The Digital World Acquisition (NASDAQ: DWAC) stock price has moved sideways in the past few weeks as investors wait for the eventual merger. The shares were trading at $15.45 on Tuesday, a few points higher than last month’s low of $14.25. In all, they have risen by 25% from the lowest point on record and remain 91% below the all-time high.
Opportunities and risks aheadThe biggest DWAC news of the year was its $18 million settlement with the Securities and Exchange Commission (SEC). The settlement, while expensive, ended a long dispute that prevented the eventual SPAC merger with Trump’s Truth Social.
The other big news was the decision by the SPAC to extend its due diligence period until September 2024. In most periods, SPAC mergers take less than 7 months to complete. This raises some serious questions about whether the deal will materialize.
There are a few opportunities for DWAC stock ahead. First, analysts believe that Truth Social will see more activity towards the next general election in 2024. In most periods, social media companies like Twitter, Reddit, and Facebook see more activity in an election period.
The other likely opportunity is that the network’s activity will see more demand as Trump’s criminal trials will likely lead to more activity. All this could lead to more revenue for the company.
Risks outweigh opportunitiesI believe that DWAC and Trump’s Truth Social face more challenges than opportunities. First, there is the fact that Truth Social is not doing well in terms of usage. A look at user metrics shows that Trump has less than 6 million Truth Social followers.
In contrast, he had over 80 million followers in Twitter. Therefore, the reality is that it does not have the scale to compete with the likes of Twitter, Facebook, and Snap.
Second, Truth Social faces monetizing risks since many big companies will not want to be associated with the right-wing side. We have seen this in the mainstream media, where many large companies have kept away from Fox News and even Rumble.
Third, historically, SPACs have not been good performers. Popular SPACs like Virgin Galactic, ContextLogic, VinFast, and Canoo have plunged hard in the past few months. Therefore, there is a likelihood that DWAC shares will continue falling after the SPAC merger.
Further, Truth Social faces strong competition in the right-wing space. The biggest competitor is X, formerly known as Twitter, which has mostly solved the challenge that Truth Social wanted to solve. Under Elon Musk, Twitter has now become a big tent place for people in all ideologies. A closer look at other conservative social media networks like Gab and Parler shows that they have struggled to gain traction. Parler shut down in August.
Most importantly, Truth Social still has no major market share in the international market, which is important for all social media companies. Also, the company is fully reliant on Trump, which is a high-risk situation.
Therefore, all these factors explain why it is quite risky to invest in DWAC stock. To be clear, the shares will often have short squeezes, which makes it quite risky to own.
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