Digital World’s (DWAC) Stock was Successful, But DJT is Volatile

Key Takeaways:

Digital World‘s stock price has risen by more than 277% since its low point in 2023.

DJT will replace the company’s ticker beginning Monday.

DJT will confront significant hurdles as its cash burn accelerates.

Digital World’s (DWAC) stock price has risen significantly, bringing its total market capitalization to more than $6 billion. It has increased by more than 277% since its low point in 2023, making it one of Wall Street’s best-performing stocks.

DWAC will cease to exist this week, as the SPAC completes its merger with Trump Media, the parent firm of Truth Social. The new ticker symbol will be DJT, which is Trump’s acronym.

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Why DWAC Stock Soar

The merger between Digital World and Trump’s media company has been postponed for multiple reasons.

After a protracted legal battle, the firm finally reached a settlement of $18 million. Some of its original founders have now taken legal action against Trump Media over the company’s stock holdings.

The stock price of DWAC surged for several reasons. As DWAC gained immense popularity among day traders, it quickly became a meme stock. On sites like Reddit and StockTwits, it consistently ranks among the most talked-about businesses.

As a second point, the corporation is now a voting proxy in the US election. It has lately skyrocketed as Trump’s lead against Biden has grown. In Michigan, a crucial battleground state, he held a 10-point edge, according to a recent poll.

Finally, thirdly, DWAC became a favourite stock of Trump supporters. U.S. citizens adore Trump despite his shortcomings. The majority of these admirers have shown their support by purchasing the shares.

Investors’ expectations that Digital World’s merger with Trump Media will go through led to a recent spike in the stock price.

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DJT Stock Will be Volatile

For a number of reasons, DJT stock is going to be significantly riskier than DWAC. The financials of DWAC, which was only a shell business, revealed nothing noteworthy, for starters. DJT is going to be unique because it must report its quarterly earnings.

Something is amiss with Truth Social’s user base and financials. To start with, the business has had a hard time making an impression in the realm of social media. Fewer than ten million individuals utilise it globally.

While continuing to invest in technology and marketing, the company is also losing a large amount of money every quarter. Consequently, when DJT releases its first earnings report, the stock price is likely to fall.

Also, Trump Media is fundamentally worth more than it is. A valuation of more than $6 billion will accompany the IPO. A popular social networking platform, Reddit, went public at a price of $6.4 billion. Reddit and Truth Social could not possibly have the same valuation.

X (Twitter) estimated its own worth at $19 billion in January. Truth Social, with a $6 billion valuation, is almost 32% larger than Twitter, a platform with more than 206 million daily users.

Thirdly, when the lock-up period ends, DJT can experience strong insider selling. Even though he is suing a New York court for more than $500 million, Trump is in serious financial trouble. He will most likely use these monies to pay for his legal bill.

To add insult to injury, I have already stated that mainstream advertisers like Colgate-Palmolive, General Motors, Procter & Gamble, and Toyota will have a hard time attracting to Trump Media and other right-wing media organisations. It is probable that smaller sponsors will be its backbone, similar to Rumble.

So, although DWAC has done well as a meme stock, DJT’s valuation will eventually reflect its actual performance. In this scenario, I anticipate a short-term surge in its stock price followed by a long-term decline.

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