Trump Media & Technology Group’s stock is tumbling again after the company announced a massive new influx of shares. The struggling company is rapidly losing money, and a new stock offering could help it stay afloat.
But there’s a downside to going back to the market with new shares: A new public stock offering of 21.5 million shares announced Monday would add more than 15% more stock to the publicly available shares of the Truth Social owner. That would substantially devalue existing shareholders’ stakes — including that of former President Donald Trump.
Shares of TMTG (DJT) fell more than 15% Monday. The stock had rocketed higher in recent months in anticipation of merging a blank-check acquisition company with Trump’s media business. But it has lost more than 60% of its value from its peak on March 26, the day after the merger was completed and it started trading publicly as TMTG.
So… Not quite how it works. The company gets an authorized number of shares which it can then issue out, or sell to shareholders.
If you own 100 shares out of the 1000 they are authorized, you own 10% of the company.
Now if they request and are authorized more shares (which is what happened here), your stake in the company is cut down. Let’s say they get authorized and issue another 1000 shares, bringing them to 2000 total shares. You now only own 5% of the company.
And with these new shares hitting the open market, prices will drop because now there is “more supply than demand” (it’s an easy way to think about it). In theory the whole thing will eventually even out, but that generally doesn’t happen here because the value of the company hasn’t changed.
This whole thing is different compared to a stock split, which affects the price and the number of stocks, but not your overall stake in it. If a company does a 2:1 split, your shares will double, but the price per share will be cut in half. 10 shares at $10 now becomes 20 shares at $5… Your stake is still at $100