Special purpose acquisition company (SPAC) Digital World Acquisition Corp (NASDAQ:DWAC) has fallen almost 50% since its peak on March 4 of $97.54. As a result, DWAC stock is now down 46.8% at $45.60 as of April 20.
This means its pro forma market capitalization has fallen from a peak of $18.6 billion to just $8.8 billion today. This is based on page five of its slide deck showing there will be 193.4 million shares outstanding once the deal closes. So, if we multiply $45.60, its price today, by 193.4 million, we get a pro forma market cap of $8.8 billion.
One reason for the decline could be that signups for the Truth Social app pormoted by former President Donald Trump may not be as great as expected. The app is part of Trump Media and Technology Group (TMTG), DWAC’s merger partner.
It launched on Feb. 2 on Apple’s (NASDAQ:AAPL) App Store, but has yet to hit Google Play for Android users. The app has struggled with scaling issues, and its user base has taken a hit as a result.
For example, Statista reports when Truth Social was first launched, there were 175,000 daily downloads of the app. But as of March 3, this was down to 17,000.
Moreover, the Daily Beast reported that in the first week of April, its daily active users (DAUs) were 513,000, according to Vanity Fair. That compares to 217 million DAUs at Twitter (NASDAQ:TWTR). Vanity Fair calls this an even bigger business humiliation for Trump than his other ventures.
As if that negative commentary wasn’t enough, Elon Musk’s unsolicited bid for Twitter also didn’t help. There is no indication that effort will succeed right now given Twitter’s new poison pill measure. But it’s theoretically possible Trump could rejoin Twitter if Musk takes over the social media platform. That could take away from the potential audience he has at Truth Social.
The point is this could dramatically lower the valuation for DWAC stock and eventually Truth Social when the merger closes. As DWAC falls, its “see-through” market valuation falls as well, so investors should probably be very careful about jumping in.
So far, there does not appear to be any margin of safety for value investors. Based on page 38 of its slide deck, the company projects $114 million in revenue for 2023 and up to $835 million in 2024. But that is with a forecast of 4 million subscribers in 2023 and 11 million in 2024.
At 17,000 downloads per week, that would take more than four years to occur. And there is no way to know if that is the pace it is running at now. The bottom line is that investors should wait to buy until DWAC stock is cheaper.
On the date of publication, Mark Hake 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.
