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Donald Trump is one of the world’s most famous businessmen, but his companies have usually been privately held. Now investors have the chance to throw their lot in with the former president of the United States through Digital World Acquisition (DWAC). The stock was boosted by the launch of the Truth Social app but then got pummeled on the news Tesla (TSLA) CEO Elon Musk had a bid accepted to buy Twitter (TWTR), though the deal is in doubt.
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The special purpose acquisition company (SPAC) is being used as a vehicle to take the Trump Media & Technology Group public. When the merger is complete it is likely to trade on the Nasdaq under the ticker “TMTG.” The intended time frame for merger completion has not been publicly disclosed, though it is expected to close later in 2022 if it passes regulatory muster.
Trump has boasted that he will offer a “Big Tent” platform as he attempts to take on technology giants such as Twitter and Facebook parent Meta Platforms (FB). But it has some regulatory hurdles to overcome.
So, is the ultimate Donald Trump stock a buy now?
Donald Trump On DWAC
Digital World Acquisition is to serve as a vehicle to take the Trump Media & Technology Group public via a merger.
Trump, who has struggled to reach his audience via social media since the Jan. 6 Capitol riot, unveiled his vision for the company last October.
“Unlike with the Big Tech platforms, there will be no shadow-banning, throttling, demonetizing, or messing with algorithms for political manipulation,” Trump said in a statement. “We will not be treating users like lab rats for social experiments, or labeling alternative views as ‘disinformation.'”
Truth Social Launches
Truth Social, a platform being touted as an alternative to Twitter, had been slated to launch on Presidents Day, which falls on Feb. 21.
While it has yet to fully roll out, it is now available to Apple users and on the web. Some users following the launch reported difficulties logging in, creating accounts and being wait-listed. The platform, in an update, said it had “stabilized the account creation process.” And it said it was “working to increase the rate of new account creation.”
While it took some time for Trump himself to become fully engaged with the platform, he now looks to be posting daily.
The service also took a step forward with the launch of its web version at the end of May. Users can now logon and use the service having to use their iPhone.
DWAC stock was punished on Apr. 4 on reports that head of technology Josh Adams and product development chief Billy Boozer have both stepped down.
The Truth Social app, which courts conservatives, allows users to follow others and trending topics. Instead of a tweet users share a “TRUTH.”
It is the first plank of a three-stage launch of Trump Media products. It will follow this up with the launch of the TMTG+ subscription video-on-demand service. Finally, the firm is aiming to launch its own podcast network.
In an investor presentation the firm estimated it will have 16 million users and 800,000 monetizable users on Truth Social in 2022.
The firm expects Truth Social average revenue per user can grow to $13.50 by 2026. It also expects to have 81 million users by then. This compares to Twitter’s current average revenue per user of $23.76.
It is guiding for 40 million TMTG+ subscribers by 2026. The average monthly fee per user is seen hitting $9 that year.
Elon Musk Boosts Twitter, Hurts DWAC Stock
Truth Social’s biggest competitor is Twitter, and the latter company got a massive boost after Tesla CEO Elon Musk snapped up a massive slice of the company.
Musk reported in a filing to the SEC that he now owns about 73.5 million shares of Twitter. The stake was valued at $2.89 billion as of the Apr. 1 closing price.
Elon Musk is now the largest shareholder, owning more stock than the firm’s famous founder Jack Dorsey.
The tech billionaire turned down the chance to join the Twitter board, and went on to strike a deal to acquire the company for 54.20 a share. It comes after the Twitter have adopted a so-called poison pill measure in an attempt to fight him off.
But this was before Musk revealed he has secured financing for the deal. It has since emerged that the eccentric executive will serve as temporary CEO if he completes the $44 billion buyout.
A key rationale for Truth Social is many critics say Twitter restricts free speech. But if Musk completes the takeover and pushes to address this, then it undercuts the appeal of the rival Trump product.
But cracks are appearing in the deal. The eccentric executive tweeted the deal is “temporarily on hold” over concerns spam and fake accounts represent more than 5% of users.
Wedbush analyst Daniel Ives said Musk is signaling he is getting cold feet on the deal.
However Musk has since raised his commitment in his takeover bid to $33.5 billion. He is also offering to drop a margin loan.
Wall Street believes this increases the chances Musk will follow through on his bid and complete the deal.
But on July 7 a Washington Post report threw more doubt on the whether it will go ahead. The report said it is “in serious jeopardy” after Musk’s camp concluded Twitter’s figures on spam accounts are not verifiable.
Nevertheless, Trump has committed himself to his own site despite Musk saying he would allow him to start using Twitter once again. This is important as he is a massive social media draw.
“I am not going on Twitter, I am going to stay on Truth,” he told Fox News. “I hope Elon buys Twitter because he’ll make improvements to it and he is a good man, but I am going to be staying on Truth.”
Trump Media Makes Moves
Trump Media & Technology Group made a slew of announcements as it geared up for its big launch.
On Dec. 4 it announced $1 billion in investments from institutional investors. The capital is to be received upon consummation of the merger.
Trump said this “sends an important message to Big Tech that censorship and political discrimination must end.”
“America is ready for Truth Social, a platform that will not discriminate on the basis of political ideology,” he added.
On Dec. 6, it said Congressman Devin Nunes was joining the firm as its CEO. The firm also announced in December that it has established a partnership with video streaming firm Rumble.
Trump Media said it had a “wide-ranging technology and cloud services agreement” with Rumble. It will operate part of the Truth Social network as well as its video-on-demand service, TMTG+.
DWAC Stock Has To Clear This Hurdle
The company also revealed in a December filing that the Securities and Exchange Commission and the Financial Industry Regulatory Authority asked it for information about stock trading and communications prior to the merger being announced.
The disclosure came after Sen. Elizabeth Warren, D-Mass., called for the SEC to conduct a probe.
In a letter, she questioned whether the company and Trump “may have committed securities violations by holding private and undisclosed discussions about the merger as early as May 2021, while omitting this information in U.S. Securities and Exchange Commission (SEC) filing and other public statements.”
But according to DWAC filings, the investigations were launched by the SEC and FINRA before Warren submitted her request.
The company has said in prospectuses that it did not have “substantive discussions, directly or indirectly, with any business combination target.”
New Legal Woes For Donald Trump Stock
DWAC took another beating on news that several board members have been subpoenaed.
A federal grand jury in the Southern District of New York is seeking more details on its merger deal with Trump Media & Technology Group.
In a June 27 filing, DWAC said the subpoenas, as well as investigations from the Justice Department and the SEC, risk slowing or squashing the merger deal altogether.
According to DWAC, it became aware of the grand jury subpoenas on June 16. The grand jury is requesting similar details to those previously requested by the SEC.
DWAC Stock Analysis
The IBD Stock Analysis show inherent problems with the stock.
At the moment, the stock has a near-perfect Relative Strength Rating of 96, which puts it in the top 4% of stocks in terms of market performance over the past 12 months. However its relative strength line is diving.
It remains well off its all-time high of 175, which it reached Oct. 22. It is now trading for a fraction of that. The stock is trying to fight back, and is up more than 2% so far this month. This comes after it fell nearly 45% last month. It also it fell bigly in May, dipping 16.6%, dipped about 30% in March and plummeted 18.8% in April.
The stock was boosted Feb. 22 by the Truth Social launch but has now fallen below its 50-day moving average amid this week’s vicious pullback. This triggered a sell signal.
The hype around Trump vaulted the stock to dizzying heights before it came back to earth.
Donald Trump Stock Misses This Key Ingredient
But the CAN SLIM cognoscenti look for stocks that boast consistent earnings growth. This is where DWAC stock falls short. Its lack of earnings has netted it an EPS Rating of 7 out of 99.
In addition, there are no analyst earnings estimates for the ultimate Donald Trump stock.
Given the company has yet to fully rollout a product, this is a totally speculative play. It is a bet that the firm will be able to turn its hype into earnings performance.
While this is certainly possible, there are lots of hurdles along the way. Not least the fact Trump is entering an arena dominated by giants such as Facebook, Twitter, TikTok and Snap (SNAP).
On the plus side, institutional sentiment is rising. It holds an Accumulation/Distribution Rating of A-, which reflects heavy buying in recent weeks. Overall fund ownership still remains though however.
The Reynolds Blue Chip Growth Fund (BRCGX) is arguably its most notable holder at the moment.
DWAC Stock No Ordinary SPAC
Firms that went public via mergers with special purpose acquisition companies have struggled so far in 2022.
Speculative stocks in general have been getting punished as the Federal Reserve dials back its accommodative policies.
But DWAC has been outperforming other SPACs by quite a margin. In fact, it is the best performing SPAC stock ever, according to SPAC Research.
It is worth bearing in mind that SPACs have underperformed against the broader market by 25% during the past decade, according to University of Florida IPO expert Professor Jay Ritter.
According to MSCI, SPACs are able to go public more quickly and inexpensively, and with “far less regulatory or investor scrutiny.” They are also more likely to be managed by a controlling shareholder than conventional IPOs.
“In most other regards, however, investors in these SPAC combination companies faced essentially the same corporate governance risks as investors in any other recent IPO,” analyst Nilufar Kuchimova said in a research note.
Is The Ultimate Donald Trump Stock A Buy Now?
Right now, buying DWAC stock is more akin to gambling than investing. The firm has no earnings history to speak of and the stock has been plummeting for months. The fact Elon Musk, one of the world’s most feted entrepreneurs, has agreed to buy Twitter makes its road ahead even more challenging, though that deal is now in doubt. Even if it falls through it remains far from certain that Truth Social will be a success.
With an ongoing SEC investigation into the deal, there is still a risk that it could be halted in its tracks. A new federal grand jury investigation further complicates matters. DWAC stock is not a buy at the moment.
Investors looking for true market leaders should check out IBD Stock Lists, including the IBD 50 list of top-performing stocks.
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