Digital World Acquisition Stock Is Not a Great Long-Term Pick Yet

Digital World Acquisition Corp (NASDAQ:DWAC) has been on a steady rise recently due to the launch of the Truth Social network. DWAC is merging with Trump Media and Technology Group (TMTG). The companies expect to complete the merger in the first quarter of this year, at which point DWAC shareholders will become shareholders of TMTG. Last year, DWAC stock became a Reddit favorite, leading to explosive gains. But this year has been a different story.

Truth Social app logo seen on the smartphone and blurred TMTG logo on the laptop.
Source: mundissima / Shutterstock

TMTG’s stated goal is to protect First Amendment rights. They do this by providing a social network and a streaming platform. They build a community of like-minded people using new, innovative social media and online technologies. DWAC’s shares had a big burst of popularity in 2021 after the stock grew over 800%. This happened because people searched for it and associated it with former U.S. President Donald Trump.

Trump Media’s big venture is Truth Social, which aims to be an alternative to popular social media websites. Following the DWAC deal, TMTG expects to have around $1 billion at its disposal. This will be enough money to finance the first phases of Truth Social’s development.

It is unclear if the Truth Social network’s business model will pan out over time, with potential profitability in question. I’m holding my judgment of DWAC stock as a higher-risk pick, given the uncertainties here.

DWAC Is Not Yet a Long-Term Investment

Trump generated controversy throughout his campaign and presidency by using social media as a platform to engage with supporters. Twitter (NYSE:TWTR) and Meta Platforms (NASDAQ:FB), formerly known as Facebook, ended up permanently banning him during his reelection campaign.

Even Trump’s favorite social media app Parler has suffered due to its affiliation with the former President. The Apple (NASDAQ:AAPL) and Google app stores have removed it. And Amazon (NASDAQ:AMZN) had blocked its service, as well. This is a very political topic. And a site like Truth Social is trying to create some balance in the platform. The company is also working on launching another streaming platform, TMTG+. It will focus on providing news, sports, and entertainment content.

TMTG hopes to reach 15 million monetizable users by continuing its ad-based strategy. They also hope to sign up 10 million TMTG+ subscribers, which will create more revenue for the company and provide recurring income.

Trump had a lot of followers on Twitter. His presence on Truth Social could have some influence on early social media adoption. However, DWAC/TMTG wants to expand into many different industries, such as cloud infrastructure.

The company aims to compete with Microsoft’s (NASDAQ:MSFT) Azure, Amazon’s Amazon Web Services (AWS), and others in the industry. I do believe that their goal of becoming a prominent player versus being just another massive company will help them succeed in the long run. However, it is hard to compete with established tech giants at this stage. DWAC does not have large resources so far; therefore, it does not seem like a great idea to invest in such capital-intensive markets as cloud computing.

Truth Social Is the Most Interesting Aspect of the Portfolio

Truth Social is DWAC’s best asset right now. It is not guaranteed, though, that it will succeed commercially. For example, there are doubts about how many users will join the Truth social network and stay active on the platform.

Early indications were strong, as mentioned earlier, but it is possible that many of these people could end up abandoning the network once the initial hype fades. There have to be a large number of people on social media networks to provide content and interact with each other for the platform to work. And this requirement doesn’t always apply, specifically where Truth Social is concerned — networks need regular users to sustain themselves.

By 2026, TMTG+ predicts that subscribers will rise to 40 million with a monthly fee per user of $9 in the next four years.

One important drawback of Truth Social is that it is still too early to tell whether or not the app will generate enough revenue to cover expenses and turn a profit. Truth Social has amassed a huge user base, but it still needs to attract companies willing to spend their advertising budget through the platform. Large corporations might feel pressured by their investors or employees to not maintain any association with Truth Social due to controversy surrounding Trump.

DWAC Stock Remains a Short-Term Investment

It is tough to say whether TMTG’s opportunities are reflected accurately in the DWAC share price. Investors may be supporting the new company out of respect for the former President, but don’t let that distract you from a different point of view.

That is not to say the stock won’t go up even more, but it needs good news to continue. It seems Meta Platforms lost a lot of trust from investors. That could be good news for DWAC. This can happen because some people might prefer it as an alternative to the former — if the downloads and signups remain strong, speculation could push DWAC even higher.

TMTG has yet to release an earnings report, but speculation and the “meme effect” currently drive DWAC’s share price. Only time will tell what Truth Social will turn out to be. That makes DWAC stock a dicey long-term prospect.

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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