DWAC stock: still very speculative (NASDAQ: DWAC)

This article was prepared by Jenny.T in collaboration with JR Research.

Investment thesis

In October 2021, Digital World Acquisition Corp. (DWAC) announced its merger with former President Trump’s media company, Trump Media & Technology Group. The company plans to launch its new social media platform, Truth Social, by February 2022 to compete with big tech companies like Facebook and Twitter. The Capital Riot in January 2021 led to the suspension of former President Trump’s account from the respective Big Tech companies, which was described by many as “a tyranny of Big Tech”. As a result, Truth Social aims to be the alternative social media outlet for conservatives in the United States, to quash the “cancellation culture” in the media industry.

We discuss whether investors should add DWAC shares now.

The Motivation Behind Social Truth and TMTG+

It is no coincidence that former President Trump chose to launch his new social media platform, the Truth Social by Trump Media & Technology Group, on February 21, 2022. February 21 (the third Monday in February listen)) is a federal holiday originally intended to celebrate George Washington’s birthday, the first president of the United States. However, Presidents Day is now widely accepted to celebrate all US presidents, past and present. In January 2021, former President Trump lost his “megaphone” on Twitter, Facebook and Youtube after the Capital Hill riot on January 6, 2021.

Technological monopoly censorship. Source: TMTG

In July 2021, former President Trump filed a lawsuit against Twitter, Facebook and Google, while commenting that “if they could ban a president, they could ban anyone.” It also forms the basis of its new social media platform, “to counter this liberal bias and dangerous exercise in tech monopoly censorship.” The Truth Social aims to provide an inclusive “Big Tent” approach to “an open, free and honest global conversation without discrimination against political ideology”. However, posts seeking to tarnish either Truth Social or Trump Media & Technology Group will still be prohibited under its terms of service. As a result, it’s obvious the site won’t welcome long-term criticism of former President Trump.

Potential subscriptions. Source: TMTG

Nonetheless, with a total of 146 million Trump followers across Twitter, Facebook, and Instagram (before account suspension and assuming overlapping following by the same person), we expect a similar following to Truth Social and TMTG + at launch, mainly due to the popularity of the public. interest in former President Trump after a year of “radio silence”. Nevertheless, we don’t know how TMTG plans to fund the social media company in the future. Generally, most social media platforms such as Facebook and Instagram depend on advertisers for their revenue. The other option for TMTG+ would be a recurring subscription fee, similar to Youtube Premium at $11.99 or Netflix at $13.99 each month. Assuming similar fees at $10 per month, we could expect up to $1 billion in monthly revenue at its peak. Nevertheless, in its November 2021 investor presentation, the company guided 10 million subscribers for TMTG+ and 15 million monetizable users in Truth Social. It would represent an annual revenue of $1.2 billion, assuming similar subscription fees.

Although few details have been released regarding its subscription streaming service, TMTG+ aims to be an alternative to Disney+, Netflix and CNN, providing news, podcasts, entertainment, documentaries and sports programming. Additionally, in December 2021, TMTG announced that it had partnered with Rumble for video and streaming services for Truth Social. Rumble is an online video platform popular with American conservatives looking for an alternative to Alphabet-owned Youtube. It’s obvious that TMTG chose Rumble as their partner, as both leaders have similar values. Chris Pavlovski, CEO of Rumble, said:

Rumble was developed for dedicated content creators who are stifled elsewhere. Rumble will never censor political discussions, opinions or act as arbiters of Truth. (The conversation)

Additionally, on December 6, 2021, Congressman Devin G. Nunes was confirmed as CEO of TMTG. Since the former president took office, Devin Nunes has been an outspoken ally of former President Trump, who awarded Nunes the Medal of Freedom in 2021. Nunes also served as Chairman of the House Intelligence Committee during the Russian investigation by the FBI, showing its firm tenacity in defending former President Trump during the legal proceedings. Although he has the same ideology as former President Trump, we don’t know how that might help Nunes in his CEO career, as he had no prior experience in the media or tech industry. Devin Dunes, CEO of TMTG, said:

Now is the time to reopen the Internet and allow the free flow of ideas and expression without censorship. The United States of America has made the dream of the Internet a reality and it will be an American company that restores the dream. I am humbled and honored that former President Trump has asked me to lead the world-class mission and team that will deliver on this promise. (NPR)

The Economics of TMTG and the Social Truth Format

TMTG valued the company at $875 million, potentially increasing to $1.7 billion in cumulative valuation. Given the massive interest in the launch of Truth Social, we expect a massive influx of followers in the first few days. However, its long-term success will depend on the user experience, the loyalty of the followers and mainly on the content of the social media platform. We can expect many to follow social media if the content is relevant enough to fans of former President Trump and the conservative band. Additionally, we are expecting additional groups of followers from those looking for alternative social media to Big Tech. As a result, we expect TMTG to reach its full potential at $1.7 billion due to its post-merger stock performance.

Furthermore, DWAC has almost seven times fallen from the initial IPO price of $10 on September 30, 2021 to $70.88 on January 14, 2022, after a market correction from its high point at 94.2. $ on October 22, 2021. As a result, we can assume that there will still be substantial interest from investors, especially due to the launch of Truth Social in February 2022 and the continuation of TMTG+. As a result, we expect healthy growth for TMTG in the early days of launch, with ample funding of $293 million from DWAC.

Screenshots of Truth Social. Source: Apple AppStore.

From the screenshots of Truth Social in the Apple Store, we can potentially expect a format similar to Twitter and Plurk, leaning more towards the textual form of social media. It’s no wonder Twitter was former President Trump’s favorite form of social media before the account was suspended, with 23.2,000 tweets or retweets from 2018 to 2020. Still, it remains to be seen whether Truth Social may achieve long-term success after the hype surrounding social media and former President Trump fades.

So, is DWAC a buy?

The upcoming potential for DWAC and TMTG is highly speculative as little has been disclosed about TMTG+’s potential services and Truth Social’s format. The streaming service is pretty crowded now, with many Big Tech companies, such as Netflix, Hulu, HBO, Disney, Amazon and others offering similar products. Additionally, social media is highly competitive, with Facebook, Instagram, TikTok, Twitter and others proliferating in the market.

Additionally, the stock price is volatile and prone to speculation whenever the momentum increases. Investors adding now expect the company to successfully generate strong growth and robust revenue over the next few years, despite intense competition. Nonetheless, speculative investors can still invest in DWAC if they believe in former President Trump’s massive pull factor.

Therefore, we rate the DWAC stock at Neutral.