Digital World: DWAC stock in focus after Trump’s Iowa win

The Digital World Acquisition Corp (NASDAQ: DWAC) stock price will be in the spotlight when the market opens on Tuesday as traders react to Trump’s win in Iowa. The stock has been in a tight range in the past few weeks as investors wait for more details about its potential merger with Trump’s media company. It has remained at the consolidation point at $17.3 in the past few weeks.

The biggest political story of this week is Monday’s Iowa caucuses, where Donald Trump trounced his rivals by a wide margin. He won by 51% while Ron DeSantis and Niki Haley came a distance second and third. This victory gives Trump the momentum he needs as he seeks to win the Republican nomination.

After winning the nomination, Trump will likely face off with Joe Biden, who has committed to run despite his old age. The most recent polls show that Trump has an edge against Biden in hypothetical matches. Therefore, a Trump presidential victory could have an impact on his company.

Therefore, there is a likelihood that the DWAC stock price will have some volatility on Tuesday when the market opens. This volatility will be because of retail traders who will be betting on the completion of the merger with Trump’s company.

In a November filing, Digital World said that it hopes to complete the merger with Trump’s company in the first quarter of the year. The merger will create a publicly traded company focused mostly on TruthSocial, a social media platform that Trump created.

DWAC chart by TradingView

Fundamentally, Truthsocial faces an uphill battle as it seeks to become a leading social media company. In this regard, Trump’s victory in November could help as he will continue to use it as his primary communication channel. 

As with his Washington hotel, many companies and special interest groups will likely use the platform to attract the attention of the US president. Recent reporting showed that governments like Saudi Arabia and China spent millions of dollars in his Washington hotels during his presidency.

The challenge for TruthSocial is on how to attract big advertisers on a platform that caters mostly to right-leaning individuals. In most cases, companies like Apple, P&G, and Unilever prefer broad social media platforms like TikTok and Instagram. 

The other issue is that X (Twitter), under Elon Musk, has created a free speech platform that solves the challenge that TruthSocial wanted to handle. Twitter recently welcomed Alex Jones, who was the most banned person in the internet. 

Trump Media (TMTG) is still a loss-making company. In its most recent proxy filing, the company said that the company generated $2.3 million of revenue in the first half of the year. Its net loss in that period came in at over $22 million. All this is understandable since TTMG is a fairly new company that started to operate in 2022. 

TTMG will receive funding from DWAC after the merger deal. However, as it continues to burn cash, I suspect that it will raise additional cash either in 2024 or 2025. Therefore, in this case, I believe that DWAC stock is highly speculative at best.

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