This is not the right market in which to speculate on an impossible-to-value stock with no earnings, scant revenue, uncertain prospects and buyers solely focused on the company's celebrity appeal. Yet people foolishly are buying one stock with these features: Digital World Acquisition Corp. (DWAC) , the special purpose acquisition company (SPAC) that is acquiring Trump Media & Technology Group. They are buying the stock, which is trading at an absurd valuation, at precisely the wrong time.
A few weeks ago, Trump Media unveiled its Twitter clone, Truth Social, which was followed by a moment of excitement as the app raced to No. 1 in downloads. The initial enthusiasm quickly ran its course; now the app's ranking has plummeted, with the media outlet seeing barely any usage. This bodes poorly for the success of Truth Social and anyone invested in Digital World Acquisition.
Former President Trump's prior post-presidential effort, "From the Desk of Donald Trump," received minimal readership and shut down after 29 days. The status of his appeal is clearly in question.
Since the deal to acquire Trump Media was announced last October, Digital World Acquisition has been highly volatile. Part of the enthusiasm stems from the limited number of shares outstanding before the deal closes, which has helped the stock trade at a frothy premium valuation. Once the deal is consummated, more than five times the current shares will be free to trade, taking the market cap from $3.4 billion to more than $17 billion. Compare that steep valuation to Twitter (TWTR) , with a $26 billion market cap and more than $5 billion in revenues.
Even worse, investors in a PIPE (private investment in public equity) have agreed to buy $1 billion in DWAC shares, free to sell immediately when the deal closes. Buyers get to purchase shares at $33.60 or lower if DWAC trades below $56. The PIPE deal hands these preferred investors a minimum of a 40% discount to the market price with no lock-up agreement. This ought to give pause to any buyer of free-trading stock.
An ongoing Securities and Exchange Commission investigation, announced in December, is probing possible violations in connection with consummating the deal as well as the trading of the stock. Like any deal that hasn't officially closed, a risk remains that the SEC may uncover an issue that delays or alters the closing process.
The current market environment is especially bad for speculating in an unproven company at an unjustifiable valuation, with no revenue, that attempts to compete with established companies. Plus, investors have rightly shunned SPAC deals in general due to frothy valuations, high cash burn rates and overly optimistic assumptions. Add to the mix that Trump Media's management team has an unproven track record with a product off to a shaky start.
Once the deal closes, a significant amount of shares will be free to sell with a cost basis far below the current price. Investors are buying into nothing more than hope and celebrity appeal - a bad combo as overvaluation and froth are mercilessly rooted out in this market. The stock will likely face significant losses in the coming months.
I get your points and they are valid. However, you could easily go back and few years and replace DWAC with Facebook, Twitter, Amazon, or Tesla and tell the exact same story. Facebook at this time had less than 1200 users. It would be almost 2 years from now that Dorsey made his first tweet after starting Twitter. Tesla... well, that's a totally different story but a similar pattern. How many people like you said it was doomed to fail because he didn't deliver any of the first models on time? In regards to Facebook and Twitter, it took them years to get the numbers that Truth has on it's waiting list within the first week. So really, no one has attempted something like this before. It is 100% expected they will have issues launching. If they did not, they would be the first in history not to.
There has been a total of 0 companies that have releases a website like this and had no issues withing the first few weeks. This sort of thing is expected and happens 100% of the time. It has to, as there's no way to estimate the volume and scale that is needed. It's why you see companies producing games like Fortnite or Roblox or even XBox itself and the servers crash when they lauch. It's just hard to predict 1M, 2M, or more people hitting it and what sort of scale you will need. Of course, modern server farms handle it much better than they did years ago, but still when you are talking about tens-of-millions of people hitting an application, it is expected to have problems when it is lauched. It's why they are only opening it to a few people at a time, as they scale it up and resolve issues. They new this going into it and why they planned for a limited release.
I'm not making excuses for them, as they certainly could have planned it better or been more public about what to expect as it lauched. But I wouldn't beat money against them just yet and just because they have had the exact same experiance that every other company in history has had when lauching a site like this.
I have personally lauched numerous enterprise level sites and you always run into this sort of thing. But at least the ones I've worked with didn't have millions of users... tens to hundreds of thousand users have enough problems to deal with. Millions seems like a pretty huge undertaking... but they will get through it. The people working on it are not newbies, they know what they are doing.
And besides all of that, why are people complaining. Just buy the dips. It seems like a perfect opportunity. Just yesterday alone I added about 25% to my shares just swing trading through the dips. If it starts to crash, I'll exit with a nice profit.
mthompson45
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@jrothlander, you make valid points and yes this could be any company starting out in this market. I have been in other start up companies (working and investing) and DWAC has done better then 99.9%. Look at HOOD, a trading platform that has both crypto and stocks. HOOD brought in millions of new retail investors yet their stock is at $12.21 and they have only been public since last August. Or KSCP a robotics "Police and Safety" Company from CA they went Public the end of January at $9.00 a share, currently trading for $5.72. KSCP has contracts at schools, hospitals, malls, big 5 companies all over the US - great company bad time to go Public. I was an early investor before the company went Public. What DWAC has done thus far is outstanding. Buy low, Sell High
There has been a total of 0 companies that have releases a website like this and had no issues withing the first few weeks. This sort of thing is expected and happens 100% of the time. It has to, as there's no way to estimate the volume and scale that is needed. It's why you see companies producing games like Fortnite or Roblox or even XBox itself and the servers crash when they lauch. It's just hard to predict 1M, 2M, or more people hitting it and what sort of scale you will need. Of course, modern server farms handle it much better than they did years ago, but still when you are talking about tens-of-millions of people hitting an application, it is expected to have problems when it is lauched. It's why they are only opening it to a few people at a time, as they scale it up and resolve issues. They new this going into it and why they planned for a limited release.
I'm not making excuses for them, as they certainly could have planned it better or been more public about what to expect as it lauched. But I wouldn't beat money against them just yet and just because they have had the exact same experiance that every other company in history has had when lauching a site like this.
I have personally lauched numerous enterprise level sites and you always run into this sort of thing. But at least the ones I've worked with didn't have millions of users... tens to hundreds of thousand users have enough problems to deal with. Millions seems like a pretty huge undertaking... but they will get through it. The people working on it are not newbies, they know what they are doing.
And besides all of that, why are people complaining. Just buy the dips. It seems like a perfect opportunity. Just yesterday alone I added about 25% to my shares just swing trading through the dips. If it starts to crash, I'll exit with a nice profit.