If you’re short Digital World Acquisition Corp (NASDAQ:DWAC), I hate to disappoint you. Unfortunately, the latest news from Trump Media & Technology Group (TMTG) won’t cause DWAC stock to tumble.
On Dec. 14, TMTG announced that it was partnering with Rumble, the Toronto-based video platform. As part of the agreement, the company will provide video and streaming services for Truth Social, TMTG’s conservative social media platform set to launch in 2022.
As part of the partnership, TMTG is looking for Rumble to provide the infrastructure and video delivery services for TMTG+, the company’s subscription video-on-demand product.
InvestorPlace’s Larry Ramer, who’s made another crazy-like-a-fox bet on DWAC stock and the tentative merger with TMTG, has got to feel good about the latest piece of news.
News Pushes DWAC Stock Into the $50s
The Rumble tie-up has pushed DWAC back into the $50s, where it’s mostly traded since late October. The Trump payday remains intact.
Before I get into the Rumble announcement, I first want to understand why my colleague is throwing money at Trump’s latest attempt to be a bona fide businessperson. Of course, I don’t think DWAC stock is worth the paper it’s written on, but I’m always willing to listen to reason.
“The shares’ valuation remains quite low, but Digital World and TMTG continue to face steep legal and headline risks. Still, Trump and his main company, The Trump Organization, have been relatively resilient to these challenges. So, TMTG has a good chance to withstand the attacks it’s facing,” Ramer wrote on Dec. 15.
Forget about the fact the Trump organization is a house of cards and he’s got the Republic National Committee paying his legal bills. Instead, let’s focus on Ramer’s assessment that DWAC shares have a reasonable valuation.
On what planet?
No revenue. A CEO with absolutely no media experience, a billion dollars from mystery investors, and a SeekingAlpha valuation of $6 billion, $1.5 billion higher than his estimate.
A Closer Look At TMTG’s Future Valuation
So, let me drill down into Ramer’s valuation. Here are some of the numbers he uses to get to $4.5 billion.
- Truth Social gets 30 million monthly users in its first year of operation. That’s based on 30% of Trump’s voters downloading and using the app.
- Truth Social’s ARPU (average revenue per user) in the first year would be 75% of Facebook’s, which was $10 in the latest quarter. Annualize that and you get $40. So based on 75%, Truth Social’s revenue in the first year would be $90 million.
- TMTG+ adds six million streaming subscribers at $10 per month. That’s $720 million in revenue.
- Live events would add $100 million in annual revenue.
That brings the revenue in the first year to $910 million. Ramer then predicts a 20% profit margin, good for $180 million in year one.
He kind of had me until that 20% margin.
Facebook’s five-year average net margin is 35%. Facebook’s been around for 17 years. It didn’t make a net profit until its fifth year in business. In 2009, it had $777 million in revenue and a 29% net margin. Two years later, in 2011, it dropped to 27%.
To think that Trump will hit this big home run in year one seems like a huge stretch for various reasons.
In no particular order, we’ve got the Securities and Exchange Commission. There are Trump’s own personal legal issues. Then there’s CEO-designate Devin Nunes’ lack of experience. Add in the fact the operation requires a ton of operating expenses. The list goes on.
Larry, your Ocugen (NASDAQ:OCGN) short was a thing of brilliance.
However, I have a hard time taking a 20% net margin out of the gate anything close to seriously. I really do.
The Bottom Line
If you want to follow Donald Trump down this rabbit hole, Larry, be my guest.
However, a 20% net margin in year one is not realistic. That’s an insult to all the social media platforms that have come before Truth Social.
You mention your contrarian pick of Snap (NYSE:SNAP) in your profile. Unfortunately, it’s only making money on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis, a decade after its founding.
Trump may have a considerable following, but TMTG will have to spend a bundle to monetize those people. A lot more than the $1 billion so-called “institutional investors” are ponying up.
SPACs like these have SEC Chair Gary Gensler looking to bring in new rules.
I wouldn’t touch DWAC with a 10-foot pole.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.