After being disparaged for years in the media and kicked out of practically all major social media platforms, former President Donald Trump is gearing for a comeback. Trump is putting together a slew of projects in the newly formed Trump Media and Technology Group, which is reportedly merging with Special Purpose Acquisition Company (SPAC) Digital World Acquisition (NASDAQ:DWAC). On the news, DWAC stock was immediately bid up in a massive rally.
Trump Media is already facing controversies. Like its founder, Trump Media can’t seem to avoid the drama and negative headlines. A former nominee for director of the company is filing a lawsuit against Digital World Acquisition for fraud.
You can’t disentangle politics when talking about an investment like DWAC stock. That said, regardless of how you feel about Trump and his particular brand of politics, there are strong bullish arguments for DWAC stock.
Trust in Media at All-time Lows
Trust in the U.S.’ major media institutions remains at all-time lows. In fact, according to a Gallup poll, only 7% of U.S. adults say they have “a great deal” of trust and confidence in newspapers, television, and radio news reporting. A larger 29% have stated, “a fair amount” of trust and confidence. The combined rating of 36% is slightly higher than the 32% low recorded during the divisive 2016 election.
The data is highly polarized and split between partisan divide. In particular, confidence in the media among Republicans is at its lowest level on record.
Many conservatives also feel that the big tech platforms censor their voices. This comes at the same time big tech platforms such as Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) have ramped up campaigns to combat misinformation.
A Pew Research survey conducted in 2020 showed that close to 75% of all US adults say that social media sites intentionally censor political viewpoints that they find objectionable. This belief that big tech and social media is “out to get them” was common among Republicans. At least 90% believe that social media censor political viewpoints. Many conservatives are itching to get off these platforms if and when given a viable alternative.
Trump Media Has a Waiting Audience
The current slate of news programming also caters to more liberal audiences. This leaves conservative-leaning individuals with fewer news options. Fox News (NASDAQ:FOX), the only major conservative leaning news outlet is the most-watched basic cable network. The network averaged 1.47 million total viewers a day, absolutely crushing its rivals. Fox News averages more viewers than CNN and MSNBC combined.
What these data points tell me is that there is a large market opportunity for Trump Media. Trump as a figure is incredibly polarizing–meaning while a large swath of the population despises him, a large portion absolutely loves the guy. This means that any media group that Trump can get off the ground will have a baked-in audience at the get-go.
Investor Takeaway on DWAC Stock
At the end of the day, I believe that Trump has enough influence within his conservative base to build a successful platform. While a Trump-based social media or news platform may not have as many users as Twitter and Facebook, it may be able to monetize it better.
There are two main risks I see with an investment in DWAC. The first is that Trump himself seems to be a hotrod for controversies. This may lead to increased regulatory surveillance for the company and thus higher legal and compliance costs.
The other main risk is with the SPAC process. SPACs have gotten a lot of bad press lately relating to the lack of disclosures, overly aggressive forecasts, and sweet-heart terms with early investors. A lot of SPACs stocks have fallen back down to earth and are trading well below the de-SPACing price.
DWAC stock has not been spared this volatility. I believe investors should be patient and wait for the de-SPACing process to finish. In the long-term DWAC stock holds plenty of promise.
On the date of publication, Joseph Nograles held a LONG position in FB and FOX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.