DIGITAL WORLD ACQUISITION CORP: 6 THINGS YOU SHOULD KNOW
12 JUL DIGITAL WORLD ACQUISITION CORP: 6 THINGS YOU SHOULD KNOW
Posted at 10:53h in Technologies by admin 0 Comments 1 Like Share
The Company
Digital World Acquisition Corp. (NASDAQ: DWAC) is a blank check company that seeks to forge business combinations with FinTech, Tech, or Media companies. The Company had made an initial public offer of 25,000,000 units at $10.00 per unit and made its debut on the Nasdaq Global market in September 2021.
The stock had an epic run before catching the attention of short-sellers such as Iceberg Research which publicly disclosed that it was betting against DWAC as it only sees risk for investors as it is concerned that investors do not own any part of the project yet, with renegotiation likely to favor Trump Media & Technology Group. The concerns stem from reports from Bloomberg, which state that the agreement will be renegotiated as the market cap has exceeded the $875 million, which was a part of the agreement initially agreed to.
The stock has been touted as the culmination of all meme-stock, joining the ranks of AMC and GameStopas the new entity does not have clear growth plans, revenues, cashflows, or profit to date. The platform aims to compete against social media giants such as Facebook (NASDAQ: META) and Twitter (NYSE: TWTR), which spend billions of dollars yearly on network expansion. At the same time “TRUTH Social” intends to use $293 million in cash for establishing and growing its network. There is a chance that the loyal supporter base of Mr. Trump will quickly adapt to the new platform; however, it will still need considerable investment and time to match the scale of existing social media platforms such as Twitter.
Digital World Acquisition Corp. (NASDAQ: DWAC)
Market Cap: $1.10B; Current Share Price: $29.45
Data by YCharts
The Deal with Trump Media & Technology Group
On October 20, 2021, Trump Media & Technology Group announced that it had entered into a definitive merger agreement with Digital World Acquisition Corp that will result in Trump Media & Technology Group becoming a publicly listed company. The new entity is aimed to
“create a rival to the liberal media consortium and fight back against the “Big Tech” companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America.” as per a statement.
The social network platform is named “TRUTH Social” and ran a Beta Launch for select guests in November 2021, with a nationwide rollout planned in Q1,2022, which was eventually launched in February 2022.
The growth plans of the new entity, which was valued at an initial enterprise value of $875 Million, with an additional earnout of $825 Million in additional shares, were initially funded by DWAC’s $293 Million in trust, assuming minimal redemptions. The companies believe it could achieve a cumulative valuation of up to $1.7 Billion post-business combination, subject to the stock’s performance.
The Truth About Truth Social
In January 2021, Twitter permanently suspended Donald Trump’s account, citing the “risk of further incitement of violence.” He was also banned from Facebook and Instagram for two years in June 2021. This led to him promising to “fight back against big tech” by launching his own “major new platform” that was free from censorship and protected healthy debate among users.
The platform was expected to be Trump’s way to connect with his supporters, sans the various filters and restrictions imposed by other social media platforms. However, since its launch, Trump hasn’t been active on the site and is reportedly unhappy with how the app was rolled out and its lackluster progress. According to a report, there were 513,000 “daily active users” on the site, compared to 217 million visitors on Twitter. To add to the woes, two top executives of the Company, Chief Technology Officer Josh Adams and head of product development Billy Boozer, deemed to be the brains behind the app, quit in April 2022.
According to an SEC filing by Digital World Acquisition Corp, Trump is
“generally obligated to make any social media post on TruthSocial and may not make the same post on another social media site for 6 hours. After that, he is free to post on any site he can access. Thus, TMTG has limited time to benefit from his posts, and followers may not find it compelling to use TruthSocial to read his posts that quickly.”
This removes any motivation for joining the app as the same information could be available elsewhere in hours.
The app is reportedly sluggish and lacks the presence of personalities famous for their conservative outlook and right-wing media figures. There are concerns about low levels of engagement and lack of political diversity.
A Bumpy Rollout
The app was rolled out on President’s Day 2022 (21 February), quickly making it to the top of free downloads in the Apple Store. The app was initially created for iOS, with an android version to be introduced later. The app can only be used on mobile devices and is not available for use on personal computers.
During the initial phase, users faced a lot of hurdles in accessing the website and were greeted with error messages. Many users were also placed on waitlists, and the Company had to issue a statement conveying its inability to onboard new users because it was rate-limited.
Though not the smoothest of launches, it could be argued that the app still attracted a lot of interest and strong demand, which is highly notable.
Today it is scarce that any big tech brand launch is entirely devoid of glitches. Bugs, glitches, and temporary crashes are part and parcel of the game unless they cannot be fixed, reoccur, or make the app unusable.
Mounting Legal Hurdles
In June 2022, DWAC revealed that it had received a subpoena from a federal grand jury in the southern district of New York. The subpoenas were issued to the Company and its board of directors. The news sent the stock tumbling to its lowest since October 2021.
The development has put a spoke in the wheel of its merger plans with Trump Media & Technology Group, as the Company faces possible investigation and requests for information. The Subpoenas are related to an investigation by the SEC in 2021, which demanded records related to the meetings involving the board of directors and the identities of its investors.
SEC also sought details of the Company’s efforts at due diligence of Trump’s media company and communication related to other potential deal targets. Furthermore, the relationship between DWAC and ARC Global Investments II LLC, its underwriters, and financial advisor is also under scrutiny. The information sought also enquires about Rocket One Capital, followed by the disclosure of the resignation of Bruce Garelick, Rocket One’s chief strategy officer, from the Company.
The regulator is also looking into reports that Patrick Orlando, Digital World’s CEO, was engaged in discussions with Trump months before the stock market debut of DWAC.
A Twist in the Twitter Tale
When Elon Musk announced his billion $44 deal to buy Twitter, there was speculation that he would reinstate the accounts of suspended conservatives like Donald Trump and Marjorie Green Taylor. The move was expected to have wide-scale ramifications for Truth Social as Elon musk’s ownership of the social media platform would mean fewer restraints and more lenient content moderation.
While Donald Trump refused to return to Twitter, making it clear that he would stay on Truth Social, the change of leadership at Twitter would have posed a new set of challenges for the app, which is already struggling with glitches and engagement issues.
However, with the news that the deal had fallen through and Elon Musk ending his bid to acquire Twitter, the company’s shares traded higher on the stock market. Whether DWAC can capitalize on this opportunity is to be seen in the coming days.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://blog.twitter.com/en_us/topics/company/2020/suspension
https://www.vanityfair.com/news/2022/05/truth-social-dwac-filing
https://www.vanityfair.com/news/2022/05/truth-social-dwac-filing
https://time.com/6170412/truth-social-elon-musk-twitter-donald-trump/