Reddit and Trump Media have recently made headlines as the first notable social media companies to go public in the last five years. Both companies have quickly become meme stocks, attracting significant attention from investors despite uncertain profit prospects.
Meme stocks are characterized by a disconnect between a company's stock price and its actual business performance. These surges are often fueled by individual investors who believe in a company's potential turnaround, oppose short sellers, support specific figures like former President Donald Trump, or simply seek financial gain.
Reddit's highly anticipated initial public offering saw its stock price surge by 48% on the first day and an additional 30% the following day. Trump Media, on the other hand, experienced a 59% jump on its debut day, closing with a 16% gain. Former President Trump's majority stake in Trump Media has the potential to yield significant profits.
Analysts draw parallels between the recent Reddit and Trump Media frenzy and the meme stock craze of 2021, which saw companies like GameStop and AMC Entertainment experience similar surges despite financial uncertainties. Trump Media reported a $49 million loss in the first nine months of last year, with minimal revenue and ongoing losses projected for the foreseeable future.
While Reddit boasts a large user base, it has struggled to achieve profitability in its nearly two-decade history. In comparison, GameStop and AMC faced challenges due to evolving consumer preferences and industry disruptions, with GameStop's recent attempts at modernization falling short of expectations.
Despite initial excitement, the long-term sustainability of meme stocks like GameStop and AMC remains uncertain. GameStop's market value has significantly declined since its peak in early 2021, while AMC has also experienced a substantial drop in value. Analysts question the viability of these companies in the face of continued revenue declines and market challenges.
Looking ahead, analysts express skepticism about the hype surrounding Trump Media, emphasizing the vast disparity in revenue between GameStop and Trump Media. With GameStop's revenue exceeding $5 billion in 2020 compared to Trump Media's revenue of under $5 million, concerns about Trump Media's market performance and longevity persist.
