Digital World Acquisition (NASDAQ: DWAC) is a blank check company that is bringing Trump Media Technology Group (TMTG) public through a SPAC merger deal. This would officially make it so TMTG becomes a public company.
According to a SEC report, TMTG will be releasing TRUTH Social, a new social media platform, with a planned release date sometime around the first quarter of 2022. The social platform is planned to be listed on the Apple App Store.
Even though the merger has not yet occurred, shares of Digital World Acquisition began soaring. By the time the hype had calmed down, shares peaked at $175.00. Since then, shares came down significantly, over 50%, but has since begun another run-up in anticipation of the completion of the merger and TRUTH Social app release.
Current Fundamentals
Given that there is not yet any reported revenue or earnings for Digital World Acquisition and TMTG, it’s difficult for investors to value this company. However, the company has $293 million in trust which should easily fuel early growth for many quarters to come. After that, TMTG will need to find other ways to bring in top-line revenue to fund operations.
TMTG also plans to launch a subscription-based streaming service called TMTG+ that will include entertainment, news, podcasts, and more. More information about this service will likely surface over the next few quarters, hopefully continuing to grow shareholder confidence.
Once stable revenue has been established by publishing these services, profitability will likely be the next focus to continue strong shareholder value over the long term.
Advertising Potential
Even though TRUTH Social has likely not received much revenue since inception, there is significant potential for the company to rake in advertising revenue.
Similar to how Meta’s Instagram and Facebook operate, TMTG could develop algorithms that recognize the data collected by users, leveraging it towards advertisers to bring in a steady source of revenue.
This is one of the most profitable ways to monetize TMTG’s TRUTH Social platform, perhaps along with other exclusive paid content. The on-demand TMTG+ streaming service will be through a paid subscription but could also be used as a way to advertise to users on a free streaming plan.
Either way, the services being created will offer immense amounts of utility to advertisers, creating value for shareholders.
The Stock
As DWAC stands currently, the valuation seems high with a market cap of over $2.8 billion. It’s quite substantial despite the lack of revenue or earnings. However, as mentioned, there are excessive plans to execute on becoming a substantial competitor in the social media industry.
On a year-to-date basis, DWAC stock is up 67.8%. The high growth may be somewhat short-lived as many IPOs and SPACs undergo declines in their share price as hype settles. This should make investors wary if deciding to invest as they will likely experience volatility and other unpredictable short-term price actions.
Investing near all-time highs is higher-risk by itself and even more so because of the lack of current fundamentals with DWAC stock. It’s unlikely that this SPAC will play out any different from others, even if shareholder confidence remains relatively strong. There’s unlikely to be much news after all these events unfold, which should dial down the hype. The run may continue further up until the actual deal SPAC merger deal.
Conclusion
Investors are excited over the merger between Digital World Acquisition and TMTG judging by the multiple times DWAC stock has rocketed based on new information. After all, they are developing a completely new social media which will likely be very different from other platforms out there. Additionally, the subscription-based streaming service could be a large step for the company if it came to fruition.
Even despite all of the compelling services TMTG has lined up, it’s difficult for investors to estimate how successful these platforms will be. This makes it near impossible to make fundamental-based predictions as there is not yet revenue or earnings to extrapolate into an analysis. The result is a business that investors don’t know how to value, creating immense volatility in the short term.
For now, the best play for DWAC is to buy option straddles into the 2nd or 3rd quarter of 2022 Zelman stated Founder of Traders Circle. This might be the smartest alternative for both investors and traders. A 4-to-6-month option straddle for DWAC provides minimum risk with huge upside potential as you are on both sides of the trade. If the merger happens selling the option call or most of the calls would be extremely beneficial to sell at that time as we are basing this trade on a SPAC merger. Which most likely would decrease the value of DWAC, the revenue stream is also currently lacking. Now, this is where you wait and see how that option put will favor you from a future dip. Moreover, the Federal Reserve expects to raise interest rates throughout the year, causing compressions on valuations in the entire stock market. Remember option trades are based on timing, expiration date, and strike price. If you want to learn about options and strategies it offers, take an options trading course.
Overall, DWAC should remain on investors’ watchlists until significant revenue growth is visible through the social platform and other services. Day traders will continue trading DWAC and we will most likely see some wild moves in the First Quarter of 2021. An option straddle position is probably the most favorable trading option. If you would like to learn about trading options, there is a trading mentor marketplace that can offer one on one trading education mentoring.
