SPAC backing Trump has surged more than 800%. That's sparking meme-stock comparisons.
Former president Donald Trump's brand-new social media company is hitting it big on Wall Street, with its stock surging more than 800% since Wednesday. But the frenzy around the stock — and the company's lack of financial results — is sparking comparisons to so-called meme stocks like Gamestop.
Shares of blank-check company Digital World Acquisition Corp. (DWAC), soared $84.25 — or about 850% — to $94.20 on Friday. At one point in trading earlier on Friday, the stock topped $131. At its highest, the gains reflected a surge of more than 1,200%.
The frenzy in DWAC's stock price started on Thursday, after the company announced it would merge with Trump Media & Technology Group, and is tied to the growing popularity of SPACs, or special purpose acquisition companies. SPACs, also known as blank-check companies because they go public before finding a private company with which to merge, have gained popularity this year, drawing endorsements by celebrities and investors alike.
At the heart of DWAC is Trump Media & Technology Group, an effort by Trump to create a social media service called Truth Social, as well as a TV service that will feature what it calls "'non-woke' entertainment programming." The Trump Media & Technology Group, or TMTG, has raised almost $300 million from investors, but lacks financial results — or even a product.
Truth Social will debut in early 2022, with plans for a beta rollout for some "invited guests" next month, according to a regulatory filing. But even before its rollout, the service has come under attack from hackers, who gained access to the service and created fake accounts for Trump and others, according to the New York Times.
WallStreetBets
The popular Reddit investing section WallStreetBets, meanwhile, is filled with threads about DWAC and Mr. Trump's technology efforts, with some users posting about their decisions to either buy or hang back from the stock.
That's creating some comparisons to the meme-stock frenzy that boosted the shares of companies like Gamestop and AMC earlier this year. In those cases, a heady mix of social-media fandom and access to free trading platforms like Robinhood caused novice investors to pour money into the shares — eventually sparking regulatory and Congressional investigations.
Some investors may be banking on Trump's popularity with conservative Americans, who may follow him to his Truth Social site. Before he was banned from Twitter, the former president had about 90 million followers — and some of those could presumably follow him to the new service.
But the test will be whether Trump's social media network will attract advertisers, which may depend on the size of Truth Social's audience as well as the site's content. Some advertisers are notoriously risk-averse when dealing with political content.
SPACs "below par"
SPACs may have surged in popularity in the past year, but they haven't paid off for many investors, according to Goldman Sachs. Returns have been "below par," its analysts said in a research report last month.
For instance, an exchange-traded fund of SPACs, which trades under the ticker SPAK, has lost almost 18% of its value since the start of the year through Friday, while the S&P 500-stock index has gained about 22%.
While some investors may be banking on Trump's appeal, others are likely simply hoping to make a quick profit.
But at least one investor told the New York Times he's selling his DWAC position: Saba Capital Management hedge fund manager Boaz Weinstein, who told the news outlet he placed a sell order on the unrestricted shares of DWAC his firm owned. Because SPACs can't alert investors about which companies they intend to merge with, such deals are typically surprises to investors.
"I knew that for Saba the right thing was to sell our entire stake of unrestricted shares, which we have now done," Weinstein said in a statement sent to the Times. "Many investors are grappling with hard questions about how to incorporate their values into their work. For us, this was not a close call."
The last time Trump ran a publicly traded company, it didn't end well for investors. His casino company, Trump Entertainment Resorts, lost hundreds of millions of dollars over more than a dozen years and filed for bankruptcy several times, socking shareholders with big losses. Trump fared better than his casino shareholders: He took in $82 million in fees, salary and bonuses over the same period, according to Fortune magazine.
— With reporting by the Associated Press.
