While several SPACs are trading below the IPO price of $10, including many that have merged, Digital World Acquisition (DWAC) has been a ray of hope for SPAC bulls. It has announced a merger with former President Donald Trump’s TMTG (Trump Media and Technology Group). DWAC stock has been volatile and has a 52-week range of $9.84–$175. What’s the target price for DWAC and can it hit $100 again before the merger completion?
DWAC was at best an obscure blank-check company with little trading volumes. Its stock price was also near $10—in line with the other SPACs that are hunting for merger targets. However, the news of its merger with Trump’s social media companies led to a buying spree in the stock.
DWAC stock spiked due to a Trump frenzy.
DWAC is different compared to other SPAC mergers. Usually, companies provide details of mergers like the PIPE investment and valuation when they announce a merger. Also, the current and projected financials of the target companies are shared during the merger presentation.
However, scant details about DWAC’s merger with TMTG are publicly available. The stock rose to astronomical highs just because of its association with Trump. The former president, who pretty much appears to be in the 2024 presidential race, is popular among conservative voters.
As the frenzy over Trump and his new social media network died down, DWAC stock also cratered. The merger is in legal trouble amid allegations that it identified TMTG as a merger target even before the merger and hid this materially important fact from investors.
DWAC stock is going up on reports of a PIPE investment.
DWAC stock rose on Dec. 1 and was trading higher in the premarket on Dec. 2 amid reports that it's looking at a PIPE investment of around $1 billion. In what appears to be positive news for existing DWAC investors, the PIPE would be priced at a significant premium to the SPAC IPO price of $10.
DWAC's target price depends on TMTG's forecast.
Since DWAC is set to merge with TMTG, subject to regulatory approvals and shareholder ratification, its target price is contingent on the forecast for TMTG. On a standalone basis, if the merger wasn’t announced, DWAC stock should ideally be worth around $10. However, since the merger has been announced, we need to look at the valuation for TMTG.
The deal with DWAC valued TMTG at an enterprise value of only about $875 million. The company is banking on Trump’s popularity and is effectively looking to compete with social media companies like Twitter, which has banned Trump. The company will also compete with streaming companies like Netflix. DWAC bulls would fancy their chances of the stock hitting $100 again.
Trump is the “trump card” for DWAC.
The total addressable market for these industries is massive. Trump had almost 89 million Twitter followers before he was banned for his alleged role in inciting the Capitol Hill violence in January.
Trump has almost a cult-like following among conservatives, just like Tesla CEO Elon Musk is popular among green energy enthusiasts. For Musk fans, Tesla’s valuation, which some Wall Street analysts see as bloated, isn't a concern.
A mere cult following hasn’t got Tesla this far. The company’s execution abilities, from setting Gigafactories in record time to delivering a record number of cars despite a chip shortage, have established automakers and Tesla bears watching in disbelief.
Coming back to Trump’s social media, if he can get most of his Twitter followers to shift to his Truth social media and come up with an appealing value proposition in streaming, TMTG would have a bright future after the listing.
As for the pre-merger spike, it shows that Trump ended up grossly underpricing his business, which is reflective of his often-boasted deal-making abilities. Otherwise, markets are getting irrationally exuberant on his TMTG. The truth might lie somewhere in between.