Shares of meme stock Trump Media & Technology Group (DJT -7.05%) fell as much as 33% this week after the company got approval for a dilutive warrant conversion. According to data provided by S&P Global Market Intelligence, shares are trading down 32% for the week as of 2:15 p.m. ET.
Investors are cashing in
Early investors in Trump Media & Technology Group have been given the green light to exercise their warrant options, which could raise $247 million for the company and dramatically increase the number of common shares outstanding.
Warrants are long-term options that investors often get as an incentive to fund businesses like the special purpose acquisition company (SPAC) merger that became Trump Media. If those warrants are exercised they will likely be sold immediately, causing downward pressure on the stock.
The lock-up period for insiders, which restricts them from selling stock on the open market, also opens in September, so investors are likely looking to get out before insiders start dumping their stock.
Nowhere to go but down
Truth Social, the operation behind Trump Media, only had $1 million in revenue last quarter and $327.6 million in losses. That's objectively a terrible business that will need to sell stock to raise more money.
On top of that, insiders could look to cash out as soon as possible after the lock-up period ends given the weakness of the business.
I don't see any reason for the stock to rise outside of the potential for a meme pop. But that's unpredictable and won't last long. Shares are down this week and I won't be surprised if the drop continues for Trump Media long-term.
