Author Topic: Anyone want to speculate on DWAC (Trump's new social media company)?  (Read 1349 times)

ChpBstrd

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I'm sure most of you have heard Donald Trump is planning to start a social media company called Truth Social to compete with Facebook, Twitter, and of course the "mainstream media". He's doing so via a SPAC with the Orwellian name Digital World Acquisition Corp. You can buy shares right now in DWAC, but they've been going to the stratosphere lately with trading halted multiple times. Also, there's no product yet, and their site was hacked within hours of the announcement.

The question is, has anyone been tempted to speculate / hedge with Truth Social?

Ways to win this trade:
1) Trump's followers liquidate everything to go all-in DWAC, creating a frenzy to buy shares as a way to support Trump. You double your money and get out. Greater fool theory may have a point in this application.
2) Truth Social gains tens of millions of users, monetized at near-Tik-Tok / Facebook levels of $30-40 per user, and gets a market cap of a few hundred billion dollars.
3) If a Trump wins in 2024, the stock goes through the roof. You cash out your hedge to buy your family a nice apartment in Switzerland and try to not watch the news.

Ways to lose this trade:
1) It was a pump-and-dump scam all along. Trump and several cronies sell shares after promoting them, blames the libs for the failure, and that's how he raises a few hundred million for 2024.
2) Parlor, Telegram, Twitter, etc. execute better than Truth Social and win this demographic despite Trump's celebrity appeal. Or Big Tech holds onto their duopolies.
3) One day Trump chokes on a chicken wing, the limelight moves on, and Truth Social becomes just another startup.

More info:
https://seekingalpha.com/article/4461625-boring-legal-look-at-digital-world-acquisition-corp-dwac-stock-warrants
https://seekingalpha.com/article/4461617-truth-social-1-trillion-in-10-years-is-feasible

mistymoney

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #1 on: October 25, 2021, 09:56:57 AM »
I swore I'd never ever short anything....but this is tempting!

bacchi

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #2 on: October 25, 2021, 10:38:26 AM »
Trump's stock market record is abysmal. Given the meager rollout from a technical side, this one looks destined to fail as well.

As we know, though, stocks can be inflated for a long time with enough true believers. Look at GME. Any day now, it'll pop and go to $1000.

yachi

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #3 on: October 25, 2021, 02:34:25 PM »
I have a few thoughts:

1) I stay away from Pump and Dump, or Greater Fool investing.  Basically if I don't think it'll be a good long-term investment, I'm not willing to sacrifice much of my principal.  When I'm not comfortable sacrificing principal, even tripling doesn't get me exciting returns.

2) I don't think Trump has was it takes to slough through the process of getting a company like this started up, and I don't see him trusting someone else to slough through it either.

3) This just isn't a company I'd be proud to tell my kids I made my fortune in.

I'll say I was skeptical of Facebook when they went public, and didn't try to invest because they had not yet gotten profitable with advertising.  I underestimated how much eyeball time was spent on Facebook and how valuable the advertising would turn out to be.

sixwings

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #4 on: October 25, 2021, 02:53:28 PM »
This is just another way for Trump to scam his followers. The whole thing is a technical mess and was hacked within hours, it's not a serious product or a serious company. Trump will take a few hundred million from his followers and they'll talk about what a great businessman he is. No way i'm going to go anywhere near this. Even in a best case scenario, i make a bit of money and Trump and his disgusting children make a lot of money and I don't want to support that POS family for a small amount of money.

yachi

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #5 on: October 25, 2021, 03:09:19 PM »
One more point, the more people leave facebook to post political stuff on Trump's site, the better Facebook gets for me.  I won't be posting pictures of my kids on Trump's thing, so family will need to use both.

ChpBstrd

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #6 on: October 26, 2021, 08:13:59 AM »
Down 14% today and still falling!

MustacheAndaHalf

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #7 on: October 26, 2021, 08:24:35 AM »
Note when you short a stock, you borrow shares from someone else then sell them.  You pay interest in the borrowed shares, so remember to check that interest rate.

I had planned to short the shares if DWAC was valued at any significant fraction of Twitter's market cap.  But right now DWAC is $2.6 billion, versus Twitter's $50 billion.  It's not compelling enough for me to short, especially without knowing the cost of borrowing.

It's my understanding from reading "Trump Nation" was that he has a string of bankruptcies that caused U.S. banks to stop loaning him money.  He had to beg his siblings for a loan at one point (because, like him, they inherited a lot of money from their father).  My favorite anecdote was when he bought two Casinos that were next to each other.  He immediately renovated one of them, which drove the owner casino he owned out of business!

Consider Trump the political figure, though - DWAC could become a meme stock propelled upwards by his followers.  So even if the valuations don't make sense, there's a risk the stock doesn't fall down for a long time.


This is just another way for Trump to scam his followers. The whole thing is a technical mess and was hacked within hours, it's not a serious product or a serious company. Trump will take a few hundred million from his followers and they'll talk about what a great businessman he is.
I suspect he makes his money when his private company merges with the DWAC to go public (a SPAC deal).  If that's correct, he profits on the merger, and not on the current stock price moves.

ChpBstrd

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #8 on: October 26, 2021, 08:55:43 AM »
Down 19%. Short sellers are emerging, on the theory that SPAC shares will not necessarily represent equity in Truth Social, and that Trump will seize control of most equity regardless of the SPAC's shares.

https://www.yahoo.com/now/trump-linked-spac-takes-nosedive-231501121.html

Also, some of the early retail investors are taking profits. Greater fool theory investing is a form of gunslinging - gotta be fast.

https://finance.yahoo.com/news/analysis-zero-12-billion-investors-091542642.html

i_have_so_much_to_learn

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #9 on: October 28, 2021, 05:28:11 PM »
Down 19%. Short sellers are emerging, on the theory that SPAC shares will not necessarily represent equity in Truth Social, and that Trump will seize control of most equity regardless of the SPAC's shares.

https://www.yahoo.com/now/trump-linked-spac-takes-nosedive-231501121.html

Also, some of the early retail investors are taking profits. Greater fool theory investing is a form of gunslinging - gotta be fast.

https://finance.yahoo.com/news/analysis-zero-12-billion-investors-091542642.html

up 13% today. The ride is just starting.

BicycleB

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #10 on: October 28, 2021, 06:11:26 PM »

I suspect he makes his money when his private company merges with the DWAC to go public (a SPAC deal).  If that's correct, he profits on the merger, and not on the current stock price moves.

From a summary in Money Stuff, I suspect Trump can profit on both. https://www.bloomberg.com/opinion/articles/2021-10-21/matt-levine-s-money-stuff-donald-trump-does-a-spac

I think the official deal is structured as you say: Trump's underlying brand new company, Trump Media and Technology Corporation (TMTG), receives $293 million when it merges with DWAC, completing the SPAC deal. This provision is unaffected by DWAC's stock price as long as the deal goes through and no one redeems their SPAC shares; in this part of the deal, there's no direct upside to Trump from rising DWAC prices except that it encourages shareholders to leave their money in, ultimately guaranteeing TMTG gets all of the $293 million instead of part of it.

The terms envision that TMTG will use the $293 million to build social media that won't block people who get deplatformed elsewhere. If you assume Trump will keep most of the money and do nothing or create a low cost scam product and keep most of the money, then if you are right, he gets cash from the deal and whatever he can extract from the merged operation.

However, the deal also "values" TMTG with "an earnout of up to $825 million in shares (at the valuation they are granted)...depending on the performance of the stock price post-business combination." In a later Money Stuff article, I read that the main shareholders have a lockup period (can't sell shares too soon) and that the performance standard is that the post-DWAC share price needs to stay above $30/share. So Trump is highly incentivized to at least stoke enough enthusiasm to vest the extra shares.

If I read correctly, the SPAC deal will have current DWAC shareholders own 21% of the post-merger business (let's call it TMTG), but Trump still emerges from the deal owning 79% of TMTG outright if he wins the earnout. So the stock price matters a lot to him. I suspect he will hype the stock price regardless of how well the social network does (and the video service that they claim they might do).

As far as I can tell, nothing stops Trump from borrowing against his shares. If he can find a lender, he could borrow billions and still own 79% of the company. Pump up the price more, borrow more. Would lenders become more willing if he wins re-election and seizes undue control of the SEC and banking authorities?

To answer OP's question: Was definitely tempted to buy DWAC on opening day after reading the article (based on greater fool theory, not on any assumptions about "Truth Social" itself). Did not do it.

« Last Edit: October 28, 2021, 08:02:36 PM by BicycleB »

aspiringnomad

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #11 on: October 29, 2021, 06:41:00 PM »

I suspect he makes his money when his private company merges with the DWAC to go public (a SPAC deal).  If that's correct, he profits on the merger, and not on the current stock price moves.

From a summary in Money Stuff, I suspect Trump can profit on both. https://www.bloomberg.com/opinion/articles/2021-10-21/matt-levine-s-money-stuff-donald-trump-does-a-spac

I think the official deal is structured as you say: Trump's underlying brand new company, Trump Media and Technology Corporation (TMTG), receives $293 million when it merges with DWAC, completing the SPAC deal. This provision is unaffected by DWAC's stock price as long as the deal goes through and no one redeems their SPAC shares; in this part of the deal, there's no direct upside to Trump from rising DWAC prices except that it encourages shareholders to leave their money in, ultimately guaranteeing TMTG gets all of the $293 million instead of part of it.

The terms envision that TMTG will use the $293 million to build social media that won't block people who get deplatformed elsewhere. If you assume Trump will keep most of the money and do nothing or create a low cost scam product and keep most of the money, then if you are right, he gets cash from the deal and whatever he can extract from the merged operation.

However, the deal also "values" TMTG with "an earnout of up to $825 million in shares (at the valuation they are granted)...depending on the performance of the stock price post-business combination." In a later Money Stuff article, I read that the main shareholders have a lockup period (can't sell shares too soon) and that the performance standard is that the post-DWAC share price needs to stay above $30/share. So Trump is highly incentivized to at least stoke enough enthusiasm to vest the extra shares.

If I read correctly, the SPAC deal will have current DWAC shareholders own 21% of the post-merger business (let's call it TMTG), but Trump still emerges from the deal owning 79% of TMTG outright if he wins the earnout. So the stock price matters a lot to him. I suspect he will hype the stock price regardless of how well the social network does (and the video service that they claim they might do).

As far as I can tell, nothing stops Trump from borrowing against his shares. If he can find a lender, he could borrow billions and still own 79% of the company. Pump up the price more, borrow more. Would lenders become more willing if he wins re-election and seizes undue control of the SEC and banking authorities?

To answer OP's question: Was definitely tempted to buy DWAC on opening day after reading the article (based on greater fool theory, not on any assumptions about "Truth Social" itself). Did not do it.

Appreciate the depth of this analysis. I suppose whatever you think of his politics, you have to give the guy credit for the the tenacity and scale of his scamming.

BicycleB

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #12 on: October 30, 2021, 04:16:54 PM »
Thanks, @aspiringnomad!

It didn't take long for the Where's The Fraud game to begin. NYT article linked below via YahooNews indicates that Trump's SPAC partners may have violated securities law before the merger was announced. Apparently SPAC regulations require that the SPAC not have a deal in mind when formed. The SPAC founder attested in the company's IPO filing documents that it did not, but it appears that the founder had previously discussed with Trump a deal of this nature, according to the article. Securities lawyers say the omission may be material to a fraud charge.

https://news.yahoo.com/trumps-300-million-spac-deal-140914411.html

I speculate that a fraud suit would gain little unless the stock price tanks. What's the basis for damages? The big shot investors who already bailed, like DE Shaw, made a profit despite the deceit. Still, nice to see the info coming out already.

PS. Don't jump to the conclusion that there was fraud. There may be, but the SPAC founder originally discussed merging Trump Media with a different SPAC that he had at the time. The deal was done later with a different SPAC but maybe because it's a different company, either there wasn't fraud or it can't be proven. Article doesn't seem to offer conclusive evidence, only suggestive. Just fyi.

Trivia note - Trump Media incorporated in February, article says. Also, apparently Trump passed on the original SPAC deal because the original SPAC only had $100 million in it.
« Last Edit: October 30, 2021, 04:26:15 PM by BicycleB »

Travis

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Re: Anyone want to speculate on DWAC (Trump's new social media company)?
« Reply #13 on: October 30, 2021, 07:01:38 PM »
Quote
I speculate that a fraud suit would gain little unless the stock price tanks. What's the basis for damages? The big shot investors who already bailed, like DE Shaw, made a profit despite the deceit. Still, nice to see the info coming out already.

Talking up a product and even going through on IPO before the product even exists. All the talk has been what it'll be worth to cash out (especially for Trump) rather than what it'll actually do.

Dot Com era shenaningans has entered the chat...