DWAC: The SPAC Craze Is Over

Seeking Alpha2021-12-30

SummaryDigital World Acquisition announced a merger deal with Trump Media & Technology Group in October.The new media company will go toe-to-toe with big technology companies including Twitter and ...

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huat8783
2021-12-30
huat8783
Yup
- weifeng_86:
  lol

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The appeal of Donald Trump in the social media world is undeniable, but the SPAC should be avoided until strategy and product are clarified. While TMTG has lofty goals and intends to compete with top social media companies, there is far too much unknown at this point to justify the risk.TMTG Got A Rocket StartAfter the SPAC, a special type of acquisition company, announced a merger with Donald Trump's new social media company in October, Digital World Acquisition's share price skyrocketed by up to 1,500 percent. The merger announcement, on the other hand, was more than enough to get the stock moving.Digital World Acquisition's stock skyrocketed after the SPAC deal was announced, reaching an all-time high of $175. The large increase in the company's market valuation drew comparisons to other meme stocks, such as AMC (AMC)and GameStop (GME), which have also seen four-digit percentage gains.However, DWAC stock has dropped significantly since then, indicating that the market is waiting for more information on how TMTG intends to monetize his likely large conservative-leaning following on his own social media network.Source: finvizCreating A Competitor Social Media Network For ConservativesDonald Trump's planned social media company is likely to attract a large conservative audience that has repeatedly complained about anti-conservative bias on platforms like Twitter (TWTR) or Facebook (FB). A new social media network centered on Donald Trump would almost certainly attract a sizable number of followers. So, how large is the user opportunity for TMTG?A look at the competition can aid in making high-level predictions. In 3Q21, Twitter had over 210 million active users, while Metaverse had 1.9 billion daily active users. Streaming behemoths Netflix(NASDAQ:NFLX)and Disney(NYSE:DIS)have 214 million and 116 million subscribers, respectively. TMTG will most likely want to participate in the growth of the streaming industry and capture some kind of subscription revenue. Before a ban was imposed in January 2021, Donald Trump had approximately 150 million followers on social media. With these figures in mind, 70-80 million followers/users are a reasonable target audience for Truth Social.Source: TMTG CompanyTMTG will most likely want to dabble in several business lines at the same time. It could provide news, paid subscription content, podcasts, and an ad-supported messaging platform. The end result could be a social media company that combines Twitter, YouTube(NASDAQ:GOOG)(NASDAQ:GOOGL), Spotify(NYSE:SPOT), and Netflix. With an estimated 70-80 million users, TMTG has the potential to become a major player in the conservative media market.Source: TMTG CompanyHow Big Could Donald Trump’s New Media Empire Become?Big, theoretically. Before deleting his accounts in 2021, Donald Trump had nearly 90 million followers on Twitter alone. He received 74 million votes, so I would expect Mr. Trump's social media platform to have at least 70 million users from the United States alone, not counting users from other countries. In a more optimistic scenario, the social media company could have 100 million users, many of whom are monetizable.TMTG projections calculate with 81 million users by 2026 could deliver up to $3.7 billion in revenues.Source: TMTG CompanyGiven Mr. Trump's clout in the Republican Party and among conservatives, TMTG is an intriguing play and, once the platform is available, likely the most exciting new kid on the block. The value proposition of TMTG is at least interesting, depending on the monetization model pursued by TMTG and the number of users the platform could attract. Furthermore, TMTG has secured $1 billion in committed capital for the development of Truth Social.Why I Am Not Buying DWAC Anytime SoonWhile there is certainly room for a conservative-leaning media company, launching a new social media network is not easy. Also, there is currently little more than an investor presentation available, and before deciding to buy a stock, I like to see the finished product. Nothing compels me to buy the stock until Truth Social goes live next year and we see what the platform actually looks like and how much traction it gets. Purchasing DWAC at this point is akin to purchasing a car before ever seeing or driving it.Second, DWAC is being investigated by the SEC, which is looking into how the SPAC deal unfolded. As an unproven social media company, the investigation adds to DWAC's considerable risks.My ConclusionTMTG has a lot of potential to build a conservative-leaning social media network, but the risk/reward trade-off is currently unappealing. Too many details are unknown, such as how the new social media platform will look and how the company intends to monetize its users. In addition, the initial SPAC craze has subsided. 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