Digital World Acquisition Corp. (NASDAQ: $DWAC) rallied after Florida Governor, Ron DeSantis, quit the 2024 Republican presidential primaries and endorsed former US President, Donald Trump. The company, which started as a Special Purpose Acquisition Company (SPAC), with plans of taking Donald Trump’s social media company, Truth Social, to the public markets. As a result, DWAC soared to a new 19-month high on Monday, January 22, 2024.
Digital World Acquisition Stock Rally
Digital World Acquisition is a publicly-listed company, whose primary purpose is to acquire Trump Media & Technology Group (TMTG), the social media firm behind Truth Social.
By the close of trading on January 22, 2024, DWAC stock soared as much as 88.36%. The rise came after DeSantis, a leading challenger to Trump’s bid for the US presidency, quit the race. DWAC stock started rallying after Trump won the Iowa caucus by a historic margin of 30 points. Following the outcome, Ramaswamy bowed out, endorsing Trump. DeSantis also announced he was backing Trump.
Why DWAC Is Rallying
Trump is on his way to becoming the Republican nominee. Having won the Iowa caucus, it seems more likely now than ever. If he wins, that will drive up Truth Social’s popularity, making Digital World Acquisition the main beneficiary going into the election season. In the past 12 months, DWAC stock has rallied 229.51% and is valued at $49.69 per share as of the close of trading on January 22, 2024.
Shares of Digital World Acquisition saw their first major rally on Monday, November 7, 2022. That was after Trump hinted that he would be running for president again. At the time, the stock rose 66%, pushing its valuation above $1 billion for the first time. Most DWAC stock is held by over 400,000 retail investors, with institutional investors only holding 4.15%.
Initially, the deal faced challenges that saw some investors pull out. Authorities at the time alleged there could have been securities violations as discussions had taken place between TMTG and the SPAC. In the summer of 2023, DWAC agreed to pay the SEC $18 million in penalties. Additionally, it agreed to revise some of its corporate filings.
Timeline of the Merger
With the securities violations investigation complete, the two companies said they could complete a merger as soon as March 2024. However, the SPAC deal still has to get approval from the SEC, which is still reviewing the agreement, known as S4.
Truth Social
TMTG is the parent company of Truth Social. The social media platform has around 7 million users and had about $3.3 million in ad revenue in the first three quarters of 2022. The company incurred around $49 million in losses in the same period. According to a regulatory filing, at the end of September 2022, the company had exhausted most of the $37 million that it had raised in private financing in 2021.
The closing of the deal with DWAC is crucial. In the past, TMTG has stated that Truth Social would not survive without an inflow of cash. Post-merger, Trump would be the biggest shareholder.
DWAC Stock Forecast
The overall consensus on DWAC stock is a moderate buy. The analysis is based on various technical indicators. For instance, its value is above the 50-day and 200-day moving averages of $18.38 and $15.47, respectively.
Should You Buy Digital World Acquisition Stock?
Traditionally, running a social media company has been challenging. An excellent example of this is Twitter, which was launched in 2006. Despite having over $5 billion in annual revenue, the company only recorded a net profit twice. Before Musk took over the company private, it had a $221 million net loss in 2021.
While DWAC stock is rallying, the fundamentals do not look promising. For one, Truth Social is still a minnow in terms of reach. While Trump is helping to make the platform popular, there is a considerable risk in relying on one person to drive the growth of a social media platform.
Current investors are placing a lot of faith in many unanswered questions. However, the stock could experience a medium-term surge in interest as Trump’s bid to win the primaries continues to enjoy success.
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