This is not the right market in which to speculate on an impossible-to-value stock with no earnings, scant revenue, uncertain prospects and buyers solely focused on the company’s celebrity appeal. Yet people foolishly are buying one stock with these features: Digital World Acquisition, the SPAC that is acquiring Trump Media & Technology Group. They are buying the stock, which is trading at an absurd valuation, at precisely the wrong time, Real Money reports.
A few weeks ago, Trump Media unveiled its Twitter clone, Truth Social and the app raced to No. 1 in downloads. The initial enthusiasm quickly ran its course; now the app’s ranking has plummeted, with the media outlet seeing barely any usage. This bodes poorly for the success of Truth Social and anyone invested in Digital World Acquisition.
Former President Trump’s prior media effort, “From the Desk of Donald Trump,” received minimal readership and shut down after 29 days. The status of his appeal is clearly in question.
Since the deal to acquire Trump Media was announced, Digital World Acquisition has been highly volatile. Part of the enthusiasm stems from the limited number of shares outstanding before the deal closes, which has helped the stock trade at a frothy premium valuation. Once the deal is consummated, more than five times the current shares will be free to trade, taking the market cap from $3.4 billion to more than $17 billion. Compare that steep valuation to Twitter, with a $26 billion market cap and more than $5 billion in revenues.
Even worse, PIPE investors have agreed to buy $1 billion in DWAC shares, free to sell immediately when the deal closes. Buyers get to purchase shares at $33.60 or lower if the SPAC trades below $56. The PIPE deal hands these preferred investors a minimum of a 40% discount to the market price with no lock-up agreement. This ought to give pause to any buyer of free-trading stock. Read more.
