For quite some time, Digital World Acquisition Corp (NASDAQ:DWAC) stock has been doing well, performing exceptionally since the launch of the TRUTH social network a few weeks ago.
However, it is time to dump the shares as the reverse merger date looms. Considering the usual SPAC cycle, the time is not ripe for trimming your holdings.
Usually, once the ticker starts trading, the SPAC starts losing steam going back toward its floor value of $10 per share. These vehicles trade more on hype rather than fundamentals.
Regardless of what you think about Donald Trump, one thing is for sure; he is the ultimate hype man. Therefore, in the runup to the merger, you can expect more positive PR emanating from Trump Media & Technology Group or TMTG. That will help DWAC stock rise further in the coming weeks.
The biggest concern for investors is volatility. DWAC stock prices can go up or down based on market events and regulations. The former president can sometimes be unpredictable and cause further problems for the entity.
After the 2020 US Capitol terror attack, Facebook and Twitter (NYSE:TWTR) banned President Trump from their platforms. Any business associated with him has suffered greatly.
Considering the strong growth in the last few weeks after the launch of Truth Social, if you have a sizeable holding of DWAC shares, the time is right to take some profits.
It’s important to take profits before they evaporate considering the volatility of this investment. I wouldn’t completely leave the position because it has unrealized potential on the back of promising events.
Marketing to a Different Clientele
Digital World Acquisition Corp. is looking to bring Trump Media & Technology Group to the market. Content moderation continues to be a hot-button topic, with fans and skeptics constantly arguing on social media about censorship.
Big Tech companies have said that they are only censoring harmful and inappropriate content on their platforms. However, some conservatives are saying it feels like the Left is cleansing the internet. They still want to make their voice heard, but this also comes with frustration and annoyance.
Freedom of speech on the internet is important. TRUTH Social provides an alternative platform with many platforms now accused of suppressing voices and limiting access.
Therefore, there is a market out there that TRUTH Social can target. And there are already signs that there is an insatiable appetite for its product. Truth Social’s launch day was a major hit, with 175 thousand downloads.
People who pre-ordered the app automatically got the Truth Social app on their Apple (NASDAQ:AAPL) devices. However, there are teething problems. Users either can’t sign up for the app or are on a waitlist.
I don’t want to spend much time touching upon Trump Media & Technology Group’s ambitions in the cloud space. That is an incredibly capital-intensive business, and the leaders in the area are multibillion-dollar enterprises.
The resources at their disposal do not compare with that of TMTG. Therefore, while it can compete at some level on the social media front, it cannot do so in cloud infrastructure.
Truth Social and Momentum
Initial interest in this social media platform is very high, but whether the company can maintain this momentum is still a question.
The churn rate is the number of people who aren’t sticking around at least as often as they want to. Social media apps need to know the current number to improve their platform.
Many companies are trying to reduce their churn rates, but this might not be easy as it requires more than just adding features and improving UX.
Instagram and Facebook are criticized for not giving people a feeling of connection to their friends in exchange for their data usage on the app. This has led many people to find alternatives such as Snapchat or Discord to interact more with friends and family members.
Therefore, FOMO could lead to people signing up for TRUTH Social initially, but whether the app can sustain its initial bump remains a mystery.
Also, TMTG’s portfolio is wide. TRUTH Social is the jewel in its arsenal. However, there are other areas where it wants to make a dent, such as in cloud infrastructure.
Since it does not have a narrow focus, management will have to manage the different segments. That could lead to less emphasis on its social media platform as it looks to take on behemoths like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
DWAC Stock Is Strictly a Spec Play
DWAC has the potential to rise further in the coming weeks if we have more positive announcements. However, with the way things are heading as far as growth stocks are concerned, it is better to take some profits along the way as well.
There are too many variables to contend with, not least of which concerns Trump’s colorful personality, which could weigh down the bottom line.
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. Faizan does not directly own the securities mentioned above.
