Digital World Acquisition Corp (DWAC +0.00%), the special purpose acquisition company (SPAC) planning to take Trump Media & Technology Group public through a merger, continued its roller-coaster of gains and losses on Dec. 7 as its share value soared 16.6% by market close.
Fresh news about former U.S. President Donald Trump's Truth Social platform drove the gains, centering on a distribution deal with video hosting service Rumble, itself aiming at a stock market debut via a merger with CF Acquisition Corp VI (CFVI +0.00%). Together, the two media companies may potentially play off each other's strengths and achieve stronger growth.
Details of the Trump-Rumble pact
Trump Media plans to launch the Truth Social platform, an alternative social media site billing itself as a free-speech alternative to Twitter or Meta Platforms' Facebook. The move comes after Twitter's shuttering of Trump's account in January 2021 and subsequent suspension of various other accounts.
In an alliance announced on Dec. 7, Trump Media plans to "use Rumble's infrastructure, their technology, their cloud distribution capability" for its operations, according to Howard Lutnick, CEO of financial services firm Cantor Fitzgerald. Lutnick, speaking on a Newsmax program, added that free-speech video hosting service Rumble is "going to be a service provider, a tech provider to the president's Truth Social." Cantor Fitzgerald is Rumble's sponsor, and Lutnick himself is the head of SPAC CF Acquisition Corp VI, giving him direct insight into the upcoming deal.
Image source: Getty Images.
Rumble has a growth story of its own, likely making it an extremely valuable partner for Trump Media, which seems to have little distribution infrastructure. Attempting to become a competitor for platforms such as Alphabet's YouTube, Rumble reports its average monthly active users mushroomed from 1.6 million in the third quarter of 2020 to 36 million in Q3 2021, a scorching 2,150% increase.
Claiming it is "on a mission to restore the internet to its roots by making it free and open once again," Rumble also says "viewer engagement" reached 8 billion minutes of video watched monthly as of Q3 2021, an approximate 4,400% surge from Q2 2020. The company's mission statement and general tone appears likely to resonate with users of Truth Social as well.
A tale of two SPACs
Both Trump Media and Rumble are going public through SPAC mergers rather than traditional IPOs. SPACs often initially raise plentiful investor cash, especially for high-profile launches. However, maintaining value often seems difficult, with many, though not all, SPAC deals seeing share prices drop after early enthusiasm.
Rumble announced its own SPAC merger on Dec. 1, revealing its agreement with CF Acquisition Corp VI. Its press release indicates it will step onto the public trading stage with an initial enterprise value of $2.1 billion. The launch will also give the company approximately $400 million in cash proceeds. The release also notes CEO Chris Pavlovski "will retain voting control to facilitate execution of Rumble's neutral mission on behalf of all stakeholders."
Digital World Acquisition Corp has seen far larger swings in its share value. Initially, the stock spiked close to 600% following the Trump Media news, then lost value again based on multiple sources of uncertainty. It lost about 39.4% of its value in November before several pieces of news in early December set its value seesawing again between positive and negative sentiment.
Risk and volatility are still ahead
While Trump Media has a predicted "monetizable" customer base numbering 81 million and representing immense potential profit, DWAC's valuation changes continue to be abrupt and intense. Institutional investors signaled their interest in the platform with a $1 billion private investment in public equity (PIPE) on Dec. 1. When a PIPE is used, a company sells shares directly to private investors, bypassing the stock market and enabling them to "buy in" below market price. This particular PIPE prices DWAC's shares 20% below a 10-day volume-weighted average price, TheStreet reports. Its announcement caused the SPAC's shares to rise an explosive 30% in same-day post-market trading.
Just five days later, on Monday, Dec. 6, the stock slid as the Financial Regulatory Authority and Securities & Exchange Commission (SEC) opened an investigation into DWAC. Though DWAC is cooperating with the investigation, and though the filing included the phrase "the investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of DWAC or any person, event, or security," the company's shares shed almost 7.9% of their value within an hour of market open. Share value then popped almost 17% the next day on the Rumble alliance news.
Rumble appears more stable of the two companies, operating a video hosting platform seeing rapid, consistently strong growth. Trump Media, a wild card with extravagant ups and downs, still has the advantage of its association with a public figure with a very large, enthusiastic following.
The potential likely exists for the two partners to play off each other's strengths and mitigate each other's weaknesses. Rumble brings working distribution infrastructure and its relative stability to the pact. Trump Media might bring tens of millions of new users to Rumble's platforms, along with intense publicity. Risks remain high, and caution is likely wise. But the partnership looks bullish for Rumble and positive for Trump Media as well, potentially helping make them profitable investments among social media stocks.
