Investing in Digital World Acquisition Corp. (NASDAQ:DWAC) stock could be very profitable for long-term investors.
Trump’s social media venture, Truth Social, has agreed to merge with the special purpose acquisition company (SPAC).
Those who despise former President Donald Trump may not want to remember that he received over 74 million votes in his unsuccessful 2020 reelection bid.
That means that tens of millions of people in the U.S. are Trump fans, indicating, in turn, that his upcoming social media enterprise could be quite lucrative.
It Won’t Be Just Trump
A misconception that I think many investors could have about Truth Social is that it will be dominated by the former president.
I don’t expect that to be the case. Since Trump is a smart businessman and a good, experienced showman, he likely knows that almost everyone enjoys variety when it comes to entertainment.
Consequently, I expect many conservative/Republican pundits, debaters and entertainers to share the spotlight with him on Truth Social.
Former famous Republican politicians, telegenic former Fox News personalities, well-known Trump allies and family members as well as conservative radio hosts are all likely to have highlighted accounts on Trump Social.
All of them could also appear on videos and shows on the social network.
A Conservative Social Haven
Many conservatives are very tired of and upset with the censorship of anti-Establishment and anti-left-wing ideas on Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB).
There are many examples of totally unjustified censorship on those platforms in the last year or two, in my opinion, and in the opinion of many commentators, not all of whom are conservative or pro-Trump.
Among the most-cited examples of egregious takedowns are stories supporting the Wuhan “lab leak” theory, the information about Hunter Biden’s laptop and the decision to ban Trump himself.
Some are quite passionate about defending the latter decision. But I don’t understand how the platforms can banish Trump and allow the leaders of countries and movements that openly and prolifically support terrorism and genocide (think Hamas and Iran) to continue regularly posting messages.
Many conservatives, pro-Trump and otherwise, feel similarly.
Additionally, thousands of conservatives have themselves been censored on Twitter and/or Facebook.
In light of all these issues, many conservatives are looking for a much more tolerant platform. Since no website has emerged as a popular, more libertarian alternative to Facebook and Twitter, Truth Social could fill that void.
In other words, a huge percentage of conservatives who feel they have been alienated from Twitter and Facebook could turn to Truth Social. That point alone makes a bullish position in DWAC stock worth considering.
Estimating the Numbers
Let’s say that, in Truth Social’s first year, 30% of Trump’s voters use Truth Social every month. That works out to about 20 million people. Let’s throw in another 10 million overseas fans. That brings us up to 30 million monthly users.
Facebook’s average revenue per user was $10 last quarter. Annualized, that works out to $40 per year. If we give Truth Social an annual ARPU of $30 per year, that’s $90 million of annual revenue.
But wait, there’s more. Truth Social will also offer a subscription streaming service called TMTG+. Let’s say that costs $10 per month and 20% of the monthly users subscribe to it.
That’s another $720 million. And I would be surprised if Truth Social did not host many special, live events that bring in at least another $100 million of revenue annually.
All told, we’re already up to over $900 million of revenue. If 20% of that flows to the bottom line, Truth Social’s first-year profit would be about $180 million. Multiply that by a price-earnings ratio of 25, and we get $4.5 billion.
According to The Asian Investor, as of Oct. 22, DWAC stock had a “market value” of $2.7 billion. But on that date, the shares were changing hands for around $90. As of the afternoon of Nov. 2, they had dropped to around $60, likely making their value around $1.8 billion.
So according to my estimates, which I consider fairly conservative, DWAC stock, just based on the value of Truth Social in its first year, is trading at only 40% of its value.
Since Trump began running for president in 2015, many believe the media and government have relentlessly targeted him for punishment and retribution. That trend is continuing now.
What’s more, Silicon Valley earlier this year effectively destroyed Parler, the only social network that had gained a significant following among conservatives.
So there’s every reason to believe that Truth Social will have many, very powerful enemies looking to derail it. As a result, DWAC stock is quite risky.
The Bottom Line on DWAC Stock
The shares are extremely undervalued, but they pose a significant amount of risk. Consequently, I urge risk-tolerant investors to buy a relatively small portion of the shares at this point.
On the date of publication, Larry Ramer held a long position in DWAC stock.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.