Donald Trump at the Ohio rally where he didn’t announce his 2024 candidacy (Dan Scanvino, Jr./Twitter)
 

Digital World Soars For No Good Reason

Shares of Digital World Acquisition Corp. (DWAC) soared 66% on Monday, allegedly on rumors that Donald Trump would officially announce that he would be running for the White House at his Ohio rally Monday night. If you haven’t been keeping up with the DWAC story, it’s the blank check company run by Patrick Orlando that’s been trying to merge with Trump Media and Technology Group (TMTG), the owner of Trump’s Twitter (TWTR) clone Truth Social.

As it happened, Trump didn’t announce another run for the White House Monday night. Instead, he urged supporters to focus on today’s midterm elections and teased that he would make a major announcement from his home in Florida next week.
 

What Difference Would It Have Made?

Even if Trump had announced on Monday, it’s hard to see why that should boost DWAC shares. To begin with, most observers have assumed that Trump was going to run in 2024, and was only delaying his announcement for regulatory and strategic reasons. But also, there’s no guarantee DWAC will complete its merger of TMTG, or even get the necessary shareholder votes to extend the time it has to do so, before being forced to liquidate. And even if it does acquire TMTG, DWAC shareholders are likely overpaying for the value of Truth Social, as the Twitter account reputed to be Jim Chanos’s alt laid out on Monday:

Once again, $DWAC Investors can’t do basic math.

— Diogenes (@WallStCynic) November 7, 2022

(3) Twitter’s US revenues are estimated to be $3B next year. If we assume MAGA(at 25% of US population) is the target market, $700-800M is a good ballpark estimate for Truth Social’s future annual revenue potential.

— Diogenes (@WallStCynic) November 7, 2022

The Trouble With Twitter Clones

Chanos’s idea that Truth Social has tens of millions of Trump votes as an actual, addressable market seems wildly overoptimistic, as Matthew Sheffield pointed out recently. Since there’s probably a large overlap between Trump supporters and retail DWAC shareholders, it’s likely few members of either group read Matthew Sheffield’s piece on DWAC for The Young Turks (TYT) last week (“Trump Supporters Who Bought Shell Company Stock Face Millions in Losses Ahead of Liquidation Date”). That’s because TYT is a left-leaning site, and indeed Sheffield’s article includes some tendentious comments about Trump, but some of the factual details he relates about DWAC and Truth Social seem inauspicious:

Digital World Acquisition Corp (DWAC), the special purpose acquisition company attempting to merge with Donald Trump’s Twitter clone Truth Social announced Thursday that it had postponed a critical shareholder vote for the sixth time ahead of a mandatory liquidation date of Dec. 8.

In a call with investors, Patrick Orlando, the chairman and CEO of the struggling shell company announced that DWAC was going to reconvene on Nov. 22. It was an ominous sign that Digital World had failed to receive authorization from 65% of shareholders to continue the company’s existence, despite months of trying. Under the terms of DWAC’s incorporation, the company was supposed to merge with a private firm within one year’s time or dissolve and reimburse its investors at a rate of about $10 per share. […]

According to SimilarWeb, a web traffic analytics company, Twitter received 6.8 billion visits in August. Truth Social received 9 million visits in August, down from 11.5 million in July. Truth Social’s traffic among American internet users is about the same as that of Parts Geek, an auto part website, SimilarWeb data indicates.

Benessere Capital, another special purpose company founded by Orlando, announced that it would liquidate itself on Oct. 21. Last November, Yunhong International Co., a Chinese-based SPAC also created by Orlando, dissolved itself after failing to complete a merger.

Matthew Sheffield, TYT, 11/3/2022

Consistent with Sheffield’s comments about the relatively weak interest in Truth Social, as of early Tuesday morning, the Truth Social iPhone app was ranked #47 in the Social Networking category in Apple’s app store, between a video chat app I’d never heard of and an LGBT dating app I hadn’t heard of either.

This isn’t any fault of Truth Social’s management; rather, it’s an inherent problem with Twitter clones. Twitter has an overwhelming first-mover advantage and moat versus its clones. I downloaded Truth Social when it launched, but I hardly ever check it now, because, with the exception of Trump, everyone I want to follow is on Twitter. And if Trump says anything interesting on Truth Social, I will hear about it on Twitter anyway.

Twitter is the biggest party on the social media/microblogging block, and that’s where everyone interested in the medium wants to be, whether they admit it or not. After Elon Musk took over Twitter, a number of liberal users, such as singer Aimee Mann, announced they were opening up accounts on another Twitter clone called Mastodon.

I'm @aimeemann@lor.sh on Mastodon, for what that's worth. It took me an embarrassingly long time to figure out how to sign up!

— Aimee Mann (@aimeemann) November 5, 2022

Mastodon is currently #7 in the Social Networking category on Apple, but I suspect that ranking will be short-lived. Aimee Mann is still on Twitter, after all–and why not? She has 145,000 followers on Twitter, and, as of this writing, only 381 on Mastodon.

Fading DWAC

With all that in mind, I bought puts on DWAC in my personal account after it spiked over 60% on Monday. I’m going to start a site where you can follow these trades in real time if you want. If you’d like an alert when it launches, you can sign up for our occasional email list here.

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