Should You Invest In The Trump SPAC?

Although the calendar turned to a fresh page following the end of 2021, it didn’t do so without leaving a significant impression in terms of new listings. According to a Reuters report, initial public offerings last year raised over $301 billion, setting a blistering record. One of the key contributors to this tally was the special purpose acquisition company or SPAC.

By themselves, SPACs have no underlying businesses; hence the terms blank-check firms or shell companies. Instead, their purpose is to launch their own IPO to raise funds to support an eventual merger with a private enterprise. If approved by the SPAC’s shareholders, the shell company combines with the private firm, taking the business public essentially through the backdoor.

Though entering the capital market via reverse merger with a SPAC is popular due to the less-onerous regulatory process, for retail investors, participating in such business combinations present significant risks, primarily due to dilution concerns involving warrant exercises following the completion of the deal.

Unfortunately, several high-profile SPACs like Opendoor Technologies (OPEN) and Virgin Galactic (SPCE) have plunged severely, leaving a bad taste in participants’ mouths. However, one shell company has upturned the now negative expectations for this investment vehicle: Digital World Acquisition Corp (DWAC).

On paper, Digital World -- which will take Trump Media & Technology Group (TMTG) public -- seems like a candidate for a name to avoid. Without getting into specifics, former President Donald Trump sparked multiple controversies, both as a public servant and as a real-estate tycoon. At this juncture, companies do anything to avoid even the hint of scandal.

So, why is DWAC stock succeeding where other SPACs have (so far) failed?

Why Controversies May Favor DWAC Stock

At a time when advocacy groups in the U.S. are pushing for greater understanding and tolerance, the mere appearance of DWAC stock over the horizon seems anachronistic. What’s more, TMTG’s flagship product, Truth Social -- a digital platform for conservative voices -- seems incongruent with contemporary social and political mores.

Yet DWAC stock is no ordinary SPAC. Indeed, some indicators suggest that it might not be an investment at all. According to a Bloomberg article in February of this year, the former president’s supporters apparently view ownership of Digital World shares as a “badge of honor.” Such sentiment is often divorced from the motivations of “normal” investments.

At the same time, this powerful catalyst might mean DWAC stock is also divorced from typical expectations of SPACs and other publicly traded securities. Since economic rationalism represents the driving force of free market capitalism, the lack of said rationalism implies that DWAC may be unpredictable to the upside.

As well, observers cannot ignore that Trump is incredibly popular with his base. According to the Conservative Political Action Conference’s (CPAC) nonscientific straw poll in February 2022, Trump received 59% of the vote. While no one should read too much into this partisan contest, the former president is overwhelmingly popular compared to other Republicans.

Since DWAC stock represents an additional mechanism to support the Trump movement -- and could be profitable as a bonus -- it’s possible that this controversial SPAC could swing higher still.

Forward-Looking Challenges May Cloud the Picture

While it might be tempting to jump aboard the above cynical narrative for DWAC stock, investors must also consider the longer-term framework. Over time, fundamental challenges may impede the popularity of TMTG and Truth Social.

Principally, the biggest concern that DWAC stakeholders will likely have is the shifting grounds of Americans’ ideological views. According to a 2020 Gallup poll, most people in the U.S. held either conservative views (36%) or moderate views (35%). In contrast, those survey respondents who reported liberal views made up only 25%.

However, trajectory matters when it comes to the implications behind DWAC stock. While outright liberals represent a minority perspective, their numbers have increased from 17% in 1992. On the other hand, moderate ideologies declined from 43% while conservative views held flat at 36% over the same timeframe.

Thus, the evidence suggests that over the next several years, Americans could start to transition to the left, which likely would not favor TMTG and Truth Social.

Another factor to ponder carefully is the decline in religious views and the rise of those who are not religiously affiliated, per data from the Pew Research Center. With evangelicals comprising a significant portion of Trump’s fanbase, the rather rapid erosion of religious affiliation presents another headwind to DWAC stock.

Near-Term Bullishness, Longer-Term Ambiguities

Irrespective of one’s political opinions, the general consensus is that those who support Trump usually do so with much enthusiasm -- to the point where this grassroots advocacy is in many ways unprecedented. Therefore, dismissing the power of DWAC stock seems imprudent.

However, holding onto DWAC beyond a short-term speculative trade brings questions. Analysts will undoubtedly note the shifting nature of American politics and ideologies. How the underlying TMTG and Truth Social platform will fare as the country progressively leans left is open for serious and fascinating debate.