There’s Good News and Bad News for Digital World Acquisition

For Truth Social, the new app created by former President Donald Trump’s company, recent weeks have featured a mix of good news and bad news. With the app’s overall outlook still uncertain, I recommend that investors avoid Digital World Acquisition Corp (NASDAQ:DWAC) stock for now.

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

Source: mundissima / Shutterstock

DWAC stock is a special purpose acquisition company (SPAC) that has agreed to merge with Trump’s company, Trump Media & Technology Group (TMTG). In turn, TMTG owns Truth Social.

The Good News

Over the past 6 years, mainstream news coverage of Trump and his initiatives has been mostly negative. In my opinion, these news outlets are now ignoring several important achievements by Truth Social.

Most significantly, according to one longtime journalist, there are indications that conservative pundits are already generating much better engagement levels on Truth Social than on Twitter.

In early March, John Solomon reported that after Truth Social was in business for only “a few short weeks,” conservative pundit Dan Bongino had about 240,000 followers on the app. By comparison, after “years on Twitter,” he had 2.4 million followers.

But even more impressively, Bongino said that his engagement levels were actually already significantly higher on Truth Social than on Twitter. He explained that his posts were getting many more likes and re-posts on Truth Social than on Twitter.

“The traffic to the site […] is off the chart,” Bongino said of Truth Social. “The engagement is extraordinary right now.”

And of course, if Bongino is seeing such impressive engagement levels, then other famous commentators probably are, too. And as a result, chances are high that the overall engagement on Truth Social is quite elevated, as well.

Additionally, the high engagement will probably entice many other famous, right-wing personalities to join Truth Social. In theory, that should create a virtuous cycle, in which a high number of users encourage more celebrities to join, which in turn encourages tens of thousands of new users to join.

Finally, even a Mashable commentator who doesn’t sound enamored with Trump and Truth Social says that the website “easily” looks better than the other right-wing social media websites.

The Bad News

Even though we’re nearing the end of March, by which point Truth Social was supposed to be “fully operational,” nothing in my research indicated that the technical problems which plagued its launch have been fixed.

Even worse and pretty ironically, the app’s most important user and its star attraction does not seem to be very engaged with it. Specifically, as of Mar. 21, the former president and founder of Truth Social had not posted any content on it since Feb. 15.

The Independent, a British newspaper, reported that “some are wondering if the former president has lost interest in the project.” Under the circumstances, I think that is a fair question to ask.

And perhaps worst of all, according to Mashable, as of mid-March, Truth Social’s users were commenting on stars’ posts, but there was little interaction among stars and the general public or among members of the public.

The Bottom Line on DWAC Stock

In a Feb. 4 column about Digital World, I wrote, “In my base-case scenario, assuming the shares are valued at five times revenue, Truth Social would be worth $4.5 billion at the end of the platform’s first year.” And that was before the bad news afflicting the app had arisen.

After the market closed on Mar. 24, DWAC stock had a market capitalization of $2.7 billion. The chances of the base-case materializing are looking way lower than they did when my Feb. 4 column was published.

Although I still believe that Truth Social has tremendous potential, I think that the shares’ risk-to-reward ratio has become too unfavorable to own the shares. I urge investors to sell DWAC stock at this point.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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