint, rising 48% on the first day. The stock gained an additional 30% Monday.
Then Trump Media stole Reddit’s thunder by jumping as much as 59% on its first day of trading Tuesday, before cooling off and closing with a gain of 16%. On Wednesday, the stock gained an additional 14% to close at $66.22. Former President Donald Trump holds a majority stake in Trump Media that could bring him billions.
Analysts and academics are comparing the surge in Reddit and Trump Media to the meme stock craze in 2021 that boosted shares of companies such as video game retailer GameStop and movie theater operator AMC Entertainment. Although there are differences between the two groups, the companies did have two prominent similarities: It was hard to look at the financials and predict a path to long-term profitability. But small investors bought in nonetheless.
Trump Media lost $49 million in the first nine months of last year, when it took in just $3.4 million in revenue and had to pay $37.7 million in interest expenses. In a recent regulatory filing, the company said it will lose money “for the foreseeable future.”
Research firm Similarweb estimates that Truth Social had roughly 5 million monthly visits in February of this year. By comparison, Facebook had 15.2 billion visits, while Reddit had 2 billion.
Reddit, like its social media peers, relies on user growth and advertising revenue, but it has yet to turn a profit in its nearly 20-year history that has also been beset by management turmoil and user backlashes. About 76 million users checked into one of Reddit’s roughly 100,000 communities in December, according to a regulatory disclosure.
While Reddit and Trump Media can be considered newer technology companies, GameStop and AMC were considered to be somewhat antiquated when small investors latched onto them in late 2020 and early 2021. GameStop struggled while selling video games and consoles in stores without a digital alternative, and AMC lost billions of dollars as movie fans embraced streaming and the pandemic kept them out of theaters.
Granted, GameStop had the backing of Ryan Cohen, founder of the e-commerce pet food company Chewy, who investors likely thought could modernize GameStop’s business. But a number of investors were individuals who belonged to the Reddit community Wall Street Bets and bought shares in order to “stick it to” to big institutions that had made bets the stock would drop. As the stock took off, even more investors seized the opportunity to buy.
Many of those investing in Trump Media are also small-time investors either trying to support Trump or aiming to cash in on the mania. They helped the stock of Digital World Acquisition more than double this year ahead of its merger with Trump Media, which took its place on the Nasdaq stock market. As the stock jumped Tuesday, one user urged conservatives to “get behind the DJT stock and send it over $100 per share” to “drive the liberals insane!”
Data from Vanda Research show that retail investors bought $6.5 million of Trump Media shares on its first trading day and $7.9 million of Reddit shares for its debut.
The frenzy surrounding GameStop and AMC eventually died down. GameStop’s market value peaked above $20 billion in January 2021; it’s now just above $4 billion after Cohen’s turnaround has for the most part failed to materialize. AMC’s market value has dropped from a high of around $29 billion to about $1.5 billion. While both carry on — GameStop even reported a small profit for the fiscal year ended in January — analysts question their longevity.
Following the release of GameStop’s earnings report Tuesday, Michael Pachter, an analyst at Wedbush Securities, wrote in a note to investors that steeper revenue declines for the company could lead to large losses and possibly bankruptcy.
“If we’re right, GameStop has a likely runway of no more than five years,” Pachter said.
Even so, Pachter is even more skeptical of the fervor over Trump Media in the market. He notes that GameStop had revenue of more than $5 billion back in 2020 while Trump Media’s revenue is under $5 million.
“GameStop was the meme stock of a lifetime, but Trump Media has put it to shame,” Pachter said in an email.
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