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Why Digital World Acquisition Corp. Stock Is Rising Today

What happened

Shell company shares Digital World Acquisition Corporation. (DWAC 10.37%) they were up 10.3% as of 11:48 a.m. ET on Wednesday. Investors appeared to be buying the dip after what has been a huge sell-off. Even with morning gains, the stock is still down more than 31% in the past five days.

DWAC is the special purpose acquisition (SPAC) company that plans to merge with Trump Media & Technology Group (TMTG), the parent company of Truth Social, an alternative social media platform backed by former President Donald Trump.

And that

When news first broke that Digital World would take TMTG public, its shares soared on the belief that Trump’s large following and desire for alternatives to the mainstream social networks could make the new company a success.

But since then, the consummation of that planned SPAC merger has been called into question. Regulators have requested information related to him, and more recently, the Securities and Exchange Commission (SEC) expanded its investigation. Digital World revealed in a regulatory filing Tuesday that the SEC is citing “documents [from DWAC] and information regarding, among other things, due diligence-related communications from potential targets other than TMTG.”

In a separate filing Wednesday from DWAC, the company said the “team has been working tirelessly to consummate its proposed business” and looks forward to “providing Digital World shareholders, both large and small, the opportunity to participate in the process of business combination”. Investors may see that presentation as a good sign that the merger will eventually go ahead. It’s also possible that many are simply buying the dip.

Now what

I have serious questions about DWAC, related to the likelihood of it completing its merger with TMTG and also the potential for Truth Social to be successful from a business perspective.

Hedge fund Kerrisdale Capital is shorting DWAC because of its belief that it will never be able to consummate the merger. “The SEC is cracking down on SPACs and $DWAC is an example of some of the worst abuse the investment vehicle has spawned,” the company tweeted in April.

In addition, TMTG has experienced a number of problems, from technical errors to the departure of high-level executives from the company, and I don’t know if the alternative social media platform is really sustainable.

Truth Social previously told investors that it would have 16 million users by the end of 2022. Various media reports pegged its total user base at between 1.5 and 2 million currently, so the site will have a lot of work to do to get there. achieve these initial projections. For all these reasons, I stay away from stocks.

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