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Why Digital World Acquisition Stock Plummeted 19% Last Month

What happened
Shares of Digital World Acquisition Company (NASDAQ: DWAC) fell roughly 19% in April, according to data from S&P Global Market Intelligence. The special purpose acquisition company (SPAC) stock fell amid sell-offs for the broader market, concerns its merger with Trump Media & Technology Group (TMTG) might not go through, poor performance for the Truth Social platform, and news that Tesla CEO Elon Musk is on track to acquire Twitter. 

DWAC data by YCharts
April was a bumpy month for stocks, with the S&P 500 index falling 8.8% and the Nasdaq Composite index falling roughly 13.3%. The challenging backdrop put pressure on stocks with growth-dependent, or otherwise speculative valuations, and additional bearish catalysts led to a big pullback for Digital World Acquisition’s valuation.  
Image source: Getty Images.

So what
Kerrisdale Capital published a short report on Digital World Acquisition on April 20, stating the stock would likely fall much further due to the SPAC potentially not receiving the regulatory approval needed to merge with TMTG. The investment management firm issued a one-year price target of $10 per share, which suggested roughly 80% downside at the time of the note’s publication. 
TMTG’s Truth Social platform also continued to post relatively disappointing download and engagement performance last month, and the announcement that Twitter had accepted Musk’s $44 billion acquisition offer complicated the smaller platform’s outlook. Truth Social has been promoted as a social media platform with looser content moderation and censorship policies, and the potential for Musk to shift Twitter in that general direction could hurt demand for the upstart platform. 
Digital World stock did get a boost at the end of the month after former President Donald Trump said he would not return to Twitter even if his account were unbanned. The SPAC’s share price also climbed after Trump posted a message on Truth Social, something he had not done since the platform’s launch back in February. 
Now what
TMTG is gearing up for the launch of Truth Social on web browsers later this month. As it stands right now, the app is only available on Apple’s iOS, but the company also plans to launch the app on Alphabet’s Android operating system in the not-too-distant future.  
While Digital World Acquisition shares could have big upside if Truth Social winds up being successful, the platform’s performance thus far hasn’t been particularly encouraging. Engagement could increase heading into the midterm election season and in conjunction with the 2024 election cycle, but the platform’s outlook is uncertain, and DWAC stock looks like a relatively high-risk play. 
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Apple, Tesla, and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. –

What happened

Shares of Digital World Acquisition Company (NASDAQ: DWAC) fell roughly 19% in April, according to data from S&P Global Market Intelligence. The special purpose acquisition company (SPAC) stock fell amid sell-offs for the broader market, concerns its merger with Trump Media & Technology Group (TMTG) might not go through, poor performance for the Truth Social platform, and news that Tesla CEO Elon Musk is on track to acquire Twitter

DWAC data by YCharts

April was a bumpy month for stocks, with the S&P 500 index falling 8.8% and the Nasdaq Composite index falling roughly 13.3%. The challenging backdrop put pressure on stocks with growth-dependent, or otherwise speculative valuations, and additional bearish catalysts led to a big pullback for Digital World Acquisition’s valuation.  

Image source: Getty Images.

So what

Kerrisdale Capital published a short report on Digital World Acquisition on April 20, stating the stock would likely fall much further due to the SPAC potentially not receiving the regulatory approval needed to merge with TMTG. The investment management firm issued a one-year price target of $10 per share, which suggested roughly 80% downside at the time of the note’s publication. 

TMTG’s Truth Social platform also continued to post relatively disappointing download and engagement performance last month, and the announcement that Twitter had accepted Musk’s $44 billion acquisition offer complicated the smaller platform’s outlook. Truth Social has been promoted as a social media platform with looser content moderation and censorship policies, and the potential for Musk to shift Twitter in that general direction could hurt demand for the upstart platform. 

Digital World stock did get a boost at the end of the month after former President Donald Trump said he would not return to Twitter even if his account were unbanned. The SPAC’s share price also climbed after Trump posted a message on Truth Social, something he had not done since the platform’s launch back in February. 

Now what

TMTG is gearing up for the launch of Truth Social on web browsers later this month. As it stands right now, the app is only available on Apple‘s iOS, but the company also plans to launch the app on Alphabet‘s Android operating system in the not-too-distant future.  

While Digital World Acquisition shares could have big upside if Truth Social winds up being successful, the platform’s performance thus far hasn’t been particularly encouraging. Engagement could increase heading into the midterm election season and in conjunction with the 2024 election cycle, but the platform’s outlook is uncertain, and DWAC stock looks like a relatively high-risk play. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Apple, Tesla, and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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