Down 81%, Trump Media Stock Could Still Head Lower. Here's Why.

Trump Media & Technology Group (NASDAQ: DJT) presents a unique opportunity for investors. Never before have people been able to buy shares of a company named for and backed by a major presidential candidate.

However, that dynamic has meant that Trump Media moves more in response to Donald Trump's election prospects than to news about the underlying business, and the stock has been declining steadily since Vice President Kamala Harris entered the race.

The chart below shows the stock's performance since it went public through a special purpose acquisition company (SPAC) merger on March 26. As you can see, it's down 81% during that time.

DJT data by YCharts.

With the presidential race neck-and-neck, according to some polls, some investors may see an opportunity for Trump Media to make a recovery if his prospects improve. But Trump's political fortunes are not the only thing moving the stock, and the stock could still move a lot lower from here. Let's look at a few reasons why.

1. The stock still looks seriously overvalued

Trump Media's primary business, the Truth Social social media platform, doesn't report the number of users it has, but it seems to be negligible compared to mainstream social media sites. According to data from web traffic analysis firm SimilarWeb, Truth Social's daily active users ranged around 100,000 in the first half of the year.

In contrast, mainstream social media platforms have tens of millions of users or more -- in the billions in some cases. In other words, Truth Social has struggled to attract a user base.

Nonetheless, Trump Media is still valued at $2.6 billion, which is a lot considering where some much more established media companies are. The New York Times Co., which sets the news agenda across American media, has a market cap of $9 billion. Paramount Global, which owns CBS; cable channels like Comedy Central, Nickelodeon, and ShowTime; and Paramount , has a market cap of $7.5 billion. Social media giant Meta Platforms has a market cap around $1.4 trillion while Pinterest's is around $22 billion.

Image source: Getty Images.

2. It's bleeding cash

Trump Media's financials are nothing short of disastrous. The company is barely bringing in any revenue, and posting significant losses.

In the second quarter, it recorded just $837,000 in revenue, showing that Truth Social has essentially no advertising business. The company reported a loss of $16.4 million on generally accepted accounting principles (GAAP) in the quarter. For the first six months of the year, it had a free cash flow loss of $32.9 million.

The company has $344 million in cash on the balance sheet, so it can survive those kinds of losses in the near term. But investors should be clear-eyed about the challenges facing the business, as it will be hard to stem those losses with almost no revenue to show.

3. Another term for Trump could come with problems

Many Trump Media investors are likely hoping Trump will win the election, seeing it as a boon for the stock. That alone, however, wouldn't be enough to make the stock a winner, and it could cause a totally different set of problems for the company.

There's no law requiring Trump to divest from the business if he wins the presidential election. However, watchdog groups have pointed out a number of issues, including that foreign countries, corporations, or any number of special interests could buy shares of the stock or advertising on Truth Social just to try to curry favor with Trump.

It also sets up a situation where a media company could potentially be seen as getting preferential treatment from the president, and this could spark fury.

For now, this may be considered jumping to conclusions. But even if Trump wins the presidency, that does little to make Truth Social or Trump Media a successful business. In fact, it could prove to be just as much of a distraction from the underlying value proposition of Trump Media.

Little more than a meme stock

Investing in Trump Media for short-term gains could pay off as it has for other meme stocks, but it's a mistake to see the stock as a viable business rather than as a barometer of Trump's influence and appeal.

Given the poor financials, bloated valuation, and risk even if Trump wins the presidency, investors are best off avoiding this stock.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Meta Platforms and Pinterest. The Motley Fool has positions in and recommends Meta Platforms, Pinterest, and The New York Times Co. The Motley Fool has a disclosure policy.