Is DWAC Stock a Buy After This Week’s Drop? No. Here’s Why.

DWAC stock - Is DWAC Stock a Buy After This Week’s Drop? No. Here’s Why.

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The bloom is off the rose for Digital World Acquisition (NASDAQ:DWAC) stock. The special purpose acquisition company (SPAC) intends to take former president Trump’s new social media company public. And traders rushed to the company in recent months on hopes that it would become a leading alternative to Twitter (NYSE:TWTR). Given Twitter’s policies around blocking users posting certain kinds of commentary, Trump’s social network was supposed to become a hub for conservative thought leaders. However, several events in recent days make this less likely.

For one, the Twitter for conservatives may end up being Twitter, after all. That’s because Elon Musk disclosed ownership of a 9.2% stake in TWTR stock this week. Twitter’s CEO announced that Musk will be joining the Board of Directors. Musk appears to have a vision for overhauling Twitter.

Given Twitter’s historical struggles around monetization and consistent profitability, Musk may have plans to improve the commercial side of operations. However, a good chunk of his focus will likely be around the social aspect of the company. Musk has long advocated for less restricted speech online, and could work to get popular banned users such as Donald Trump reinstated to Twitter. Doing so would eliminate one of the major reasons to use Trump’s own site, Truth Social.

Speaking of Truth Social, Trump was supposed to be the biggest draw for the site. Yet, Trump himself has hardly published any content on the site, and reports suggest he’s lost interest in its operations. Without a key influencer such as Trump to draw users to the site, it will struggle to generate much enthusiasm among the general public. That’s particularly true since the site’s launch has been buggy, leaving many potential users on waitlists for an extended period of time.

What’s it all mean for DWAC stock? Shares suffered a punishing decline on Monday on the combination of the Musk/Twitter news and reports that several Truth Social employees are leaving the company. And Digital World shares are heading for another double-digit decline in Tuesday’s trading session. This might make the case for Digital World being a bargain with shares down by roughly half since the beginning of March. However, the company has to show that the app functions well from a technology perspective and can get its user numbers pointing upward again. Otherwise, DWAC stock will continue to tumble.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


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