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Donald Trump's social media company is trading on the Nasdaq at an eye-popping valuation.
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It should be a real target for short-sellers betting against the stock.
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But that hasn't happened yet, for a couple of reasons.
Trump Media & Technology Group Corp — Donald Trump's social media company — is a flashing red light of a stock. Next-to-no revenue; an exceptionally checkered past; completely dependent on the celebrity of a single, erratic man; and, as of Tuesday, worth something north of $9 billion as it starts to trade on the Nasdaq.
In other words: It seems like a perfect candidate for short sellers — investors who bet that a company's stock price is overvalued and will fall.
And that's sort of happening. But not that much, for now: More than 3 million shares of Trump Media have been shorted, says short-tracker S3 Partners. That works out to be about 11% of the company's total outstanding shares.
That's way higher than the average stock, which has about 5% of its shares shorted. But not nearly as much as the most-shorted stocks. Shorts own 38% of Beyond Meat, for instance. They own 35% of Carvana.
What gives?
S3's managing director, Ihor Dusaniwsky, offers one explanation: It's particularly hard to short Trump's company for technical reasons.
To short a company, you need to borrow the shares from someone else, sell them, and then hope the price of the stock drops before you have to buy the shares back and return them. But Trump's company started out as a Special Purpose Acquisition Company — a funky corporate structure that was briefly popular during the pandemic stock mania — and it's hard to borrow against SPACs in general and Trump's SPAC in particular:
SPAC stock borrowing is usually limited because the usual stock lenders, long shareholders such as mutual funds & ETF providers, do not own SPACs in size and since SPACs are not in most of the larger indexes, passive long shareholders, who are also potential lenders, do not usually hold them. In addition, most retail shareholders are not lenders into the stock loan market, which also limits the number of shares in the lending pool.