Description

DWAC

This is a timely short and the write-up is going to be brief. Thank you to today’s pop, a specific catalyst date, rabid Trump followers, low float, massive pending dilution, lack of clarity about the outstanding shares of DWAC, this stock is an incredible short. 

This stock is loved by retail traders. And a classic sell on the news dump will be a good catalyst date.  If you remember, SPCE launched their rocket and it was the top for the intermediate period. 

Background:

Digital World Acquisition Corp. (NASDAQ: DWAC) and Trump Media & Technology Group (TMTG) have entered into a definitive merger agreement, providing for a business combination that will result in Trump Media & Technology Group becoming a publicly listed company, subject to regulatory and stockholder approval. The transaction values Trump Media & Technology Group at an initial enterprise value of $875 Million, with a potential additional earnout of $825 Million in additional shares (at the valuation they are granted) for a cumulative valuation of up to $1.7 Billion depending on the performance of the stock price post-business combination. Trump Media & Technology Group’s growth plans initially will be funded by DWAC’s cash in trust of $293 Million (assuming no redemptions).  The stock ran from 11 to 175 on the date of announcement, thanks to rabid Trump followers, reddit groups and many day traders. Since then it has pulled back and 90 seems to be a very strong resistance. 

Handicapping Truth Social’s chances of getting traction:

Social networks are two sided networks. It is a great business but only if you reach the network effect. Once the lead is in place, it is hard to dislodge.  It is a winner take all business.  Thus, Facebook is probably the biggest market share leader in any Internet category.  Truth Social is not even launched and is only available in pre-order on the app store. What do you think are its chances of gaining a market share equivalent to 60% of  twitter?  Truth Social is going to need a much higher marketing spend (more future dilution)  than it took Twitter to get to its critical mass for a very simple reason: Social networks is no longer a new market. It has been around almost 15 years or more (if you go back to Friendster).   In another sign of how hard it is to find a video provider for their content, they can only find Rumble as their video partner.  Who uses Rumble actively?

Incorrect Shares Outstanding 

Tons of people in the stock (i.e. the retail people) still think that its outstanding share is only about 37M. (read reddit comments, twitter comments)  That's DWAC’s outstanding shares. Then, there's TMTG's outstanding shares which is about 88M. Then, there's pipe investors (ARC Global Investments II and affiliates)' 100M shares (refer to https://www.bamsec.com/filing/119312521348598?cik=1849635) ..  At $84, its current market cap is over $16.5B. It's not under $3B like many retail traders think. TWTR is valued at $30B and DWAC’s product, Truth Social, will never catch up to even 1/3 of twitter’s global user base. 

Press Release Machinery

Since the announcement of the merger, the company is just a PR machine with news that is not relevant to gaining true traction of users of building any moat around it.

https://www.bamsec.com/filing/119312522019956?cik=1849635 interview with Bartiromo

https://www.bamsec.com/filing/119312521357459?cik=1849635 partners with Rumble

https://www.bamsec.com/filing/119312521349741?cik=1849635 congressman Nunez

https://www.bamsec.com/filing/119312521348593?cik=1849635 $1B pipe

Feb 21st is the launch date

After the launch date of the app, I think the company will have to grind out the business of growing.  I do not think there will be much press releases left that will be as big as the launch date.  I think from now until the launch date, the stock will pop and I will look for resistance points to short the stock. After that there will lots of lock-up release dates of the restricted shares, the PIPE shares to short into.  

Catalyst

Catalyst:

Launch date

Lock-up Release Date of Restricted shares.