On Oct. 20, a special purpose acquisition company (SPAC) called Digital World Acquisition Company (NASDAQ:DWAC) announced it was acquiring Trump Media & Technology Group. The announcement was immediately met with enthusiasm from investors who bid the stock up from around $10 per share to over $100 per share.

As of this writing, Digital World stock has fallen below $60 per share, but that's still quite the premium from its $10-per-share starting point. And in this video clip from Motley Fool Backstage Pass, recorded on Oct. 25, Fool contributor Travis Hoium explains to fellow contributor Danny Vena why this high stock price makes former President Trump's company a hard one for investors to ignore. 

Travis Hoium: The stock that we wanted to cover today is Digital World Acquisition, which is merging with TRUTH Social. The company that they're actually acquiring is called Trump Media & Technology Group.

You can see here, this is what really caught the market's attention last week, is this price action. Like a typical SPAC, shares were trading at about $10 per share until Thursday morning when this deal was announced. You can see the stock has absolutely gone crazy. For a period of time, the stock was up over 15x within 48 hours of this deal being announced. There's still trading at about 10x from their $10 SPAC price.

The details of this acquisition is they're acquiring, like I said, the Trump Media & Technology Group for enterprise value of $875 million. There is a potential earn-out of another $825 million for a total potential enterprise value of $1.7 billion. Thing to note with that is, that is based on that $10 per share price, that is not based on this $100 per share price that you see in this chart. Even without this acquisition being closed, this is potentially a $20 billion company today. That will become important as we go through this.

But what I think is really interesting about this acquisition in particular is they're buying a company that doesn't really exist yet. They're going to launch what they're calling TRUTH Social next month to a small number of users and then supposedly broaden that out to a larger number of users early in 2022. Then they've also said that they're going to have a subscription video on-demand service, but none of these things actually exists. The market has bought into this idea though, that Trump can launch a media business. That's why we have the valuation that we do today.

As we go to the next slide here, there's a few unknowns that we have before we get to what this company might look like in the future. We don't know if the SPAC deal can close. It's always unknown with SPACs. Can they actually launch this social media network? They appear already to have some issues with their underlying technology and not having the right licenses or attribution for open source software that they're trying to use. We don't clearly know the business model at this point. We've heard this talk about a subscription video service, but we don't know much about that. We don't know if there's going to be advertising. We don't know if it's going to be a pay-to-play product, like companies like Twitter have been talking about for a long time. We also don't know how much money the company can raise through either a PIPE, which would be a traditional way to raise money in a SPAC acquisition, or through secondary offerings.

I think this is what has really become common with a lot of the successful SPACs. If the SPAC stays at $100 a share, I would call that a successful SPAC, is now you can go back to the market and you can raise another $1 billion dollars or another $2 billion dollars and really build out this company from the ground up. We may not have much of a company there today, but if this stock value keeps up, this is a company that's going to have tremendous access to capital and can build out this business in any way that they want. There's a lot of operational questions and a lot of things that we don't know, but the fact that they have access to that much money really already makes them a player in this game, and it's really just based on the Trump brand.

I just wanted to open it up to you guys and see what your thoughts were now that we've had a few days to digest this news. It seemed crazy when it came out on Thursday, but the more that I think about it, the more that we see how the market is responding. This is really a business to take seriously.

Danny Vena: The first thing that came to mind with me the fact that it is gone up so much, to me signals one of either two things. The first is that there is a massive underserved opportunity and the market loves it or, and I'm going to read a line here from a Fortune article that I looked at the other day. It says, "The Trump SPAC is already starting to look like the ultimate meme stock. What are your thoughts on that, Travis?

Hoium: I think that could absolutely be true, the question then becomes what is the company actually do with that? We've seen a number of these meme stocks raise secondary offerings to basically pivot their entire business to something new, something digital.

Now, if they don't create a real business behind it, but it's not going to matter that it becomes a meme stock because eventually the business has to exist, they have to generate revenue and cash flow. I think the whole meme of thing is only going to last for so long. But the meme stock part of this can be your funding source. I look at it a little bit like being a hyped venture capital-backed start-ups where you're building a product, you're showing that you can build out a network, you're gathering users. I think what the market is seeing is just the Trump name alone is going to attract a lot of users, now they just need to prove that they can either acquire or build the technology behind it. There's this "yada yada" and we have a big company, but just that foundation is a lot more than a lot of VC backed start-ups have and so that's the way that they seem to be going to the market. Is instead of going this VC route and trying to build a product before they hit the market, they're just going straight to the market, going straight to the people who will value this company extremely highly, and maybe that's meme traders. But that's still gives you a huge valuation that you can use to fund your business or offer a secondary offering.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.