What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing if you've been paying attention to specs recently, you may have noticed the insane price action of digital world acquisition, corp or dwac, which has increased from its Par value of ten dollars almost to one hundred dollars in just the past two days at its intraday high on friday october 22nd, it reached 157 dollars a share, making it almost a 15 bagger in the span of less than 48 hours. Obviously, this is highly unusual price activity in this video we'll go over. What dwac is why its prices skyrocketed so violently and finally, whether its valuation is justified, keep in mind that we are not financial advisors and this video is, for entertainment purposes, only make sure to do your own research and consult with a professional before making any investment Decision on wednesday october 20th, dwac filed paperwork with the sec stating their intention to merge with the trump media and technology group or tmtg they plan to take the company public at an initial enterprise valuation of 875 million dollars. There is also a potential earn out provision whereby the founders could be awarded an additional 825 million dollars worth of shares based on the performance of the stock price after the acquisition closes.

This adds up to a total potential value of 1.7 billion dollars. So what is tmtg and why are investors so excited about it? Tmtg is a new social media startup founded by former u.s president donald trump. They are currently working on a social media platform called truth. Social while has not yet been released to the public.

They posted a demo video on their website similar to facebook and twitter users, can post pictures and videos and interact in the comments section. The main differentiator of truth social is that they will have no political censorship. There will be a platform for trump supporters and other conservative leading people to share their views in an unfettered open discourse. They say that big tech companies such as google and facebook are enforcing a left-wing ideology where they cancel and shut down right-wing posts.

They build truth. Social as a way to fight back against the big tech monopoly and even the playing field for conservatives in january of 2021, twitter and other social media platforms banned trump from posting, as they claimed as social media antics and cited violence around the january 6. Capitol hill insurrection without access to twitter and other social media trump's ability to communicate with his supporters was greatly diminished to remedy this problem, he decided to create his own social media platform, so nobody can cancel him the idea behind truth. Social is certainly interesting and has generated a lot of hype from investors who immediately started buying the dwac shares after the deal was announced at the current price of 98 dollars.

A share tmtg is valued at about 17 billion dollars. That puts them within the same order of magnitude as fox news, despite having zero revenue and not having a finished product. Yet so how successful is tmtg likely to be and do they have any chance of ever justifying their current lofty valuations trump received 74 million votes in the last presidential election, so there are certainly plenty of trump supporters in the u.s, but just because someone voted for Trump doesn't necessarily mean that they would use his platform. The reason that facebook is so ubiquitous isn't because people are particularly fond of mark zuckerberg.

The reason for their success is the network effect with almost 3 billion global users. Pretty much anyone you would want to connect with is probably on facebook. It's a one-stop shop for all of your social engagement needs. They have also invested billions of dollars to fine-tune their algorithms to keep users engaged for many hours every day.

When truth, social launches, the hardcore trump supporters, will almost certainly open up accounts on the platform, let's say you're a trump supporter, and you just made your truth. Social account, if many of your friends are either anti-trump or don't follow politics, they probably will not make truth social accounts. Thus it will be very difficult, if not impossible, for them to build a network effect like facebook has also with trump building this social media platform. From the ground up, it'll probably be glitchy and slow for the first few years, especially if they get an influx of users.

On the first day, early adopters may be disenchanted by the early technical glitches and abandon the platform. After a few weeks when the novelty wears off truth, social, isn't the first social media startup geared towards conservative americans in 2018, a software engineer by the name of john matsey founded parlor, a social media platform that does not engage in political censorship. It became popular with trump supporters and conservatives in general with high-profile republicans, including ted cruz joining the platform. Parlor became popular in early january, as many trump supporters flocked to the platform to avoid perceived censorship from the traditional social media companies.

After the january 6 capital riots incident, the google and apple app stores banned new downloads of the app, and they said that some protesters used it as a medium to incite violence after the app was finally re-allowed on the app store in may. Its novelty had already largely worn off and it attracted only 32 000 new users in its first month, back on the app store according to forbes. The problem is that their target audience is too niche, so they have no way of reaching critical mass and achieving the elusive network effect, which is necessary for social media platforms to become mainstream. While they don't publish their number of monthly active users, they probably aren't that big, seeing as their app only has 65 000 reviews on the apple app store for tmtg to justify its 17 billion evaluation.

Truth social needs to become orders of magnitude bigger than parlor, while the trump brand name will certainly give them an advantage. This is still a highly uncertain proposition and even if truth, social does manage to build a large user base, they face another problem. They have to turn engagement into dollars. Social media companies generate revenue by hosting ads for various brands.

Large brands care a lot about their public image and usually want to avoid being associated with controversial political views in the summer of 2020 over a thousand brands, including the likes of verizon adidas, and ford boycotted advertising on facebook. In response to perceived hate speech on the platform to be fair, some of this was purely pr. Posturing, as many of these brands were cutting their ad spending anyway, due to the pandemic. But the fact of the matter is that large brands don't want their ads to be shown next to controversial social media posts and, if they're hesitant to even advertise on facebook.

What do you think the chances are that they would be interested in advertising on trump's social media platform? So, however, many users truth, social manages to attract their average revenue per user will likely be far lower than the established mega cap social media companies. In our opinion, dwac appears to be a highly speculative and overvalued stock. That is completely divorced from its fundamentals and whenever a stock trades for reasons other than its fundamental value, it can almost be impossible to predict what it will do in the future. Most of the buying pressure is probably coming from individual investors who are active on reddit forums such as wall street bets.

The strong price action creates a greater hype which brings in even more buyers into the market. In a positive feedback loop. We could be witnessing the inflation of a financial bubble that will eventually burst when people finally decide to take profits, but even when a stock is obviously overvalued, it can stay overvalued for a long time. For example, gamestop is still sitting at more than 10 times higher than its pre-squeezed levels.

Almost 10 months later, a recently released report by the sec found that, while the initial price appreciation in mid-january was likely the result of a short squeeze, it was mostly retail traders who pushed the stock above 300. Only a relatively small proportion of the volume came from short sailors covering their positions. The point is: if investors are willing to hold on to their positions, they can keep the price elevated for surprisingly long periods of time, but this is probably less likely to happen with dwac, as it doesn't have the same social movement behind it that benefited gamestop and Amc, alright guys that wraps it up for this video. What do you think about trump's new social media endeavor? Do you think it has a chance of becoming mainstream? Let us know in the comments section below, if you enjoyed this content, make sure to smash that like button and subscribe, so you don't miss future uploads as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial signing out.