Description

DWAC

This will be a controversial pitch and I recognize there is much we and anyone else (including the company, we’d imagine) can answer fully.  And we - like most of the investors out there today - viewed DWAC from a short perspective.  But the data and our work suggests that this is not a short but a long.  This is not an analyst name, because the analyst won’t be able to defend it.  It is more of a PM position, because there will be lots of things that will be a “I don’t know and won’t know until we know.”  From a stock perspective, we are constructive on DWAC.  We’ll explain why below.  Please don’t punish us as we’re trying to be intellectually honest and aren’t wading into politics but rather trying to make a call on where this stock goes.  We think the likelihood of it going up, and actually going up a LOT, is quite high and worth putting money behind.

As a quick background, for those that don’t know DWAC, it is the SPAC vehicle that will merge with Trump Media & Technology Group.  The first product that will be released is called Truth Social.  Think of it as being Trump’s version of TWTR.

DWAC checks the boxes of almost everything institutional and professional short sellers seek: i) SPAC ii) the ongoing NewCo management team that has minimal credibility or experience in the area of focus, which is technology (DWAC is a tech company led by Devin Nunes, a career politician who was previously a farmer https://en.wikipedia.org/wiki/Devin_Nunes#Business_career ).

There’s more that would lead short sellers to want to spend more time i) it’s very liquid (avg daily trading volume is ~$200M, which is atypical as most SPACs are illiquid ii) the SPAC itself is led by a questionable CEO named Patrick Orlando https://www.thestreet.com/boardroomalpha/spac/dwac-drops-zgyh-liquidate-cohen-spac iii) there appears to be hints of potential SEC violations in how the SPAC came about https://www.wsj.com/articles/trump-spac-dwac-stock-what-to-know-11634918222  iv) Trump is involved and whether you love him, hate him, or are indifferent, our sense is most institutional investors can’t wait to short anything related to Trump given his business track record

Here’s why we’re constructive on DWAC

1. The investors owning the stock aren’t doing it based on near term fundamentals but are truly looking out in the far future, which means near term issues won’t ding the stock as much as a normal stock would experience

1. If you haven’t read this article, this will help provide important background: https://www.bloomberg.com/news/articles/2022-02-12/trump-supporters-are-making-dwac-the-best-performing-spac-of-its-kind?sref=GDDr850P 

2. Talk about “diamond hands,” the current investors involved are owning the stock and continuing to buy because they believe and they have faith.  To many, as the article states, “it’s a badge of honor” to be an owner of the stock.  In short, Trump and by extension, DWAC is becoming a religion and no amount of counterarguments will shake believers and this is the shareholder base.  Just as GME’s meme-driven move on the way up made no sense fundamentally until that stock move allowed GME’s management team to re-write their future and raise capital to re-write their future, we all know that stocks move based on buyers and sellers and not always fundamentals.  With DWAC, the owners aren’t selling and only buying and that suggests to us strongly that the risk is skewed massively to the upside.

3. What this also means is that near term issues (like today’s glitches during its first generally available launch of the Trust Social app), won’t do anything to dissuade investors involved

4. Fundamentally, we wouldn’t be surprised if the stock goes UP on the glitches from today’s launch because it’s clear to us what’s happening: there is a LOT more signups than what Trust Social expected, which is a clear positive for the launch of this platform already

2. We expect DWAC to be “proactive” on press releasing updates and hitting metrics (likely the number of subscribers signing up on Truth Social), and we believe this leads to a “virtuous” flywheel that leads to more and more subscribers or followers

1. This means that when Truth Social hits 100K subscribers in x hours or x days, there will likely be a press release.  When it hits 500K subscribers that same day a few minutes or few hours later or the following days, there will be another press release.  If it hits 1M followers, 1.5M followers, … 10M followers within a few days, you’ll likely see press releases.  And every time those press releases come out, it will be covered by most of the media out there and that, we believe, will lead to a ”virtuous” flywheel where more people will be curious and join and see what’s going on and this flywheel keeps spinning.  Simply, every time a press release comes out, it helps fan the flame and the stock will just move up meaningfully each (we have no idea but wouldn’t be surprised if it moves up 30%+ on each of these clearly promotional press releases)

3. Fundamentally, how do we value DWAC?

1. This is really hard to know, of course

2. But given Truth Social has a somewhat clear comparable in TWTR (or others would say a substitute to TWTR and others would say a “rip off” of TWTR)

3. TWTR had 38M DAUs as of 4Q21.  While it has greater international DAU at 179M DAUs, the advertising revenue of US DAUs is ~6x that of international DAUs.  An easy comparable would be too just to use TWTR’s US DAUs of 38M and see how Truth Social’s subscriber growth compares against this bogey

1. We absolutely agree that TWTR’s DAU metric does not equal to the number of subscribers creating accounts on Truth Social.  But this is a framework that we think many will start to use to get their arms around how Trust Social is scaling

2. We also agree that while there is not a strategy on how to monetize the userbase yet at Trust Social, what’s clear is in tech companies is that if you can create a userbase that’s engaged and that continues to grow, there will be ways to monetize that userbase and given Trust Social is in launch phase, we highly doubt anyone will ding Trust Social for not having an advertising strategy yet

4. So what will the slope of Trust Social’s subscriber launch curve look like?

1. As a back of the envelope math, ~74M people voted for Trump in 2020.

2. Some were reticent voters, some were true Trump Nation MAGA-apparel wearing followers

3. If we assume 1/3 of the 74M people are true Trump Nation “ride or die” followers, that’s ~25M people in America that will support Trump

4. Assume 70% of those individuals sign up within the first few weeks of Trust Social, that gets us to ~18M subscribers on Truth Social in a few weeks or months after launch

5. Just to make round numbers, given Trump will only be using Truth Social (out of necessity given he got banned from TWTR, GOOGL’s Youtube, and FB), the media and “generally curious but not MAGA” folks out there could be ~500K or so.

6. So that make gets us close to ~20M subscribers of Truth Social in a few weeks after launch

7. Again, this is in comparison to TWTR’s current 38M DAUs in the US

5. What could DWAC, driven by Truth Social initially, be worth?

1. TWTR has a market cap of ~$27B on their 38M DAUs (in the US, which is again ~6x greater in terms of revenue vs ex-US and we’re just focused on the US for now) vs Trust Social getting to ~20M in a few weeks or months

2. So what could Trust social be worth?  Could it be some discount to (20M divided by 38M = 53%) of $27B (TWTR’s mkt cap)?

3. If we assume a 30% discount to 53% of TWTR’s $27B market cap, this very inaccurate math (yes, we know!) leads to ~$10B market cap for DWAC

4. This is comparison to DWAC’s current $3.6B mkt cap, which is ~3x from the current stock price

5. So, is this crazy?  We don’t think so.

6. And from a timing perspective, this can happen in the new few days to weeks and the numbers can go much higher

4. For those who care about factors and have a greater emphasis on short term performance

1. DWAC, as one’d expect given the shareholder base, does not trade with the markets so from a factor perspective, helps a portfolio that cares about daily mark to market

2. And it’s highly liquid at ~$200M avg trading volume

3. Specifically, the De-SPAC Index (ticker DESPACTR INDEX) is down 64% LTM while DWAC is +743% LTM

4. Also, if you look at DWAC compared to less pertinent comps but comps that many care about (the Nasdaq index, S&P index, and tech companies generally but in this case, we graph TWTR, which is the closest comp), DWAC has held in there through the big selloff of growth and current unknowns of Russia/Ukraine war (or no war)

5. Owning DWAC protects against that and it’s skewed highly to the upside in the coming days, weeks, and months

Catalyst

Truth Social subscriber growth