Meme stocks making a return? What Reddit and Trump Media's debuts reveal

The stock market is trading at all-time highs, and "meme stocks" seem to have returned to the picture. Former Trump Media & Technology Group began trading on Tuesday under the ticker DJT. While the company lost $49 million in the first months of the year, the valuation of the stock is currently trading at almost $9 billion.

Yahoo Finance Reporters Alexandra Canal and Josh Schafer join the Live show to define what meme stocks are and Trump Media's performance as a potential meme stock.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

[AUDIO LOGO]

AKIKO FUJITA: It is time now for the day's trending tickers with about 30 minutes left in the trading day. We are taking a look at the meme trade as GameStop gears up for its latest quarterly results. Reddit continues to soar post IPO. And Trump's social media company surging efforts after its DJT ticker debut.

Yahoo Finance's Josh Schafer and Ale Canal around the table with us here to discuss. Let's start with the definition of a meme stock. I feel like we haven't defined that lately. Has it changed? Is it about the lack of fundamentals?

JOSH SCHAFER: It's still the lack of fundamentals, Akiko. I would say that's probably the leading thing that would define a meme stock to us and some of the strategists that I spoke with today. Steve Sosnick over at Interactive Brokers weighed out three key points.

One of them definitely being a disregard for fundamentals. We can remember how crazy GameStop got back in 2021. That was not because they were beating on earnings, that was because people wanted to buy the stock.

And another part of that would also be, again, back to that meme rally high short interest. A big part of what happens with these meme stocks is these meme traders go into companies that are highly shorted a sanctuary trying to start a short squeeze and be able to benefit from that. And the other key point, which I think Ale can probably hit on for us a little bit here, too, would be just a passionate following, a passionate fan base. However, we want to phrase that.

I think you could argue that Reddit, which just went public certainly has that. GameStop had that then and it seems like this Trump SPAC might have a little bit of that going on with it, too, Ale.

ALEXANDRA CANAL: Yeah. And I think if we go by your definition, the lack of fundamentals, I mean, this fits the bill. Trump Media. Does not really have any fundamentals? You're just talking about this in the break.

And if you take a look at the latest SEC filing, they lost 49 million in the first nine months of the year and brought in 3.4 million in revenue. Now, that is million with an M, not a B, which I think is very important to distinguish. Because based on current trading levels, you're looking at a valuation that's just about $9 billion.

This is a company that's losing money. And yet we're seeing these great returns. Now, because of the fundamentals or lack thereof, we've seen that heightened short interest in what was Digital World Acquisition Corp.

That, of course, is a special purpose vehicle. That merged with this company for this NASDAQ debut. And like Josh was saying, this is a very meme like phenomenon essentially betting that the stock price is going to come down over time and not rise according to S3 Partners which tracks a lot of these moves. DWAC was the most shorted SPAC in the US with about 11% of outstanding shares.

And public companies typically see between 3% to 4% So this is pretty high. Although you have a stock like GameStop, which has about 23% heavily shorted. So GameStop probably the highlight here. But certainly, this is operating like a meme stock at the current moment.

JOSH SCHAFER: And then the other thing, Ale, too, with that is it just seems like Reddit maybe reminded investors about the meme stock rally too at some point. That was something that Steve pointed to.

AKIKO FUJITA: Start Yeah.

JOSH SCHAFER: And so for Reddit to go public and the stock to take off over the last couple of days, you wonder if it brings back some of that crowd. You would think that crowd was interested in the IPO. And then you see the stock move. And maybe you want to get in on other names maybe.

AKIKO FUJITA: Well, and this was the question we were talking about off camera. It does this point to the specific companies we're talking about as meme trades, or is it just about the environment, the sentiment that's in the market. Just the risk on. This is another trade.

JOSH SCHAFER: We're getting back to the point where you can go to a bar and your friend's talking about Bitcoin being up 50%. I bought MicroStrategy at the start of the year. Someone might say and it's up 200%.

Like the moves in these specific names are big enough, that they're becoming a little bit of a point of conversation again. When you think about crypto, you think about those big moves, you think about a big move in Reddit, a big move in DJT. I keep wanting to say DWAC.

But those big moves kind of spark a broader conversation, I think, among the retail investor community and maybe bring out more meme inaction. All right.

AKIKO FUJITA: We're going to hear conversations about Dogecoin next. Remember that?

JOSH SCHAFER: Shiba Inu was up today above 5%.

JOSH LIPTON: The bar later and see if anybody talks to us about Reddit.

AKIKO FUJITA: Let's start the conversation to see if anybody joins in.

JOSH LIPTON: All right. Thank you guys both.