Meme stocks are back as shares soar after Trump Media and Reddit go public | Private Equity Weekly
So-called meme stocks are all the rage again. What do Reddit, Trump Media Technology Group and GameStop have in common? They all have strong retail participation. On Tuesday, Trump Media went public for the first time under the stock symbol DJT after merging with shell company Digital World Acquisition Corp. The new business’s current market capitalization is approximately $9 billion. A market cap of about $9 billion would put Trump Media at the lower end of the S&P 500 with those names, putting it on par with Caesars Entertainment, American Airlines and Mosaic. Reddit is not included in the S&P 500 Index, and its market capitalization is also approximately $9 billion. Trump Media & Technology has a market capitalization of $9.4b. Reddit $9.2b. Caesars Entertainment $9.4b. American Airlines $10b. Mosaic $10.3b. This number is quite impressive considering that Trump Media’s revenue is approximately $3.3 million. According to the New York Times, the company lost $49 million in the first nine months of last year. By comparison, GameStop made a slim profit in its fiscal year, with revenue of $5.2 billion. The market value is approximately US$4 billion. Even if you think of these as meme stocks, there’s a big difference. GameStop has razor-thin profits, revenue of $5.2 billion, and a market capitalization of $4 billion. DJT had revenue of $3 million, a loss, and a market capitalization of $9.4 billion. GameStop makes Trump Media Tech look like JPMorgan Chase. Another stock that performed well was Reddit, which surprised everyone by nearly doubling its $34 IPO price within days of going public, reversing the high-interest IPO’s post-first-day decline. the usual pattern. Reddit has offered an undetermined amount of shares to its site moderators, who are part of its loyal user base. What Meme Stocks Have in Common What Trump Media, GameStop, and Reddit have in common is a high retail base. This means there are a large number of individual investors rather than institutional investors. Retail investors tend to be more influenced by emotion and care less about old-fashioned indicators like fundamental analysis, which attempts to determine the correct price of a stock based on estimates of future profitability and dividends. All three stocks have user bases that are strongly attached to the product or founder. This does not mean that investment law has been abolished. Fundamentals Do Matter When GameStop first exploded in early 2021, many retail traders messaged me that it was proof that a dedicated, organized group could move a stock and that fundamentals didn’t matter. This is of course nonsense. Stocks are part of a company’s ownership and give shareholders a claim on the company’s earnings and assets. This is the literal definition of a stock. The purpose of fundamental analysis is to guess what future profit streams, including dividends, will look like. You can see this in the charter of the first modern joint-stock company, the Dutch East India Company, which began operations in 1602. The company was founded to import spices from the Moluccas Islands in eastern Indonesia, but it soon expanded. The Dutch East India Company stated in its charter that ownership would entitle shareholders to profits from the sale of spices. According to the document, whenever goods arrive at the port, the company must provide “a statement setting out the goods received and the status of the goods. Proceeds received from the sale of the goods should also be provided.” Send it to provinces or municipalities when they request it. …once the 5% of the returned goods is redeemed, it shall be distributed to the participants. ” Here, in the first modern joint-stock company, the owners told you: You buy our shares to participate in the profits of the spice trade. Every company since then has made essentially the same promise: You buy our shares Stocks are meant to share in the profits of the businesses we are in. Have investment laws been repealed? As for GameStop, its share price has been on a long, slow decline since mid-2021, after the company reported disappointing sales this week. Its shares have fallen from about $75 (split-adjusted in July 2022) to about $13. Nearly everyone who bought GameStop over the past three years has lost money. Looking ahead to the future of the gaming retailer, Wedbush’s Michael Pachter, one of only two analysts covering GameStop, noted that the company’s sales continue to decline due to lower hardware sales, fewer major console releases and the growth of video game and subscription services. The retailer also There is no imminent danger of bankruptcy, but Pachter noted that “If we are right, GameStop may not survive longer than five years. GameStop’s demise is beyond the 12-month window we priced in.” Target, but we expect that The company will die sometime later this decade. ” What does this all mean? Back in the 1990s, we had a guy named Arch Crawford who was a regular on our show. He gave investing advice based on astrology—I didn’t Liar. If the stars and planets align correctly, now might be the right time to buy Microsoft. You might be surprised to hear he has a following. If enough people decide to invest in astrology, sunspots, or a single personality — or they just want to hold on for the long term and believe the stock will perform well — then the stock can be volatile and leave everyone scratching their heads. But eventually, the story falls apart. The basics do matter. You may not Believe in gravity, but gravity believes in you.
