The Digital World Acquisition (DWAC) stock price has been in a relentless rally in the past few days. The DWAC stock jumped from a low of $9.85 on Wednesday last week to an all-time high of $178. This brought its total market capitalization to more than $3.5 billion.
DWAC and Trump
The Digital World Acquisition is a special purpose acquisition company (SPAC) that was launched a few months ago. A SPAC is a blank-check company that raises money from investors and then looks for a merger with an existing company.
This situation creates a win-win situation for the SPAC and the other company. The acquired company benefits by foregoing the traditional initial public offering (IPO) method that is usually long and expensive.
The DWAC stock price jumped sharply after the company announced that it will merge with a newly created media company by Donald Trump, the former US president.
The media company aims to disrupt the status quo by launching social media platforms alternative to Twitter and Facebook. It will also launch new products that will disrupt companies like Disney+ and Netflix. Later on, the company will seek to disrupt companies like AWD and Azure.
Will Trump media succeed?
While the DWAC stock price has surged recently, there are several reasons why the company will not be that successful.
First, the company is entering a crowded social media space that has many products. For example, there are established brands like Twitter, Instagram, Facebook, and TikTok. Therefore, the company already faces significant challenges finding a critical mass in the near future.
At the same time, the company faces the challenge of fellow conservative social media outlets. Some of the incumbent companies in existence today include Parler, Gab, and GETTR. These platforms have not attracted critical mass over the years.
Trump as a liability
Second, the DWAC stock price will likely struggle because of Donald Trump. After the insurrection that happened in January, all existing social media companies banned him. At the same time, many businesses that were close to him, like the PGA Tour, moved to distance themselves.
Therefore, there is a likelihood that the company will struggle to find advertisers. This is notable since advertising is the most viable way to monetize a social media company.
Most importantly, social media companies are struggling with the new iOS update. The update asks people to choose whether they would like to get tracked or not. Just 20% of users have been allowed to be tracked. Indeed, the Snap stock price crashed last week after the company warned about the impact of the update.
Fourth, a platform catering for conservatives will lack the momentum that exists in mainstream platforms like Twitter. For one, Twitter is successful because of the hot discussions between liberals and conservatives. This is one of the reasons why conservative social media platforms have largely failed.
There are other reasons to be cautious about the DWAC stock price. For example, lax moderation policies could see the app being expelled by Apple and Google. Also, historically, the stock prices of many SPACs and meme stocks tend to disappoint in time.
DWAC stock price forecast
The daily chart shows that the DWAC stock price had a strong week. The company’s valuation moved from less than $300 million to more than $3 billion. On the daily chart, the stock moved above the 25-day and 50-day moving averages while oscillators moved to overbought levels. Therefore, while there is limited historical data, there is a likelihood that the stock will have a major pullback as some investors rush to take profit.