Why Trump Media Stock Is Jumping Today

Key Points

• A deal was announced today between Trump Media and Crypto.com to create a new company that will go public via a SPAC deal.

• The new entity will be a crypto accumulation company. But instead of Bitcoin or Ethereum, it will accumulate Cronos.

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Shares of Trump Media & Technology Group (NASDAQ: DJT) are jumping on Monday, up 7% as of 1:34 p.m. ET. The jump comes as the S&P 500 and the Nasdaq Composite are little changed.

Trump Media, the parent company of Truth Social, is teaming up with a major cryptocurrency exchange to launch a new company that will adopt a crypto accumulation strategy.

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Trump Media will add Cronos to its books

The new company will build a significant position in Cronos (CRO), the crypto token of Crypto.com, and go public via the special purpose acquisition company (SPAC) Yorkville Acquisition, with the ticker MCGA.

The venture's funding mix includes about $1 billion of CRO tokens, $200 million in cash, $220 million in warrants, and an equity line up to $5 billion from a Yorkville affiliate. Trump Media plans to buy roughly $105 million of CRO for its balance sheet, and Crypto.com will invest roughly $50 million in Trump Media stock.

This comes after Trump Media jumped on the crypto accumulation strategy bandwagon recently, purchasing large amounts of Bitcoin using a mix of debt and equity sales. The strategy was pioneered by Michael Saylor's MicroStrategy (doing business as Strategy) and is a high-risk move that could pay off if Bitcoin continues to rise in price significantly.

Image source: Getty Images.

Trump Media's valuation is divorced from reality

The latest move from Trump Media is its latest attempt to generate value. The company's main asset, Truth Social, is a money-losing machine. At the moment, Trump Media has annual revenue of a few million dollars and is losing money hand over fist, yet its stock carries a valuation above $5 billion. The company's pivot into Bitcoin accumulation (and now Cronos accumulation) requires taking on significant debt or diluting its stock through equity sales. It's not a gambit I think will pay off. This is not a stock you want to own.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.