The special purpose acquisition company space is one of the most volatile investment areas, but one blank-check company takes it to another level: Digital World Acquisition Corp. (NASDAQ:DWAC). As the reverse merger between Digital World and Trump Media and Technology Group (TMTG) nears, the incentive to hold onto DWAC stock is reduced.
Digital World announced the planned merger with TMTG on Oct. 20. The next day, trading in DWAC stock was halted multiple times and shares closed up more than 350%. Some of the credit for the rally certainly must go to the Reddit WallStreetBets crowd. However, there is also palpable excitement surrounding the impending merger.
Conservatives believe Big Tech companies are biased against them, claiming conservative content is being censored on social media platforms like Meta Platforms’ (NASDAQ:FB) Facebook and Twitter (NYSE:TWTR). Facebook and Twitter have said they do not suppress viewpoints and have no political biases in their algorithms. Still, former President Donald Trump’s Truth Social has been marketed as an alternative to these popular social media platforms.
While TMTG has a wide portfolio, Truth Social is its crown jewel. That means the fate of DWAC stock rests squarely on the success of the platform, which may be problematic.
Technical Issues Spoil the Truth Social Party
After months of delays, Truth Social finally launched on Feb. 25. The application itself operates just like Twitter, giving users access to a community of people and allowing them to engage. But its lauch was anything but smooth.
The app became available for download on Feb. 21, and quickly shot to the No. 1 spot in Apple’s (NASDAQ:AAPL) App Store. However, users reported bugs, with some getting error messages or being unable to open the app once they downloaded it. And many people were placed on a waiting list.
These technical issues seem to have negatively affected DWAC stock. Since Truth Social’s launch, DWAC stock is down around 17%.
Sure, the most ardent supporters are likely to overlook the launch difficulties because of their attraction to the Trump brand. But the fact that the company could not execute at this crucial stage is worrisome.
The Rest of TMTG’s Portfolio is Not That Interesting
Sometimes it’s hard to remember that Truth Social and Trump Media and Technology Group are two different things. They are often used interchangeably. However, the application is just one part of the company’s overall portfolio.
Interestingly, the company believes its biggest money-spinner is its streaming service, TMTG+. Undoubtedly, the streaming industry is huge, and there are billions on the table to be earned. However, the biggest streaming companies pour billions into their content libraries, a great point made by my colleague Muslim Farooque. It will not be easy for TMTG to compete in space.
You can say the same is true with its ambitions in the cloud space. There it will have to take on tech giants such as Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
TMTG will receive about $1.25 billion from the reverse merger deal. It is a decent amount of money but not enough to take on companies like Netflix (NASDAQ:NFLX), Amazon and Microsoft. At some point, much like many SPACs, it will issue equity to drum up cash. Shareholder dilution is never a good thing, but it’s a necessary evil when a company has ambitions as large as TMTG.
The impending merger bringing right-leaning streaming platform Rumble to market presents a better option if you want to invest in a company looking to provide an alternative platform. It has been around since 2013 and is led by Chris Pavlovski, a Canadian technology entrepreneur. In comparison, Devin Nunes, CEO of the Trump Media & Technology Group, does not have experience in the tech space. His background is in dairy farming.
Time to Take Some Profits in DWAC Stock
DWAC stock could certainly jump when the merger is completed, likely later this year. But the long-term prospects of Truth Social and TMTG are very much up in the air.
Given recent market volatility and the rocky launch of Truth Social, investors in DWAC stock should consider trimming their holdings. For speculators, it’s likely been a great ride. But it is important to know when to take profits.
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.
