A take on the merger between DWAC SPAC and Truth Social
10 Février 2022 - 2:41PM
Finscreener.org
Digital World Acquisition Corp (NASDAQ: DWAC) is a
special purpose acquisition
company that announced a
merger with Trump Media & Technology Group or TTMG last
January. TTMG is a company founded by former U.S. President Donald
Trump. It has two segments, namely a social media platform called
Truth Social and a streaming service called TMTG+.
Trump is counting on his
extremely loyal fan base to propel this merger. Soon after the
announcement, DWAC shares soared from $10 and closed at $45 for the
day, up by over 300% in a single trading session. At the time of
writing, the stock is trading at $83, up 700% in less than six
months.
For being coined as an
alternative to Twitter (NYSE: TWTR),
it is believed that this platform might become extremely popular
chiefly because of the enormous fan base of the former President
and the platform’s “free speech” marketing angle.
An analysis of the DWAC merger
On the day of the announcement,
TMTG was a company with no capital structure, no financial
statements, or projection of future revenues. But once it gets
merged with DWAC, it will become a publicly-traded
company.
A SPAC or special purpose
acquisition company is also called a blank check company. Here, an
entity with no commercial operations completes an IPO (initial
public offering). The SPAC (DWAC- in this case) then acquires or
mergers with an already existing private company (TTMG) taking the
latter public. Prior to the merger or acquisition, the SPACs do not
reveal the company they plan to merge with or
acquire.
DWAC initially placed an
enterprise value of $875 million on TTMG. But the latter has raised
$1 billion via a PIPE (private investment in public equity)
investment, elevating its value to $4 billion.
TTMG will receive $292 in cash
proceeds post its merger with DWAC. Due to the nature of the
reverse merger, the PIPE investors and TTMG shareholders will own a
majority stake in DWAC once the deal is completed.
Moreover, the PIPE shareholders,
upon closure, can
purchase convertible preferred shares in the listed Trump
Media for $1,000 per share.
Why is this merger taking place?
Former President Donald Trump,
who had approximately 150 million followers across various social
media platforms, was banned from using his social media accounts.
Therefore, he wants to launch ‘Truth Social’ to communicate
directly with his supporters and reclaim the Oval Office in the
2024 presidential elections.
As per estimates, Truth Social
will be able to lure 16 million users to its platform within the
first year of its operations, thereby making the lives of rival
platforms a lot more complicated. Moreover, the share of
monetizable users is expected to go up to 5%, loosely translating
to 0.8M paying users.
Are DWAC shares a buy right now?
It can be well contemplated that
the launch of the Truth Social platform could positively influence
the value of the DWAC stock significantly. Resulting from the huge
excitement among a sizable number of Americans who continue to
support the former president, DWAC stock has been one of the
best-performing ones so far this year, gaining almost 85%
year-to-date.
However, it is indeed true that
there are certain risks of uncertainty associated with this stock.
For instance, there is still no assurance that the platform will
function as intended and that the user growth over there will be as
strong as it is being projected. So, though the stock looks very
attractive at the present moment still, investors should proceed
with caution.
DWAC is a pre-revenue company
valued at a market cap of $3.1 billion.
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