Trump Media, the parent company of Truth Social, saw its stock bounce back this week after releasing third-quarter financial results that showed significant revenue and profitability growth. The shares rose to $5, up over 40% from their lowest point this month. However, the company faces several major risks, including political scrutiny, a falling Bitcoin price, and a declining user base.
Earnings Highlights
The company reported a 205% increase in revenue for the third quarter, reaching $3 million. This growth was largely driven by Truth API, a newly launched service that allows users to pay for early access to Trump's social media posts. More notably, the company posted a profit of $409.7 million for the quarter, a sharp turnaround from the losses recorded in the same period last year.
Political and Regulatory Risks
Despite the positive earnings, the company's growth catalysts face significant headwinds. The Democratic Party won the midterm elections by a wide margin, securing 56 seats in the Senate and over 250 in the House of Representatives. Given that corruption was a central issue in the election, Democrats are likely to probe Trump Media over the Truth API solution. Critics argue that the company is engaging in illegal practices by allowing Trump to profit from his social media posts, giving wealthy high-frequency trading firms access to market-moving information before the general public.
Bitcoin Exposure
Another critical risk is the ongoing weakness in Bitcoin's price. Bitcoin has fallen to $67,700, down over 22% from its September high and at its lowest level since August 20. This is significant for Trump Media because it is one of the largest Bitcoin holders, with 15,649 coins, making it the ninth-largest holder globally. The company's Bitcoin holdings were a major factor in its third-quarter profit, as the coin surged from $57,700 to $126,300 in October. However, the recent decline could impact future earnings.
Merger and Platform Concerns
The proposed merger with TAE Technologies also carries risks, as the company is not yet profitable. Founded in 1998, TAE has spent years on research and development, and while it has made progress, its long-term profitability remains uncertain. Additionally, data from SimilarWeb shows that Truth Social's website traffic fell 22% in October from September and is down over 50% year-over-year, a trend that has accelerated as Trump's approval rating has declined. This decline is likely to continue following the Republican Party's losses in the midterm elections.
Technical Analysis
From a technical perspective, Trump Media stock has been in a strong downtrend this year and is currently near its all-time low. It remains below the key support level of $6.85, its lowest point on June 26, and is trading under the 50-day and 100-day moving averages. The recent rebound could be a dead-cat bounce, a temporary recovery that often precedes further declines. If the stock breaks below its recent low of $3.7, it could fall to the psychological level of $3.0.
This article is for informational purposes only and does not constitute financial advice.
