Digital World Acquisition Corp. (NASDAQ:DWAC) kept investors on their toes while the world waited for Truth Social’s launch. The anticipation surrounding the debut of former President Donald Trump’s social media platform was enough to keep even bearish investors watching closely. Two months later, we’ve witnessed what can happen when a company launches too soon. But we’ve also seen what happens when it doesn’t deliver on the product it promised. Now, DWAC stock is falling as investors seek to cut their losses and distance themselves from the failing social media platform.
When a stock that inspired investor confidence as quickly as DWAC starts reversing course, it warrants a closer examination. Truth Social’s mechanical problems have been well documented. But two months later, multi-week waiting periods are the least of the company’s problems. DWAC stock is seeing its highest surge in weeks this morning with gains of 11% after the announcement of a partnership with Rumble. But even partnering with the popular right-wing video streaming service won’t keep shares in the green for long.
Let’s take a look at the real problems that have kept DWAC stock on its downward trajectory.
1. Lack of Interest in Truth Social Is Killing DWAC Stock.
As noted, Truth Social has proved unable to deliver on the product it promised users. While the platform bills itself as a free speech venue, its users joined to read content directly from Trump himself. Since it launched, the former president has posted once. For his followers who remember how often he used to tweet, it’s easy to see how this would feel like a letdown. When we consider this, it makes sense that app downloads have fallen 95% between President’s Day and early April. As InvestorPlace contributor David Moadel noted, “if the numbers don’t pick up at some point in 2022, it’s going to be challenging for the app to achieve the 81 million user target” initially promised in the company’s investor pitch.
It’s true that the numbers from the company don’t inspire confidence. Nor do the reports that Trump is considering joining another alternative social media platform, such as Gettr. Fellow InvestorPlace contributor Mark Hake has advised investors to avoid DWAC stock until its downloads improve. He does not address one pressing question, though: What if that never happens? As of now, there’s little evidence to suggest that interest in the platform will increase in the near future.
2. Bearish Sentiment Among DWAC Stock Investors Is Growing.
Earlier this week, DWAC stock was rocked when Kerrisdale Capital announced it had taken a short position. On top of that, the hedge fund released a damning short report in which it laid out a detailed case against the company. While the report presented plenty of reasons why investors should not bet on DWAC, the most important is that it believes the blank-check company will not be able to secure its merger with the Trump Media & Technology Group (TMTG). As InvestorPlace’s Eddie Pan reported, “It has been six months since the merger announcement, and there is still no S-4 form to be found.”
Furthermore, the report highlights the trend of DWAC being subject to probes by the U.S. Securities and Exchange Commission (SEC). Bearish energy was already spreading among DWAC stock investors. But when a credible source lays out such a detailed case, it’s almost a given that the process will accelerate. Even more investors will jump ship if further reason to be skeptical of the merger is presented. And that will push DWAC down even more.
3. Competition Is Growing.
While Truth Social has been struggling, its competitors have been thriving. As InvestorPlace contributor Faizan Farooque noted recently, “Rumble is much more of a viable social media platform for free speech than Truth Social.” And Rumble has seen monthly active user count increase by 22% throughout the previous quarter and boasts 44 million visitors per month. Truth Social’s new partner is clearly beating it at its own game.
Additionally, Elon Musk may be on the verge of acquiring Twitter (NYSE:TWTR). The Tesla (NASDAQ:TSLA) CEO has made it clear that he wants to acquire the platform to adjust its free speech policies. If he is successful, it will pave the way for Trump to return to the platform. This could eliminate the need for a company like Truth Social and will likely pull even more users away from it. The future of Twitter is unclear, but Truth Social is on unstable ground with no rebound in site.
On the date of publication, Samuel O’Brient did not hold (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.
