DWAC SPAC – TRUTH Social: Big Near-Term Catalyst Promises Upside (NASDAQ:DWAC)

The market has been waiting for a while for some news regarding the future path of TRUTH Social, the social media network started by former President Donald Trump. The launch of the new social media platform is now expected for February, at which point TRUTH Social could start to amass millions of users. The network launch could be a big catalyst for Digital World Acquisition Corp. (DWAC) and shares have already started to move!

Digital World Acquisition SPAC merger with Trump Media & Technology Group

Only three months ago, Digital World Acquisition Corp. said that it will merge with Trump Media & Technology Group in a bid to bring the former President’s own social media network to fruit. The former President was banned from using his previous social media accounts in January 2021. Donald Trump had close to 150M followers across various social media platforms before the January 6, 2021, riot at the U.S. Capitol. More precisely, the former President had 89M followers on Twitter, 33M on Facebook and 25M on Instagram.

Digital World Acquisition Corp. is the special purpose acquisition company that the former President is using to launch his own media company. The SPAC deal initially placed an 875M enterprise value on the social media company. PIPE investors and TMTG stockholders will own the majority of the company once the merger closes. The number of total shares, not including earn-outs, is about 225M. The earn-out structure includes up to $40M additional shares and the total enterprise value, based on earn-outs, could rise up to $12B.

The price of Digital World Acquisition Corp. soared from $10 before the merger announcement to a peak of $175 shortly thereafter. Since the end of October, however, shares of Digital World Acquisition Corp. have been losing ground, but seem to have found some support around $50. In the last week, shares of Digital World Acquisition Corp. started a new upleg on expectations that the Truth Social network will be launched in February.

Near-term catalyst

The launch of former President’s new social media network is all but guaranteed to draw in a significant number of followers. According to information available on the App store, the TRUTH Social app will be ready for release on iOS on February 21. Screenshots of the app show the new platform will have features similar to those on Twitter, with users being able to search for news, comment on stories, send messages and share content with followers.

The launch of TRUTH Social is a big deal for Trump Media & Technology Group and it is a potentially significant near-term catalyst for shares of Digital World Acquisition Corp. because platform growth can be expected to accelerate considerably after the app becomes available. I estimate that TRUTH Social could amass a user base of 100M by the time the next presidential election rolls around in 2024 and we might be witnessing the birth of a major media technology company that is going to make life a whole lot more difficult for rival platforms.

TRUTH Social could crush expectations in February regarding user growth and customer uptake of TMTG+, a paid subscription offer of the network. Details of the subscription offer have not yet been revealed but TMTG+ is likely to offer a better experience than the free ad-supported version of TRUTH Social. Assuming a 10% sign-up rate for TMTG+, which is not unreasonable considering the high engagement the former President attracts, TRUTH Social could develop a 10M-strong subscriber base relatively quickly that generates between $100M and $200M in monthly revenues (assuming a monthly subscription price ranging from $10 to $20).

According to projections from Trump Media & Technology Group, the network estimates that it can lure 16M users to its platform in the first year of operations. The share of monetizable users is expected to reach just 5% which calculates to 0.8M paying users. However, the number of monetizable users and average revenue per user is projected to ramp up quickly… and the presidential election in 2024 could be an accelerant for TRUTH Social’s revenue and user growth. I believe TRUTH Social will see an unprecedented rush of user sign-ups in February and will grow significantly faster than expected until 2024.

Upside in market valuation

Since TRUTH Social has not launched yet, a lot of guess work is involved as to how quickly the network could grow and what customer uptake rates for TMTG+ will be. Assuming $1.2B in annual revenues by 2024 in the low-case and $2.4B in the high-case, Digital World Acquisition Corp. appears to be materially undervalued before the launch of TRUTH Social. The special purpose acquisition company currently has a market value of $2.0B, implying a P-S ratio of 0.8 X (high-case revenue estimate) and 1.7 X (low-case revenue estimate).

Risks with Trump Media & Technology Group

It is a bit of a risk to jump into DWAC before the TRUTH Social network launches in February because there is no assurance that the platform will work as intended. There is also no assurance that user growth will be as strong as I believe it will be. A slow start regarding user sign-ups may impact the perceived value of the TRUTH Social platform and the share price of DWAC in a negative way. If, however, the speed of user sign-ups is strong and the network gains traction with users quickly, DWAC may revalue materially higher.

Final thoughts

The upcoming launch of TRUTH Social in February could put Digital World Acquisition Corp. into another valuation category. I expect a surge of customer sign-ups for the new social media network and it could act as a massive near-term catalyst for the share price of DWAC.