Digital World (DWAC): Is it safe to buy Trump SPAC stock?

By:
on Mar 20, 2024
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  • Digital World stock has retreated by over 35% from its highest point this year.
  • The SPAC will merge with Trump Media Company soon.
  • Trump’s Truth Social faces major headwinds as risks in the industry rises.

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Digital World (NASDAQ: DWAC) stock price has come under pressure in the past few weeks as traders assess the impact of Donald Trump’s financial woes. The stock crashed to a monthly low of $32.25 on Tuesday before bouncing back to $36.42. It continued rising in the pre-market session as it hit a high of $38.

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Risks of investing in Trump Media

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Digital World Acquisition is the SPAC seeking to take Trump Media company public. Trump Media is the loss-making company that owns Truth Social, a Tesla wannabe that has struggled to gain users over the years.

DWAC has made several headlines in the past few months. Three weeks ago, co-founders of the SPAC sued Trump Media, alleging a stock grab. This happened a few weeks after the SEC allowed the two companies to go through a merger. Another important report was that Trump had approached Elon Musk to buy Truth Social

DWAC stock has done well this year as Donald Trump has become the Republican nominee for US president. The expectation is that the election hype will lead to more users to the platform since it is now his main mouthpiece. 

Also, there are hopes that a Trump victory in the election will see more advertisers flocking to the platform. For example, it has been widely reported that many foreign governments and lobbyists frequented Trump’s Washington hotel during his term.

Fundamentally, however, Trump Media is a significantly weak social media company. First, the biggest risk is that it has struggled to add users, especially now that X (Twitter) has eased its content moderation policies. 

More social media users have found Twitter a more useful platform because it is populated by people from both sides of the political aisle.

Second, Truth Social is mostly a political social network. In reality, political content forms a small part of most social media platforms like X, Facebook, and TikTok. Instead, some of the top content types are in the entertainment industry.

Third, there is the demographic challenge, now that most young people are consuming their news from TikTok. 

Further, and most importantly, Truth Social will struggle to attract the biggest advertisers like Apple, Unilever, Colgate-Palmolive, and General Motors. Most of these firms have generally avoided advertising in right-wing platforms, including Fox.

This means that Truth Social will focus on smaller advertisers like My Pillow that have a limited marketing budget. Also, it will take a longer period for the company to break even.

Meanwhile, Trump is on the hook for millions of dollars. This week, he said that he could not post the bond to a recent New York filing. This means that Trump will be one of the top sellers of the stock when the lock-up period arrives. 

What next for DWAC stock?

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DWAC stock

DWAC chart by TradingView

Turning to the daily chart, we see that the Digital World stock price peaked at $58.70 in February and then has crashed to $36.45. The stock crashed hard below the 50-day and 25-day Exponential Moving Averages (EMA). It has formed a small head and shoulders pattern, which is a bearish sign.

Therefore, I believe that the stock will have some volatility in the coming weeks ahead of its merger with Trump Media. The key levels to watch will be at $30 and $45. 

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