DWAC Is the Meme Stock Phenomenon No One Saw Coming

The meme stock phenomenon shows no signs of slowing down. Although we are several months in, Reddit continues to have a major impact on the markets. The latest example is Digital World Acquisition (NASDAQ:DWAC), a special purpose acquisition company (SPAC) merging with Trump Media & Technology Group (TMTG). DWAC stock shot up substantially after the merger announcement. However, things have started to cool down recently.

Truth Social app logo seen on the smartphone and blurred TMTG logo on the laptop

Source: mundissima / Shutterstock.com

Those familiar with the SPAC cycle by this stage know that this is par for the course. When a major deal is announced, there is a tremendous upsurge. Then there are several key near-term catalysts that day traders can exploit for short-term gains. You generally see a tremendous crash once the deal is in the books. Consequently, with the stock down substantially in the last month, the time is ripe to take advantage of any upcoming developments.

Considering these factors treating the stock as a short-term trade versus long-term investment makes sense. Let’s look at some of the other factors at play here too.

DWAC Stock Is a SPAC Gamble

The larger issue is what the future holds for the company. DWAC targets many speculators looking to parlay former president Donald Trump’s social media power into financial success. The Trump Media and Technology Group, also known as T Media Tech, should have close to $300 million in capital once the SPAC merger closes. They plan on using this money for their business. But we do not have any idea regarding the future of that business.

Launching a new social media network is no small task. It requires technical knowledge and execution skills to make it successful, and there are many risks involved in doing so that can’t necessarily be foretold or predicted.

DWAC and TMTG Have Some Tough Competition

With the pending merger between DWAC and TMTG, Trump’s new social network, Truth Social, is inching closer to reality. This company has huge digital media ambitions and seeks to take on multiple fronts at one time.

TMTG is laying out plans to compete with some of the biggest names in media, including CNN and iHeartMedia (NASDAQ:IHRT). The company will be launching a streaming service called TMG+ and an internet TV channel that offers original programs not available on any other platform, all aimed at taking away from Netflix’s (NASDAQ:NFLX) dominance. They also have their tech stack, which competes directly against Amazon (NASDAQ:AMZN) and their Amazon Web Services (AWS), Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud Platform and Microsoft’s (NASDAQ:MSFT) Azure.

Breaking into just the social media market alone can be tough. You need to develop a clear plan and invest heavily for your business idea to succeed. And all of the markets that T Media Tech is targeting are highly competitive. Initial public offerings (IPOs) are often keen to highlight the size of their investor base, which is why it’s not unusual for them to include large total addressable market (TAM) figures in their S-1 filings. Investors can expect that this company has plans to make money off those markets and what resources are needed.

Truth Social Could Challenge Traditional Platforms

The Truth Social media platform has a good chance to become an overnight success, not only for former president Donald Trump but also investors considering DWAC. This is because he attracts so much attention, and that’s what everyone wants these days — your time. Following the Jan. 6 Capitol riot, his social media accounts were banned. At that time, he was followed by close to 150 million people across multiple platforms. When building your next social network, it’s important to know how many people will use the product.

That is why these numbers matter. The former president might be a polarizing figure in America, but he’s still immensely popular with his followers.

Earlier this year, the former president’s follower base was prevented from accessing his social media accounts, which created a vacuum that Trump is only too eager to fill with his own network. Other catalysts include political campaigns and elections in 2022 or 2024, which increase demand for commentary on current events, which will help an alternative platform looking to gain some traction. Consequently, this all will have an impact on DWAC stock in the runup to the merger’s completion.

Treat DWAC Stock as a Short-Term Trade

Launching a new social media network is not for the faint of heart. There are several examples of failed social media companies. Truth Social can become a powerful social media platform with its innovative features and devoted following. If everything works out, Trump’s network may exceed expectations and grow faster than expected.

It can also go south quickly, considering the elements you are dealing with here. Hence, the future is vague for this one.

Truth Social seems to be the key product of TMTG, as evidenced by its prominent positioning in their investor presentation. There are several social media companies that emerged after the Trump ban. They wanted to provide an alternative to Meta (NASDAQ:FB) and Twitter (NYSE:TWTR). However, most of them sank very quickly — so it is up in the air what will happen with the newest platform.

At this point, perhaps the best way to look at DWAC stock is as a short-term investment.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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