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Why Trump Media stock owners should get used to volatility

Trump Media & Technology Group (DJT) warned investors about the risk that former President Donald Trump poses to the stock. Yahoo Finance's Senior Columnist Rick Newman joins the Live Show to discuss how former President Donald Trump's behavior plays a significant role in the stock's fluctuations.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor's note: This article was written by Angel Smith

Video transcript

BRAD SMITH: Well, Donald Trump's social media platform taking a hit following its blockbuster debut last week after disclosing it lost over $58 million last year. Yahoo Finance's Rick Newman joins us now with the breakdown. We're taking a look at shares premarket here down by about 1%, Rick.

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RICK NEWMAN: I think if you're following this stock, you've got to get used to this thing yo-yoing, because this is a very unusual stock.

JARED BLIKRE: So it's important to watch and track the yo-yos.

RICK NEWMAN: Yeah. So can you think of any other company that depends so much on the persona and personality of one person?

JARED BLIKRE: Tesla.

RICK NEWMAN: I can't. No, I don't think so, because Tesla produces products. Tesla makes a profit and it has always had a product that goes into an existing market. It helped create the market for EVs, but it's not dependent on what Elon Musk says.

If Elon Musk disappeared, Tesla would carry on. If Donald Trump disappears or if he just fades from view, Trump Technology and Media Group has no purpose, because the whole purpose of Truth Social, its main product, is that he's there. If he's not there, what is it?

So as we've discussed, Jared, this is like a binary play on the 2024 election. If Trump wins, then his Truth Social, his social media company will be a place where you will be having the important conversations about what happens in politics for the next four years. If Trump loses, what's the point of Truth Social? I don't see it. So we're going to see that reflected in the stock.

And by the way, this company has almost no revenue. It's got something around a $5 to $6 billion valuation based on that big debut. But $4 million of revenue-- one of the things about early stage companies is they lose money but they grow rapidly. That's what keeps people in the stock. This is not growing rapidly, and it's not clear where if future revenues are ever going to come from.

BRAD SMITH: And for social media companies, the historical model has been lean on advertising.

RICK NEWMAN: Of course.

BRAD SMITH: It's unclear what advertisers for an extended period of time would want to continue to make sure that they are putting a messaging or a campaign into Truth Social.

RICK NEWMAN: Well, it had $4 million of revenue, mostly from advertising in '22. That's hardly anything.

BRAD SMITH: Yeah.

RICK NEWMAN: And it lost $60 million, so--

BRAD SMITH: There are singular $4 million ad spends that companies do.

RICK NEWMAN: So this is a pipsqueak of a company, let's keep this in mind. It features, arguably, the most famous person in the world, but it's not making much money off-- it's actually making no money off the most famous person in the world.

BRAD SMITH: Less than the average Super Bowl ad cost last year.

RICK NEWMAN: Oh yeah. That's one ad one.

BRAD SMITH: Thanks so much, Rick.

RICK NEWMAN: Sure.