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). But Truth Social has a tough task as it competes with X, owned by Tesla (TSLA) CEO Elon Musk. However Trump proved his enduring popularity by squishing his rivals to become the presumptive Republican Party presidential nominee, so is DWAC a buy now? Read on to find out.
X
The special purpose acquisition company (SPAC) is being used as a vehicle to take the Trump Media & Technology Group public. If the merger is approved, it will adopt that name and trade on the Nasdaq under the ticker “DJT.”
Trump has boasted that he will offer a “Big Tent” platform as he attempts to take on technology giants such as X, formerly Twitter, and Facebook parent Meta Platforms (META). But it remains to be seen whether this is enough to make 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 Media’s main product at the moment is Truth Social, a platform touted as an alternative to Twitter. It is now available on Apple and Android devices.
In an investor presentation, the firm said it expects Truth Social average revenue per user can grow to $13.50 by 2026. It also expects to have 81 million users by then.
It also guided for 40 million TMTG+ subscribers by 2026. The average monthly fee per user is seen hitting $9 that year.
Trump, who was struggling to reach his audience via social media following the Jan. 6 Capitol riot, unveiled his vision for the company in October 2021.
“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.'”
DWAC Merger Vote Finally Set To Take Place
Digital World was boosted after it won a bid to get a further one-year extension for it to finish its business merger with Trump Media and Technology Group.
Executives at the firm have until Sept. 8, 2024, to complete the deal after shareholders approved the delay. Around 72% of shareholders voted to approve the move, a regulatory filing showed.
But the key vote to decide its fate is now scheduled to take place on Friday. The Miami-based SPAC has a history of postponing and rescheduling shareholder votes.
DWAC stock was hit last year when first emerged that the firm was asking shareholders to approve a one-year extension. After multiple delays, the key shareholder vote finally went in the company’s favor.
More Drama At Digital World
In March 2023, DWAC terminated its chief executive, Patrick Orlando, as the special acquisition continues to complete its merger with Trump’s company.
“Due to the unprecedented headwinds faced by the Company, the Board agreed it was in the best interest of its shareholders to select a new management team to execute an orderly succession plan and set strategic operating procedures for the Company in this new phase,” the firm said in a press release.
Eric Swider, a member of its board since DWAC’s IPO, was appointed chief executive. Orlando remained on the board of directors.
However, Orlando sued the SPAC in an attempt to block it from buying Trump Media Technology Group unless he got awarded more shares. But Digital World responded by suing Orlando’s ARC investment vehicle. It claims the company has a contractual obligation to vote in favor of the merger.
Trump Makes Brief Return To X After Elon Musk Move
Truth Social’s biggest competitor is X, formerly Twitter, which got a massive boost after Tesla CEO Elon Musk decided to buy the company. In contrast, DWAC got battered.
The tech billionaire purchased Twitter for the originally-agreed $54.20 per share after a long-running legal battle. The total price tag equated to about $44 billion.
Elon Musk opened the way for Trump to return to the platform by reinstating the former president’s account on Nov. 20 after a public vote. The Twitter poll, which received more than 15 million responses, saw 51.8% vote in favor of Trump’s return.
Trump finally made his long-awaited return to the service on Aug. 24 to post his mugshot, along with a fundraising link for his 2024 presidential bid. He has not made another post there since.
Trump faces allegations he headed a criminal enterprise attempting to overturn Georgia’s 2020 presidential election results, but he denies the charges.
Trump Loves Truth
While Trump cheered Musk’s takeover by saying he is “very happy that Twitter is now in sane hands,” he also underlined his dedication to his own platform, saying “I LOVE TRUTH!”
He also appeared on the platform as an interview guest of conservative commentator Tucker Carlson. The interview ran opposite the Republican primary debate, and ended up being viewed almost 300 million times.
Nevertheless, Trump has consistently committed himself to his own site, which is important to the future of his own product given he is a massive social media draw.
With Trump running for president once again, and currently the clear GOP frontrunner, it could give his platform a boost in traffic and sign-ups.
DWAC Stock Clears This Hurdle
On July 21, DWAC surged 50% after the SPAC reached an $18 million dollar fraud settlement with the U.S. Securities and Exchange Commission.
The settlement stipulates DWAC must pay $18 million in civil penalty fees if it completes its merger with TMTG. However, if the merger does not happen before Jan. 1, 2025, and if DWAC returns investor funds, the SEC has agreed to waive the penalty.
The SEC alleged improper merger discussions had taken place before an initial public offering filing.
Legal Woes Plague Trump, Boost DWAC
While DWAC stock is closely tied to the value of the Donald Trump brand it has showed resilience despite the scandals enveloping the former president.
While federal charges could potentially tarnish that brand, according to company filings, this has yet to be the case.
A grand jury voted to indict Trump last year after hearing evidence he allegedly paid hush-money to porn star Stormy Daniels during the 2016 election.
That was the first time in history a former U.S. president has faced criminal charges. Trump pleaded not guilty to 34 felony counts of falsifying business records at a criminal court in in Manhattan on April 4 2023. DWAC stock surged the day after the indictment was announced.
Since then Trump has pleaded not guilty in federal court in Miami to charges brought by Special Counsel Jack Smith that he unlawfully kept classified national security documents after leaving office and lied to officials who tried to recover them. He also pleaded not guilty to charges he conspired to defraud the U.S. by stopping Congress from certifying Joe Biden’s 2020 election victory and to deprive voters of their right to a fair election.
And in August he was indicted by a Georgia grand jury on 13 charges. It is claimed he “unlawfully conspired” to change the election outcome while participating in a “criminal enterprise.” However Trump denies all of the charges and the case continues to drag on.
As if that wasn’t enough, Trump and his companies have been ordered to pay $355 million following a civil lawsuit in New York. The city’s Attorney General Letitia James is moving to seize some of the company’s assets as he struggles to find funds to pay a $454 million bond so he can appeal the judgment.
DWAC Stock Outmuscles S&P 500
The IBD Stock Analysis shows inherent problems with the stock.
It has seen its Relative Strength Rating rise to 99 out of 99, which puts it in the top 1% of stocks in terms of market performance over the past 12 months.
DWAC stock crashed 70.8% in 2022, dreadful performance by anybody’s standards, but ended 2023 up 16.7%. This lagged the S&P 500’s gain of more than 24.2%.
So far this year it is far outperforming the benchmark index. It has been boosted amid his successful primary campaigns saw him swat aside rivals such as Florida Governor Ron DeSantis and Trump’s former cabinet member Nikki Haley, who served as the U.S. ambassador to the United Nations.
It remains way extended past a first-stage cup base of 25.85. But taking some gains at the recent high after it soared 127% past the entry would have been a prudent strategy.
Key Benchmark Flashes Warning Sign For DWAC
DWAC stock soared far above its 50-day moving average. But it flashed a sell signal on Monday by falling under the key benchmark. It battled back Wednesday and Thursday to retake the benchmark.
In late January the stock more than 220% above the 200-day moving average. This is another very important technical indicator. When a stock rises 70% to 100% above its 200-day line, it’s giving you a sign of a climax run.
MarketSmith head Scott St. Clair previously told Investor’s Business Daily the payoffs are massive in such circumstances.
“Climax tops are the best way to lock in gains because the gains are so large if you can capture them,” he said. “The problem is they can keep going after you sell, so it is difficult psychologically to sell them, knowing they will likely be higher the next day.”
St. Clair suggests a gradual approach to reducing position size to protect gains, while also ensuring one doesn’t completely miss out on further upward moves.
Despite this year’s powerful gains, DWAC remains down about 80% from its all-time high of 175, which it reached in October 2021.
The hype around Trump has allowed the stock to vault to dizzying heights. But it has then ended up plummeted back to Earth every time so far.
Donald Trump Stock Misses This Key Ingredient
The CAN SLIM cognoscenti look for stocks that boast consistent earnings growth. This is another area where DWAC stock falls short. Its lack of earnings has netted it an EPS Rating of 2 out of 99.
In addition, there are no analyst earnings estimates for the ultimate Donald Trump stock.
Given the company has yet to merge with Trump Media & Technology Group, this remains a speculative play. It is a bet that the firm will be able to successfully complete the merger. It will then have 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, X, TikTok and Snap (SNAP).
One thing in its favor is improving institutional sentiment. It holds an Accumulation/Distribution Rating of B, which reflects more buying than selling among funds in recent weeks. But overall fund ownership remains extremely low.
DWAC Stock No Ordinary SPAC
Firms that went public via mergers with special purpose acquisition companies have struggled.
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.
SPACs are able to go public more quickly and inexpensively, and with “far less regulatory or investor scrutiny,” according to MSCI. 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, though the stock price has rallied fiercely. The fact that Elon Musk, one of the world’s most feted entrepreneurs, is a competitor makes the road ahead for Truth Social even more challenging.
Challenges remain even as DWAC gets set to hold a vote on whether to complete its merger. This is despite the fact Trump’s success in the GOP primaries has given the stock a massive boost. Because of this, 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.
Please follow Michael Larkin on X, formerly known as Twitter, at @IBD_MLarkin for more analysis of growth stocks.
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