Donald Trump won the election. What happens to Trump Media now?

When Trump Media & Technology Group (DJT+15.04%) debuted on the Nasdaq (NDAQ+0.70%) in late March, Donald Trump had long since announced plans to launch his third bid for the White House. His election win now begs the question: What will happen to the company that counts the now president-elect as its biggest shareholder?

Trump helped found Trump Media in 2021 with the launch his own social media platform, Truth Social, after being banned from X (META-0.41%) (formerly Twitter) in the aftermath of the Jan. 6 Capitol riot. X owner and staunch Trump ally Elon Musk reinstated Trump’s X account in November 2022, one month after buying the platform. Trump Media went public on March 26 under the ticker DJT, after completing its merger with Digital World Acquisition Corp. (DWAC) (DWAC), a special purpose acquisition company, or SPAC.

Now that Trump will be returning to the White House in January, his more than 100 million shares are a focal point. In a post on Truth Social Friday, Trump said that rumors allegedly coming from “market manipulators or short sellers” suggesting that he’s considering selling his stake in the company are “fake, untrue, and probably illegal.”

“Truth is an important part of our historic win, and I deeply believe in it,” he said.

Although he stands to gain from a sale, it would be difficult to carry out without tanking the value of the stock. Earlier this year, Trump Media CEO Devin Nunes repeatedly called on Congress to investigate manipulation and illegal short-selling of DJT stock.

From an ethics standpoint, it’s a little muddy. While Trump, who is the primary shareholder of Trump Media with a 57.6% stake in the company, can legally hold onto his shares while in office, there is a conflict of interest. As president, Trump has direct oversight of government agencies that oversee the company, including the Federal Communications Commission and the Securities and Exchange Commission.

“It’s a clear conflict of interest for the president of the United States to perform those executive functions while owning a substantial stake in a media company, whether it’s social media or any other,” Richard Painter, a former chief White House ethics lawyer, told Straight Arrow News.

In practice, however, vice president of research at Morningstar (MORN+1.54%) John Rekenthaler said in an interview that he doesn’t think it will be an issue. “I don’t think with his presidency that voters or federal, national legislators will pursue that,” he said.

The symbiotic relationship between Trump and Trump Media raises red flags for investors. The company itself has acknowledged in regulatory filings that its success depends in part on Trump’s popularity and reputation. In the six weeks leading up to Election Day, “pre-election euphoria” drove the stock nearly 200% higher as Trump’s odds of winning increased.

Even before the election, DJT was what Rekenthaler calls an “affinity stock,” trading on emotions and fanaticism for the president elect rather than on actual business performance. The company reported yet another quarterly loss in its third-quarter earnings on Tuesday — also Election Day. In the three months ended Sept. 30, Trump Media lost $19.2 million, with revenue falling 5.6% to just $1.01 million from a year earlier.

Given his outsized stake in the company, DJT stock performance also drives much of Trump’s own wealth. As of Friday, the company had a market capitalization of $6.53 billion. At a price per share of around $32, Trump’s net worth stemming from his holdings in the company is in the ballpark of almost $4 billion.

Shares have been especially volatile around the election, with the stock closing down nearly 23% Thursday before popping back up 18% in Friday afternoon trading.

Rekenthaler said that it’s possible the pre-election rally was an election trade, rather than a long-term investment. That might explain some of the volatility in recent days, particularly the losses on the day after Trump’s election victory.

“There is the adage that you sell on the good news,” Rekenthaler said. “Maybe some people sold on the good news after the election.”

When it comes to what the stock will do once Trump returns to the Oval Office, it’s anybody’s guess, according to Rekenthaler.

“No idea,” he said. “To the extent that I had an idea, that idea disappeared the day after the election.”