Should you invest in Trump Social Media?
The former president’s new enterprise, Trump Media and Technology Group (TMTG), plans to go public through a reverse merger with blank-check company Digital World Acquisition (DWAC). The company is led by CEO and chairman Patrick Orlando, the founder and CEO of investment banking company Benessere Capital. DWAC is backed by major hedge funds, including D.E. Shaw and Saba Capital Management. DWAC’s sponsor is ARC Global Investments II LLC. Should you buy the DWAC SPAC's stock and invest in Trump Social Media?
Trump Media’s valuation
We normally use our reverse discounted cash flow (DCF) model to quantify the expectations for future cash flows baked into a company’s stock price. There is no way to perform such a calculation for TMTG or DWAC, as there are no cash flows in the past to build a model and no projections of future cash flows to quantify.
The deal values Trump Media at $875 million, including debt. The company’s growth plans will initially be funded by $293 million held in trust by DWAC. A slide deck on Trump Media’s website states that the combined company plans to build a media empire to compete with CNN, Netflix, Facebook, and Disney Plus, disrupting big tech and the FAANG monopoly. Trump Media’s long-term plans include creating competitors to Amazon's AWS cloud service, Google Cloud, and online payment service Stripe.
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. DWAC is a vehicle for TMTG to raise capital and has become a meme-stock target for speculators looking to prop up and cash in on Donald Trump’s social media power.
Should you buy shares in DWAC now?
Digital World Acquisition Corp. DWAC and TMTG have no revenue, no cash flows, no profits or even a clear business plan, and DWAC’s stock is up nearly 6-fold in less than a week. Given the stock price’s meteoric rise and lack of fundamentals and clear plans behind the business, putting capital into DWAC now is closer to gambling than investing.
Without reliable fundamental research, and in this case fundamentals to even analyze, investors have no way of gauging whether DWAC is expensive or cheap. Intuitively, the stock is extremely expensive as it trades with a market cap upward of $3.5 billion with no revenue or profits. Without a reliable measure of valuation though, investors have no choice but to gamble if they want to own DWAC.
It’s too early to tell if Donald Trump’s association with Truth Social will help TMTG outperform previous social media startups, but one thing is clear: launching a social media company, signing up millions of users and securing user data is no easy feat.
