• Digital World Acquisition Corp. has soared 40% as its deal with Trump Media & Technology Group officially closes.
• The new company, Trump Media & Technology Group Corp., will begin trading on Tuesday under the ticker ‘DJT’.
• The main asset of DJT is the Truth Social platform, which aims to compete with Facebook and Twitter but has a smaller user base.

Article Thesis

Battleground Stock Digital World Acquisition Corp. (NASDAQ:DWAC) has soared on Monday as the deal with Trump Media & Technology Group has closed and the new company will likely begin trading on Tuesday. While speculation could push shares even higher, I remain neutral and am staying on the sidelines — it is far from guaranteed that the company will be very profitable in the future.

Past Coverage

I have not covered Digital World Acquisition Corp. in a while but wrote about the company first around two and a half years ago in an article titled Speculating on A Trump Social Media Empire. I gave the company a neutral rating back then, which has worked out well — shares are up, but have slightly underperformed the broad market, thus focusing on other opportunities was the better choice.

What Happened?

On Monday, shares of Digital World Acquisition Corp. are up a hefty 40% at the time of writing, soaring to almost $52 per share. The reason for the strong share price performance for DWAC is that the deal to combine with Donald Trump’s media company has officially closed. The road to close this deal has been long and there were ups and downs, but the two companies have now crossed the finish line. Seeking Alpha reports that the new company, which will be named Trump Media & Technology Group Corp., will begin trading on Tuesday, using the ticker ‘DJT’ (the initials of former President Donald Trump). DWAC shareholders voted in favor of the deal on Friday, which allowed the two companies to close the deal on Monday. This followed the earlier news about the SEC approving the combination of the two companies in February.

It looks like investors are happy that the deal has now officially closed, and based on the strong share price reaction, it looks like there was still considerable fear that the combination would not work out. Otherwise, a share price jump of close to 40% would not make a lot of sense.

It is, of course, also possible that additional factors played a role in the strong share price increase, such as shorts covering their positions or investors speculating on further share price gains as the deal gives the company increased media attention. finviz.com reports that the short float for DWAC is 11%, but these numbers may not be up-to-date. If that number is true, short covering could be a very meaningful factor explaining the pronounced share price reaction we are seeing on Monday.

Due to these factors — media and investor attention, speculation, shorts covering — it is very hard to forecast what near-term price movements might look like. I believe that there is a very good chance that shares will remain highly volatile in the near term, but whether shares will rise further or whether a share price pullback is more likely is unknown.

What The New Company Will Look Like

From Tuesday, the newly combined company trading under the DJT ticker will be headed by Devin Nunes, who has already been Trump Media & Technology Group CEO before the deal.

The main asset of DJT is the Truth Social platform, which was launched a little more than two years ago, and which has around 5 million users according to research company Similarweb, although reports suggest that the user count has been moving up and down over time and that activity is somewhat uneven.

Truth Social sees itself as a competitor to platforms such as Facebook and X/former Twitter, but size-wise it is not in the same category. Facebook, for example, has more than a billion users across the globe. One could argue that Truth Social is more of a competitor to Parler, Gab, and other smaller social networks with a Republican-leaning user base. That being said, Truth Social is not a Republican-only social network, as politicians and users from both parties (as well as independents and non-US users) are active on Truth Social (Donald Trump, Gavin Newsom, etc.).

How Is DJT Company Valued?

DWAC was trading with a market capitalization of around $1.4 billion before the deal announcement, but the pro-forma market capitalization of the new DJT company will be significantly higher. After all, following the combination of the two companies, current DWAC shareholders will not own all of the new Trump Media & Technology Group Corp. Instead, based on data in a previous DWAC/TMTG presentation, DWAC shareholders will own around 13% of the combined company. Based on a DWAC share count of around 29 million and a DWAC share price of around $50, this suggests an implied market capitalization of $11 billion for the new Trump Media & Technology Group Corp.

This is way less than the value of Meta Platforms (META), the owner of Facebook, Instagram, and WhatsApp, as META is valued at around $1.3 trillion, or roughly 100x TMTG’s market capitalization. Then again, if the 5 million user count number for Truth Social is correct, Meta Platforms has more than 100x the user count compared to TMTG/Truth Social, thus on a per-user basis, META would be the less expensive company among these two. With META already having billions of users across its platforms, its future growth potential could be more limited, as Truth Social could, at least theoretically, grow its user count by hundreds of percentage points. But whether that will actually happen is not known — I personally am not very interested in speculating on that. From a profitability and balance sheet perspective, META naturally is the stronger company and, I believe, the better pick as well. Last but not least, META offers shareholder returns via both dividends and buybacks, which does not hold true for TMTG.

Is DWAC A Good Investment?

DWAC undoubtedly was an excellent speculative investment for those who bought shares at the lows. For someone holding shares on January 1, 2024, year-to-date returns have been as high as 190%, which even beats market darlings such as Nvidia (NVDA).

That being said, it is far from certain that DWAC (or, starting from Tuesday, DJT) will continue to outperform the market. Speculation could drive shares even higher, but until Truth Social shows resilient user growth and improving financial results, those gains would be speculation-driven. From a valuation basis, shares look rather pricey here, going by the market capitalization per user metric relative to how social media king META is valued.

I do not think that shorting DWAC/DJT is a good idea, as shares could continue to soar if sentiment remains strong and as the closing of the deal results in considerable media attention. I am thus not interested in shorting this company at all. But I also am not interested in going long, as the fundamentals do, to me, not suggest that DWAC/DJT is trading below fair value. Of course, others might see things differently, and that’s what makes a market. I’m staying on the sidelines and will evaluate the company further when more financial results are made available over the coming months and quarters.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of META either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The spotlight in the week ahead will burn bright on the reappearance of Federal Reserve speakers after they were in a blackout period following the recent FOMC meeting. Fed board governors will be giving various talks, capped off at the end of the week by Federal Reserve Chairman Jerome Powell participating in a moderated discussion before the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference. Goldman Sachs thinks that Powell and a slight majority of the FOMC feel strongly about not delaying cuts for too long and are targeting the June FOMC meeting for the first cut. On Seeking Alpha, analyst Zoltan Ban warned that the Federal Reserve may need to raise rates after the election due to the combination of inflationary federal budget deficits and a scarcity of goods effect.

The economic calendar next week features the Fed’s preferred inflation gauge with the PCE price index report, as well as reads on consumer confidence and durable goods orders. The corporate calendar includes the Walgreens Boots Alliance (WBA) earnings report and a potentially important investor day event for United Parcel Service (NYSE:UPS).

Earnings spotlight: Monday, March 25 – Westport Fuel Systems (WPRT). See the full earnings calendar.

Earnings spotlight: Tuesday, March 26 – McCormick (MKC) and GameStop (GME). See the full earnings calendar.

Earnings spotlight: Wednesday, March 27 – Paychex (PAYX), Carnival (CCL), Jefferies (JEF), and H.B. Fuller (FUL). See the full earnings calendar.

Earnings spotlight: Thursday, March 28 – Walgreens Boots Alliance (WBA), Oxford Industries (OXM), and Torrid (CURV). See the full earnings calendar.

Volatility watch: Options trading volume is elevated on SPAC player Digital World Acquisition (NASDAQ:DWAC) ahead of the potential public listing of Trump Media & Technology next week. The media stock trades about about 25% below its 52-week high. The list of highly-shorted stocks heading into the new week includes Guess? (GES) and Bowlero (BOWL). The most overbought stocks per their 14-day relative strength index include Sweetgreen (SG), SIGA Technologies (SIGA), and DXP Enterprises (DXPE). The most oversold stocks per their 14-day Relative Strength Index include Sirius XM (SIRI), Urban One (UONEK), and Lifecore Biomedical Inc (LFCR).

IPO watch: The IPO calendar continues to heat up, with three smaller-sized debuts anticipated next week. NeOnc Technologies (NTHI), Mobile-Health Network Solutions (MNDR), and Alta Global Group are all expected to price their IPOs and begin to start trading. The analyst quiet period ends for SolarMax Technology (NASDAQ:SMXT) to free up analysts to post ratings. Certain blocks of shares of Lead Real Estate (LRE), Vs Media (VSME), and Syra Health (SYRA) will see the IPO lockup periods expire. Reddit (RDDT) will also be watched closely as it enters second week of trading after a wild swing in the social media platform stock over its first two sessions.

Dividend watch: Companies forecast to increase their quarterly dividend payouts include Cal-Maine (CALM) to $0.554 from $0.116, Oxford Industries (OXM) to $0.75 from $0.65, and TJX Companies (TJX) to $0.3757 from $0.3325. Read through some of the dividend stock picks from Seeking Alpha analysts.

UPS investor day preview: One of the key events of the week could be the United Parcel Service (UPS) Investor Day on March 26. Morgan Stanley thinks the UPS presentation will be an important catalyst for the stock as expectations are reset after a tough 2023. Investors will be looking to see what UPS management’s approach will be to tackle a shift in e-commerce supply chains with growing regionalization, competitive pressure on pricing, the Amazon risk, and new competition from low-mix players like Temu and Shein. “While mgmt is likely to pull the cost lever to offset these revenue pressures, the question is how much credit investors will give them given the relatively limited opportunity to take cost out in the face of revenue pressure,” previewed analyst Ravi Shanker. Updates from UPS on strategic actions for non-core parts of the business, international priorities, and management succession planning are also seen as key. Morgan Stanley said it continues to believe that normalized EPS is in the $8 range and structural earnings risk warrants an implied 12X PE, as reflected in the firm’s price target of $95. On Seeking Alpha, analyst Kody’s Dividends sees UPS as a turnaround play trading at an opportune valuation.

Investor events: General Motors (GM), Adient (ADNT), Lear (LEA), and BorgWarner (BWA) are some of the companies scheduled to participate in the Bank of America Global Auto Summit. The four-day Adobe Summit Digital Experience Conference will begin. Adobe (ADBE) CEO Shantanu Narayen will speak at the conference along with the company’s other top executives. General Motors (GM) CEO Mary Barra and Delta Air Lines (DAL) CEO Ed Bastian will be guest speakers. Kimberly-Clark (KMB) will hold its Analyst & Investor Day event. The event will feature management updates on the company’s strategic priorities, key initiatives, and new long-term financial algorithm.

New EV player: Chinese smartphone company Xiaomi will formally launch and start deliveries of its long-awaited electric vehicle. The smartphone maker has a goal for the full-size SU7 sedan to become one of China’s top three best-selling luxury electric vehicle models. The SU7 is being targeted to compete in China with Tesla’s (TSLA) Model 3 and the Zeekr 001. Xiaomi-branded EVs will be manufactured by state-owned automaker BAIC Group in a Beijing factory with an annual capacity of 200K vehicles. Ahead of the launch, Xiaomi said it would open the waitlist for the SU7 for 59 stores in 29 cities in China. The smartphone giant has indicated that it plans to invest $10B in its vehicle business over the next ten years.

Stock split watch: Chipotle’s (CMG) big rally following the restaurant company’s announcement of a 50-for-1 stock split has investors asking which companies could be the next to announce a major stock split. A screen of companies that have a market cap of over $2B, a share price of over $100, and gains of over 100% over the last 52 weeks could shorten the guesswork. That list of split candidates includes Super Micro Computer (SMCI), Coinbase Global (COIN), e.l.f. Beauty (ELF), XPO (XPO), Netflix (NFLX), Eli Lilly (LLY), Deckers Outdoor (DECK), DoorDash (DASH), and Royal Caribbean (RCL). As for thinned-down Chipotle (CMG), Seeking Alpha analyst Pearl Gray Equity and Research has a deep dive on what the implication of the split is for shareholders.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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• On Friday the 22th, Digital World will hold a meeting of shareholders to vote the merger with Trump Media.
• After this, the merger could be closed quickly and the resulting company with stock symbol DJT could commence trading on the Nasdaq next week.
• The potential media coverage could result in significant volatility and a large price movement.
• Over the long term, I simply do not see this company becoming a decent investment, but in the short term, traders could make money during upcoming events.

The Trump SPAC Digital World Acquisition Corp. (NASDAQ:DWAC) is planning on merging with Trump Media & Technology Group. On Friday the 22th, DWAC will hold a meeting of shareholders to vote on the approval. This merger was already announced in 2021, but since then, it has finally received SEC approval. The merger could already happen next week.

After approval of its shareholders, shares of Digital World Acquisition Corp., currently traded on the Nasdaq, will trade under the symbol DJT, a reference to the initials of the former president. SPAC mergers usually close within a few days, so it is likely that the company will be trading as DJT already at the start of next week. Trump’s 90% stake in TMTG could theoretically be valued at more than $3 billion if DJT shares continue trading for the current DWAC share price.

This merger has received relatively little media attention but is likely to be an event coupled with some very high volatility.

In this article, I will focus on the likely volatility resulting from this event and the future prospects, but I will not look too deeply into the (lack of) profitability of the underlying company and the platforms. For more information about this, I’d suggest this article by Seeking Alpha analyst Stone Fox Capital.

Dilution, obstacles and potential delays

Theoretically, DWAC shareholders could still block the deal on Friday. I believe this is very unlikely though, because DWAC itself has been long looking forward to this deal and shareholders have already expressed their discontent with the slow pace of the SEC while looking into the lawsuits.

But there are still a couple of hurdles to overcome. Co-founders of DWAC lately filed a lawsuit because of stock dilution resulting from this merger. I believe this is number one item that could still delay the merger. DWAC has extended the date by which it has to complete the merger to June 8 from March 8. This means that if this lawsuit leads to additional delays, the company still has some time.

Also, a lawsuit on insider trading of DWAC shares could theoretically derail the merger, but I believe this is not likely. If the merger is approved this Friday, it is quite likely to follow through, even with the continuing legal trouble. DWAC could theoretically still announce a delay because of the dilution lawsuit, but if that happens, the company needs to act fast.

After the merger, the stock will be diluted. Currently, 37.2M shares are outstanding, but after the merger this number will increase to 135M. Of course, this would normally mean that current share value would be reduced by almost three quarters. But by market logic, a post-merger SPAC could be worth more than a pre-merger SPAC, since this takes away some of the risks of the merger not happening (DWAC states in its financial report that it might not survive without the merger). But it is not at all certain that share prices follow the laws of arithmetic. Also, a large part of the dilution resulting from the merger will likely already be priced in by the market.

Lock-up period

It is no secret that Donald Trump is in dire need of cash currently, and the DWAC merger might just provide the lifeline he needs.

Post merger, there is a 6 months lock-up agreement in place during which shareholders of TMTG who own more than 10% of stock are not allowed to sell or exchange. This period could be reduced to 150 days in case the closing price of DWAC stock equals or exceeds $12.00 per share for any 20 trading days within any 30 trading day period.

This provision could mean that current and future shareholders have somewhat of an insurance against selling pressure, but for Mr. Trump, there are some ways at which he could still use his new DJT shares to get access to cash. He could for instance transfer his shares to a trust, which can be used as collateral for a loan. Also, being the majority shareholder, it is possible that he will be able to convince the board to let him sell his shares outright. If Digital World waives the provision ‘at or prior to the closing’ of the merger, Trump could do this. But this would almost certainly lead to a quick share price crash which dramatically reduces the amount of cash he could be able to acquire. Also, this probably requires the consent of other large shareholders, so I do not believe waiving the lock-up period would be very opportunistic. In my view, the most likely option is that Trump will try to use his shares as collateral.

On the long term, this stock is an obvious sell

Since the TMTG part of the merger is the part which is generating revenue and selling digital products, I will focus this part of the analysis on TMTG. The proxy statement/prospectus relating to the proposed merger between DWAC and TMTG lists some revealing metrics about TMTG, Truth Social and its financial performance. In the screenshot below you can see the operations data of TMTG of the first nine months of 2023:

Most obvious is the data about revenue, which was $3.38M during the first 9 months of 2023. This is quite low, as it implies that Truth Social had a revenue of less than $2 per active user during this period. As a reference, Facebook (META) had a $68 of revenue per user in Q4 2023. In the operations statement of TMTG, both R&D and ‘General and administrative’ costs were higher than total revenue. The total loss was more than $49M, a loss of $0.49 per share. It is also interesting to see that the bulk of this was due to interest expenses. Note that the 2022 revenue was only positive because of a change in fair value of derivative liabilities.

The company has been losing money since its inception, and without some major growth and increase in revenue, it is not likely to turn around this trend.

The prospectus also lists some of the risks concerning post-merged company, which are specifically tied to TMTG, of which I would like to highlight the following two:

If Truth Social fails to develop and maintain followers or a sufficient audience, if adverse trends develop in the social media platforms generally, or if President Trump were to cease to be able to devote substantial time to Truth Social, TMTG’s business would be adversely affected.

TMTG’s independent registered public accounting firm has indicated that TMTG’s financial condition raises substantial doubt as to its ability to continue as a going concern.

The first risk, Truth Social failing to develop and maintain a sufficient audience, is a real risk. With the knowledge from the financial statements, I would probably add here that Truth Social needs to start growing quickly, or achieve a solid revenue model.

At the moment, Truth Social has about 2 million active users and is simply no match for the larger social media platform. As is analyzed in this article, “the most likely outcome is that Truth Social will become a niche platform with a relatively small user base“. So even if the company would be able to achieve a better revenue model, the question is whether it will be worth a valuation in the billions. Also, if president (of TMTG) Trump would become president (of the US) again, it is obvious that he will not be able to devote much time to TMTG anymore.

The second risk is quite worrying, since it states that TMTG’s accountant has substantial doubts in the ability of the company to continue as a going concern. This should be an obvious red flag for any serious investor.

Volatility and why I do not recommend shorting

I am very skeptical of the possibility of DWAC, TMTG and the resulting company DJT becoming decent investments on the long term. I believe it is very likely that the resulting company will lose value because of its weak fundamentals.

One thing that I believe is almost certain though, is that there will be volatility. Large volatility. For one simple reason: Donald Trump.

In 2021, DWAC shares surged a staggering intra-day 400% after news of the planned merger hit the press. Last year, a second round of Trump NFT’s sold out within a day. More recently, Trump’s sneakers sold out within hours.

Currently, I think most of the US citizens are not aware of upcoming closing of the merger between DWAC and TMTG.

Imagine Donald Trump discussing his new stock next week, on Truth Social and maybe even reported on every major news platform. Regardless of fundamentals, it is likely that such an event could lead to a huge inflow of capital.

The current 30-day average daily volume of DWAC is only 1.84M shares, which amounts to slightly north of $67M traded per day with a $36.5 share price. As such, I can imagine it does not take extreme amounts of capital to ignite strong share price movements.

Markets are not stupid, and have already been adapting to the possibility of DWAC experiencing major volatility during the coming days. The cost to borrow has recently shot up to 211%. Also, just take a look at this option chain on the Seeking Alpha options page:

These are the March 28 DWAC options, and I only showed the higher strike prices that are well out of the money. A call with a strike price of $50 is trading for $5.15, which is 12 percent of the current DWAC share price of $42.90. This is quite a premium for a call expiring in one week. The $90 call, more than twice the current share price, is trading for $2.00. Also note the relatively large trading volumes, especially for the $90 calls.

Options premiums are very high at the moment, which implies that the market also expects large volatility. This makes it more difficult for traders to make money from this event by using calls, since option premiums have already reached such heights. On the other hand, the expected volatility makes it risky to short DWAC, since the past has already shown that the stock could make extreme moves as a result of merger news.

Takeaway

The Digital World and Trump Media & Technology Group merger is likely to close next week. This will result in a company with the stock symbol DJT, likely trading on the Nasdaq. There is a lock-up period of 6 months for existing large shareholders, but Donald Trump still has possibilities of using his shares to raise cash, either by moving them to a trust and using it as collateral for a loan, or convincing DWAC of waiving the lock-up period and selling his shares outright. I believe the former is much more likely, which does not directly lead to selling pressure.

Even if the merger can still possibly be delayed by a lawsuit by DWAC co-founders, volatility is ahead. Option chains and cost to borrow DWAC shares show that the market expects extreme levels of volatility. Regardless of fundamentals, for anyone other than very experienced traders, DWAC is a dangerous instrument to be invested in. On the long term, DWAC and the resulting company DJT do not look like good investments and are a strong sell in my opinion. In my view, DWAC seems to trade more like a popularity contest for Donald Trump than like a serious investment.

But even if long term prospects do not seem bright, traders could make money from DWAC with the upcoming events. But options for DWAC are already trading for high premiums, so this seems like a risky way to speculate on possible moves. Investors who own shares for the long term, which I do not recommend, could be better off by selling calls on their existing position, since the options premiums are very attractive at the moment.

I will not be touching anything related to DWAC, TMTG or DJT myself, but will enjoy observing the almost inevitable volatility from a distance.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post DWAC: Trump Merger Could Close Next Week Bringing Volatility appeared first on Up2info.com.

• Digital World Acquisition’s SPAC may take former President Trump’s social media company public, but it’s unclear if anything has changed in its flagship platform to warrant a higher share price.
• Truth Social has significantly fewer monthly active users compared to X (formally Twitter), and major global social media platforms like Facebook, Instagram, and TikTok.
• If Trump becomes the President again in 2025, Truth Social could benefit as his main mode of communication, but the platform’s financials and revenue sources remain weak.

I’ve previously discussed the long-term prospects of Digital World Acquisition (NASDAQ:DWAC), the SPAC destined to take former President Trump’s social media and technology company public around the end of the year, which I shorted.

While the deal may create some value for the social media company, as ‘blank check’ companies tend to do, it’s unclear if anything fundamental has changed in its flagship social media platform, Truth Social, or any other part of their business for that matter, to warrant the recent share price surge.

The platform has about 900,000 monthly active users, which pales in comparison to X (TWTR) which has over 415 million monthly active users. This is only a modest increase from the roughly 513,000 monthly active users the platform had about a year ago. Furthermore, both of these platforms still attract significantly less than the major global social media platforms like Facebook (META), Instagram, and TikTok (BDNCE), all of which have over 1 billion monthly active users a pop.

There is, however, one aspect that can justify the recent surge in the SPAC share price – if the former President becomes the current President in 2025. Since the former President used Twitter (now known as X) as his main mode of communication throughout his first term, Truth Social is all but certain to be that communication method in any future administration, which is all but certain to attract millions of people to the platform. I’ll touch briefly on the risks associated with the 2024 United States Presidential election.

Putting that last point aside though, not much has changed in the company’s fundamentals. They reported roughly $3.8 million in advertising revenues in the first nine months of 2023 (full year 2023 results pending after the SEC scrutinized misrepresentations the company made to investors), which cost them tens of millions to generate, resulting in a net loss of $49 million for the quarter. While a win in 2024 will generate a potential ad revenue windfall, any other scenario, I believe, means the company continues to burn through tens of millions of dollars every year without any meaningful revenue sources.

Let’s take a walk down memory lane and see where I think things are headed.

Price Action: What’s Up?

The company has faced a rollercoaster price action since it first IPOd.

Reality Setting In

When DWAC initially IPOd, there was quite a bit of hype around SPACs in general and around the former President in particular. Folks bid up the company’s share price, which peaked at $97.54 per share on March 4th, 2022. Since then, and as the company began reporting their actual financials, share price has come back down to earth and has been trading at around the $15.00 per share mark until the past few weeks.

There’s a reason the company was trading at $15.00 per share – it doesn’t actually make any money. As reported by a New York Times (NYT) researcher, there are no major brand advertisers on the platform, which other social media and online companies rely on for recurring revenues. Here’s what is on there, according to the research:

…Ads from major brands are nonexistent on the site. Instead, the ads on Truth Social are for alternative medicine, diet pills, gun accessories and Trump-themed trinkets…

While there’s no wrong way to make money, these businesses are notoriously unsustainable, as they rarely get recurring sales. That and the amount of scams on the site (as mentioned in the aforementioned research article), means that the company is unlikely to see any significant revenues and I suspect they will report roughly the same amount of sales as they have in the past few quarters in the upcoming ones.

The Merger & The Iowa Caucuses

Nonetheless, after the SEC gave the company the nod to merge with Trump Media company alongside the former President winning the Iowa caucuses, the SPAC’s share price surged and is currently up over 200% to around $45.00 per share over the past 6 months.

The hope by investors is twofold. The first is that the former President re-emerging as a political candidate would somehow help Truth Social generate more revenues, and the second is that the blank-check DWAC can act as an ‘endless’ funding source for Truth Social’s expansion efforts.

I don’t believe there is much merit to the idea that DWAC injecting Truth Social with cash would actually help them. We know from the company’s initial expansion plans that they are destined to spend heavily on penetrating new media markets but have no plans (as of yet) to actually generate any profits. Increasing expenses without any meaningful avenue to generate revenues, won’t do much for the value of DWAC and until it does, they will continue to burn through more than $35 million a year.

When it comes to the first bit, though, there’s some merit to the argument that a win by former President Trump in 2024 could generate growth in ads. Even so, I have some thoughts worth considering.

The 2024 Election: A Risk Assessment

While everyone can make their assessments of how they think the 2024 election will go, there are a few facts worth noting as we relate the outcome of the election to the future of DWAC as an investment. A few points to consider:

1. While polling does currently show former President Trump in the lead in several of the swing states needed to win the electoral college, these leads are well within the margin of error and he is not reaching 50% in any of them.

This indicates a large number of undecided voters, most of whom support Democrats on other ballots (Trump up by 3% in latest Wisconsin poll while Democrat Senator up 7%) like Senate and House races but don’t profess their support for President Biden, Trump’s opponent. In the states of Arizona, Nevada, Wisconsin, Michigan, and Pennsylvania, while former President Trump leads President Biden in most polling, the Democrats in those Senate races lead their opponents by significant margins. This may indicate that while their satisfaction with President Biden is lackluster, in a two-way race, it’s likelier than not that they end up voting against Trump.

2. As we’ve seen in the last few election cycles, there have been changes in demographics across the country and even though former President Trump was no longer actively running for office, certain groups in the suburbs have been moving rapidly away from his political party while some minority groups have been heading in the opposite direction. For the 2024 US Presidential election, the states that matter the most for a win in the electoral college, which is how the United States elects their Presidents, suburbs make up a significantly larger share of the electorate than those with minority voters, meaning that those states are likelier than not to move against Trump.

The proof is in the pudding on this one. In the 2020 Presidential election and the 2022 midterm elections, these swings resulted in President Biden’s political party losing ground in large urban areas while gaining traction in states with huge suburban populations, primarily in swing states like Michigan, Pennsylvania, Georgia and Arizona.

But… What If?

However, even with those factors in place, there is always the potential that the election ends up playing out exactly as the polls currently suggest and Truth Social becomes the de facto White House communications avenue, resulting in tens of millions of people flocking to the social media platform.

Even if this becomes a reality, there’s still little to suggest to me that the company’s financial difficulties will be solved by an increased number of users.

Firstly, the company’s revenues are not guaranteed to increase. X, since Elon Musk bought the platform, has lost a considerable amount of its advertisers, meaning that even with mass layoffs, they are unlikely to be making any money. With Truth Social being an amplified version of what pushed advertisers away from X – it is unlikely, I believe, to generate enough ad sales to overcome their overall expenses incurred in normal business operations.

Second, while revenues are all but certain to increase if it becomes a major social media network, it’s not clear if that’ll be enough. As I mentioned earlier, even if we take the CEO’s number of X active users of over 520 million, they have roughly 580x the user base of Truth Social, yet have not reported a net profit on revenues of around $3.5 billion (excluding tax benefits). Doing business costs money and it’s not clear how Truth Social can make any profits in this environment.

Another Risk: Trump’s Legal Woes

There’s another risk associated with former President Trump’s legal troubles – his need to pay over $450 million in cash he may not currently have.

Former President Trump will own 79M shares, roughly 69% of the company, worth as much as $3 billion, according to estimates, once the merger is complete. Trump potentially selling some of those shares to pay for his legal troubles may adversely affect the value of the company as many investors see his direct involvement as a main reason to be optimistic in the stock.

Investors should be aware of these legal troubles and how the former President raises the cash to pay them in the coming weeks, as it may result in significant selling pressure on the merged company.

Conclusion: I’m Shorting Again

To sum things up – while risks exist, I don’t believe that the company has any meaningful avenue to generate any material profits in the next 3-5 years. Even if former President Trump becomes current President Trump, while the share price will without a doubt rocket higher, I can’t see any real value in the company given that it’s unlikely they still make any money.

While the company’s share price has rocketed and is trading around $45.00 per share, I am again shorting the company with a $15.00 share price target.

My short position is intended to last a few quarters, and given that the 2024 US Presidential election is going to occur within my anticipated timeframe, I am going to use long-term call options to mitigate any potential surge in share price as a result of a potential win by former President Trump.

Quantities are based on each investor’s risk appetite, but as I am shorting the company’s shares, I am using $55, $60 and $100 strike prices on the January 2025 options and will assess other ‘options’ as the stock moves.

I remain highly bearish on the company’s long-term prospects and will be re-initiating my short position in the company.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Short position through short-selling of the stock, or purchase of put options or similar derivatives in DWAC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Opinion, not investment advice.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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