DWAC says Truth Social won’t be profitable ‘for the foreseeable future’ as investors eye risky SPAC merger
Trump Media & Technology Group (TMTG), the Donald Trump-backed media organization and parent company of Truth Social, is on the precipice of going public via a special purpose acquisition company (SPAC) merger this week. It’s expected that the company will merge with Digital World Acquisition Corp. (DWAC), which is currently publicly traded, and adopt the stock symbol “DJT,” Donald Trump’s initials. Initial estimates indicate that Trump himself could reap billions from the SPAC transaction. But investors who may be looking to likewise cash in on any MAGA-fueled market movements this week might first want to consider the track record of SPAC-related stock performances. Because SPAC returns have, in many respects, often left investors holding the bag. SPAC mergers, which act as a sort of backdoor way for companies to list their stock on a public exchange while eschewing the traditional IPO process, were immensely popular in 2020 and 2021. During those two years, more than 850 companies went public via SPAC mergers, according to data from SPAC Insider. But they’ve since fallen out of favor, with only 31 SPAC mergers last year, and five so far in 2024. One of the reasons they’ve lost steam is that they tend to be bad investments. An analysis of companies that went public via SPAC transactions by Bloomberg, published in December, found that at least 21 of those companies went bankrupt during 2023, and shareholders have lost as much as $46 billion. The S&P U.S. SPAC Index, a market index that measures 30 SPAC stocks on U.S. exchanges, reveals similar bad news for investors. It’s down 14% over the past year and 8.6% over the past three years. Compare that to the market overall: The S&P 500 is up roughly 33% over the past year and 9.9% over the past three years. While this doesn’t necessarily mean that Trump Media’s expected debut on the Nasdaq is going to burn investors, the broader track record for SPAC listings is something that investors may want to keep in mind. Further, there are some warning signs in DWAC’s SEC filings. Specifically, one filing with the Securities and Exchange Commission (SEC) notes that TMTG “expects to continue to incur operating losses and negative cash flows from operating activities for the foreseeable future.” In other words, Truth Social is not profitable and may never be. That puts it in the same category as another much larger social network, Reddit, whose parent company went public last week despite a loss-making balance sheet. Also, Trump himself could be a risk for shareholders: “TMTG’s success depends in part on the popularity of our brand and the reputation and popularity of its Chairman, President Trump. The value of TMTG’s brand may diminish if the popularity of President Trump were to suffer,” the filing reads. “Adverse reactions to publicity relating to President Trump, or the loss of his services, could adversely affect TMTG’s revenues, results of operations and its ability to maintain or generate a consumer base. President Trump is involved in numerous lawsuits and other matters that could damage his reputation, cause him to be distracted from the business or could force him to resign from TMTG’s board of directors.” Accordingly, investors looking to invest in Truth Social this week following the expected SPAC transaction may face compounding risks: those related to SPACs themselves and those specific to this particular SPAC. For the time being, though, investors seem to be on board. Shares of Digital World Acquisition Corp were trading up more than 12% as of midday Monday, and they’re up more than 138% year to date.
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Trump Media & Technology Group (TMTG), the Donald Trump-backed media organization and parent company of Truth Social, is on the precipice of going public via a special purpose acquisition company (SPAC) merger this week. It’s expected that the company will merge with Digital World Acquisition Corp. (DWAC), which is currently publicly traded, and adopt the stock symbol “DJT,” Donald Trump’s initials.
Initial estimates indicate that Trump himself could reap billions from the SPAC transaction. But investors who may be looking to likewise cash in on any MAGA-fueled market movements this week might first want to consider the track record of SPAC-related stock performances. Because SPAC returns have, in many respects, often left investors holding the bag.
SPAC mergers, which act as a sort of backdoor way for companies to list their stock on a public exchange while eschewing the traditional IPO process, were immensely popular in 2020 and 2021. During those two years, more than 850 companies went public via SPAC mergers, according to data from SPAC Insider. But they’ve since fallen out of favor, with only 31 SPAC mergers last year, and five so far in 2024.
One of the reasons they’ve lost steam is that they tend to be bad investments. An analysis of companies that went public via SPAC transactions by Bloomberg, published in December, found that at least 21 of those companies went bankrupt during 2023, and shareholders have lost as much as $46 billion.
The S&P U.S. SPAC Index, a market index that measures 30 SPAC stocks on U.S. exchanges, reveals similar bad news for investors. It’s down 14% over the past year and 8.6% over the past three years.
Compare that to the market overall: The S&P 500 is up roughly 33% over the past year and 9.9% over the past three years.
While this doesn’t necessarily mean that Trump Media’s expected debut on the Nasdaq is going to burn investors, the broader track record for SPAC listings is something that investors may want to keep in mind. Further, there are some warning signs in DWAC’s SEC filings. Specifically, one filing with the Securities and Exchange Commission (SEC) notes that TMTG “expects to continue to incur operating losses and negative cash flows from operating activities for the foreseeable future.”
In other words, Truth Social is not profitable and may never be. That puts it in the same category as another much larger social network, Reddit, whose parent company went public last week despite a loss-making balance sheet.
Also, Trump himself could be a risk for shareholders:
“TMTG’s success depends in part on the popularity of our brand and the reputation and popularity of its Chairman, President Trump. The value of TMTG’s brand may diminish if the popularity of President Trump were to suffer,” the filing reads. “Adverse reactions to publicity relating to President Trump, or the loss of his services, could adversely affect TMTG’s revenues, results of operations and its ability to maintain or generate a consumer base. President Trump is involved in numerous lawsuits and other matters that could damage his reputation, cause him to be distracted from the business or could force him to resign from TMTG’s board of directors.”
Accordingly, investors looking to invest in Truth Social this week following the expected SPAC transaction may face compounding risks: those related to SPACs themselves and those specific to this particular SPAC.
For the time being, though, investors seem to be on board. Shares of Digital World Acquisition Corp were trading up more than 12% as of midday Monday, and they’re up more than 138% year to date.
