Digital World Acquisition Corp (NASDAQ:DWAC) has yet to file an SEC form S-4, as The Wall Street Journal recently pointed out. That filing will describe in detail its SPAC (special purpose acquisition company) merger deal with Trump Media & Technology Group (TMTG). The S-4 document is required for any company doing a merger. As a result, DWAC stock is going to tread water at best, and likely falter, the longer it takes for the company to produce the S-4.
The main reason is that people want to know the specifics of the deal, as well as how exactly the company intends to make money, including its business plan.
As a recent Forbes article points out, the TMTG slide deck presentation has “zero financial information.” The Forbes author said that even for SPAC deals “which are notorious for offering flimsy financials, the Trump deal stands out.”
In fact, one Seeking Alpha author wrote that Trump will receive a sizable cash bonus if DWAC shares stay above $30. I’m not so sure about that since that provision seems to apply only to the principals of DWAC stock, not TMTG.
But this is not exactly clear, and an S-4 will clarify this. As of the close on Nov. 26, DWAC stock was at $43.15 giving it a market cap of $1.60 billion.
What DWAC SPAC Could Be Worth
I think it is simply very difficult to gauge what Trump’s merger company could be worth, especially without full financial information. Moreover, since the deal was announced, a company called RightForge has indicated it will host Trump’s new social media platform. Those details will also need to be analyzed.
More important than anything, I suppose, is how many potential viewers or subscribers the platform will be able to deliver to advertisers. The Seeking Alpha author mentioned above says that he estimates the actual number will be no more than 3 million. In addition, he estimates its revenue will be about $90 million annually.
This is despite the fact that TMTG has a slide stating that “Trump’s Historic Social Media Following” is 146.5 million. Again, this is where the S-4 will help analysts. It will help show how 146.5 million viewers dwindle to 3 million, Seeking Alpha’s author suggests.
Needless to say, most cautious investors in a Trump merger deal need specific financial information. It also does not help that the TMTG group has not yet launched. So far it is impossible to compare ongoing performance with historic information.
As a result, this is actually more of a venture capital or even seed funding deal rather than a traditional SPAC deal. Historically, a SPAC deal involves an ongoing private company merging with a blank check company as an alternative way to going public.
What to Do With DWAC Stock
Investors are able to compare what the private company has been doing financially with the proposed valuation. But in this case, it is not clear that TMTG already has a social media platform with advertising or subscription-based revenue. So far there is nothing on RightForge.
For example, Forbes recently wrote that Trump’s TMTG company “has no working product and no real financial history.” The article concluded that it could end up having an $8.4 billion valuation. It quoted other analysts that said it could be as high as $10 billion.
In that case, today’s $1.6 valuation could look like a bargain. That would put its value at almost six times today’s market value, or $257 per share. However, the Seeking Alpha author thinks that its value is no more than $540 million, or $15 per share.
This wide discrepancy shows how important it is for investors to have an S-4 filing to understand its financial information. That way they can make a better-informed decision.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.