DatChat’s Tiny User Base Will Leave Shareholders Disappointed

DatChat (NASDAQ:DATS) is a software company that is primarily focused on building messaging applications. It completed its initial public offering (IPO) in August at a price of $4.15 per share of DATS stock. The IPO went off with little fanfare or trader interest.

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That changed, however, when several prominent online market influencers began to talk positively about DATS stock. Shares soon spiked to as high as $18.50, marking a quadruple from the IPO price. Shares have slipped considerably since then, but are still up sharply from the IPO.

DATS stock received a new burst of adrenaline on Friday. That’s due to the activities of a special purpose acquisition company (SPAC), Digital World Acquisition Corp (NASDAQ:DWAC). DWAC stock surged from $10 to the triple digits on news that it will be buying former President Trump’s new media and social networking company.

This gave traders hope that DatChat would enjoy a similar run-up as it is also an alternative social media/messaging play that wants to stand up to the censorship of ideas on mainstream platforms. However, as we’ll see in a moment, DatChat is a far less promising opportunity than DWAC stock. Here’s why.

Telegram and Signal Already Dominate the Market

DatChat is offering users a messaging service based around two key features: Privacy and the blockchain. However, it’s far from certain that there is much untapped market demand here.

On the privacy side, other services have already filled that role. With the changing political winds, big platforms like Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) cracked down on controversial users years ago. As such, people that have been banned or de-platformed already adopted alternatives such as Signal and Telegram way before now.

Additionally, the recent major Facebook and WhatsApp outage caused users to flock to Telegram and Signal in particular. Telegram CEO Pavel Durov announced that his company gained 70 million users following the six-hour Facebook disruption. That added a sizable chunk to the already formidable 500 million active user base that Telegram had reported earlier in 2021. Signal also added millions of new users during the outage.

DatChat Is A Tiny Competitor

As of a recent prospectus, DatChat had a hilariously small user base. 22,572 monthly active users, to be exact. Needless to say, this is a mere rounding error compared to something like Telegram which was able add 70 million users in a few days.

DatChat has virtually no revenues as of now. That’s not surprising. Even if it could generate a large amount of revenues per user, a 22,572 member user base is hardly going to be a big business. And, as it stands today, it’s exceedingly difficult to monetize messaging apps. Look at all the trouble Facebook has had on this front with WhatsApp. It gets even harder for a tiny firm like DatChat which doesn’t have other platforms with which to cross-monetize its products.

Over time, DatChat hopes to add more premium features that it can charge for. It also intends to have a paid tier for business users, in the same way that Slack (NYSE:CRM) carved out a premium market. This is all way in the future though, given that DatChat has not proven the ability to generate a meaningful audience in the first place.

Blockchain Angle Isn’t New Either

DatChat also seeks to stand out from the crowd with its emphasis on blockchain technology. However, other messaging services have gone down this road. Mark Cuban-backed Dust, for example has been trying to commercialize blockchain-based messaging since at least 2017. Yet, it has failed to gain a mass audience.

We’ve also seen other alternatives to the big social networks on the blockchain. I profiled Dlive, which is a key part of the bull thesis for cryptocurrency BitTorrent (CCC:BTT-USD). Dlive hopes to carve out a significant niche as an alternative to YouTube (NASDAQ:GOOGL) with less censorship and a more dynamic creator economy based around cryptocurrencies.

However, these sorts of alternatives have failed to gain much market share as of yet. It’s even more doubtful that a tiny company like DatChat with no historical track record will be the one that successfully breaks the big tech hold over these sorts of platforms.

DATS Stock Verdict

The company has 22,572 monthly active users. What more do you need to know? DATS stock is an obvious avoid, at least until it finds a much broader audience. There’s no way a hard-to-monetize app category such as messaging is going to make a good business with such a tiny reach.

Perhaps DATS stock will rally once again as hype from the newly-announced Trump social network carries over. Use any such rallies to take profits, though. Long story short, DatChat has tremendous downside ahead in coming weeks and months. With scant revenues and little chance of that improving in the intermediate-term, there’s virtually no fundamental basis to underpin DATS stock.

On the date of publication, Ian Bezek held a long position in FB and CRM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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