What do you get when you mix Donald Trump, social media and the new craze of SPAC investment vehicles? The answer is Digital World Acquisition Corp (NASDAQ:DWAC). If it all sounds a little crazy, you’d be correct. Yet when I consider that since the launch last month, the share price is up over 800%, I’m keen to know more.
Getting the facts together
Firstly, let’s connect the dots. A SPAC is a special purpose acquisition company. It’s essentially a shell company, without any businesses in it to begin with. The SPAC lists on the stock market as a way to raise money from shareholders. With this money, it then buys or merges with other companies. In theory, a few years down the line, the SPAC will then contain a portfolio of different businesses.
How does Donald Trump fit into the picture? Well it’s been announced that DWAC will merge with Trump Media and Technology Group. Within Trump’s business is Truth Social network. There isn’t a lot of detail available about this, but I imagine it has something to do with rumours of Trump setting up his own social media platform. This comes after he was banned by several large platforms in the past year.
Trump might have lost some publicity since he lost the Presidential election last year, but he’s still a notable figure. With a large following in the US, and the potential for another run at office in 2024, his media company does have a high value.
Should I buy shares in DWAC now?
One point I need to remember is that DWAC doesn’t just have to be associated with Trump and the social network. It can buy or merge with other companies as well. So if I buy shares now, I’m really investing in the future potential of the companies that fall under the SPAC.
So with a price around $86, it gives the SPAC a valuation just over $2.8bn. The difficulty I have as a traditional investor is that I’m struggling to ping a fair value on the company. There’s very little tangible information I have about Trump’s platform or the future companies being eyed up by DWAC. As such, I don’t know whether $86 is a good price to buy shares at.
The other issue is that the stock is being heavily bought by retail traders. The same chat rooms that helped to pump up GameStop and AMC earlier this year have been posting about DWAC. The huge spike higher over the past week is an example of how speculation can drive a price higher.
In the absence of any material news, I think speculation will continue to cause large swings (higher and lower) for DWAC shares. As a result, as much as I think this will be a very interesting company to follow, I struggle to justify buying shares now, so will be steering clear.
