Unless Donald Trump is a modern-day Midas king, able to create wealth with just a touch, the speculative fever surrounding his digital media business is hard to justify.
Trump unveiled his new Trump Media & Technology Group on Oct. 20 and agreed to merge it with a public shell company, Digital World Acquisition Corp. Shares of DWAC soared into the stratosphere, surging from below $10 to $175 within two days of the announcement.
They have since fallen, but on Friday the shares were worth $67.75 each, valuing the company at $2.6 billion. That’s a lot for a company whose assets alone are $293 million in cash — and the hype that comes with Trump’s name.
In one investor slideshow, Trump Media says it plans to launch a social network that would compete with Twitter and Facebook, both of which have banned Trump from their platforms. It also plans to compete with Netflix and Disney+ by offering a streaming service full of “unawakened entertainment”.
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If that’s not enough giants to kill, Trump Media hints that as a “long-term opportunity” it will compete with Amazon, Google and Stripe in cloud services and payments.
As far as investors are aware, however, the company hasn’t hired any executives with digital media experience, developed proprietary technology, or lined up content for its streaming service.
“It’s David taking on Goliath and he doesn’t even have a slingshot,” Smith Moore analyst Juli Niemann told Clayton.
Special purpose acquisition companies, or SPACs, have become a popular way for start-up companies to go public. Most companies that go this route publish comprehensive financial statements, allowing investors to evaluate the company based on its revenue and earnings.
Trump Media did not provide any such information. At some point, he will have to submit more details to the Securities and Exchange Commission, which has stepped up scrutiny of companies involved in shell company mergers. It should become obvious if the Emperor has clothes.
Joe Terril, who runs Terril & Co. in Sunset Hills, said he would want several questions answered before putting any money into such a venture (which he has no intention of doing) . “How are you going to offer your services to people? ” He asked. “How are you going to get paid for it, and how are you going to fund its growth? »
More surprises could be in store. Most SPAC deals raise additional funds through a private placement offering. Trump and DWAC have not announced such an offer, but they likely need more capital to take on Twitter and Netflix.
If institutional investors buy at DWAC’s original price of $10, as is common, other shareholders may wonder why they paid many times as much to get on the ride.
The SPAC market caught fire last year after several front companies announced mergers with speculative companies, such as electric vehicle startups. Most of these stocks have since given up their early gains.
“This particular SPAC has many similarities to what we’ve seen in 2020 and early 2021,” Norman Conley, chief investment officer at JAG Capital Management told Ladue. “There are many ambitious business plans out there, and they are ambitious in the sense that they are unlikely to come to a successful conclusion.”
Warren Buffett likes to say that the stock market is a short-term voting mechanism, but a long-term weighting mechanism. Trump’s base has turned out to vote for his latest venture, but he has yet to give investors anything substantial to put on the scales.
