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Truth Media & Technology Group (TMTG), the Donald Trump-backed media organization and parent company of Truth Social, is about to go public via a special purpose acquisition company (SPAC) merger this week. The company is expected to merge with Digital World Acquisition Corp. (DWAC), which is currently publicly traded, adopts the stock symbol “DJT,” which are Donald Trump’s initials.
Initial estimates suggest that Trump himself could make billions from the SPAC deal. But investors who may also be looking to profit from any MAGA-fueled market moves this week may first want to consider the performance track record of SPAC-related stocks. Because, in many respects, SPAC returns have often left investors holding the bag.
SPAC mergers, which act as a kind of back-end method for companies to list their shares on a public stock exchange while avoiding the traditional IPO process, were very popular in 2020 and 2021. During those two years, more than 850 companies went public via SPAC mergers according to SPAC Insider data. But it has fallen out of favor since then, with only 31 SPAC mergers last year, and five so far in 2024.
One reason they lose steam is that they tend to be bad investments. Analysis of companies that have gone public through SPAC transactions by Bloombergpublished in December, found that at least 21 of these companies went bankrupt during 2023, with shareholders losing up to $46 billion.
The S&P US SPAC Index, a market index that measures the 30 SPAC stocks on US exchanges, reveals similar bad news for investors. It’s down 14% over the past year and 8.6% over the past three years.
Compare that to the overall market: The S&P 500 is up about 33% over the past year and 9.9% over the past three years.
While this doesn’t necessarily mean that Truth Media’s expected Nasdaq debut will burn investors, the broader track record of SPAC listings is something investors may want to consider. Furthermore, there are some red flags in DWAC’s SEC filings. Specifically, one filing with the Securities and Exchange Commission (SEC) notes that TMTG “expects to continue to incur operating losses and negative cash flows from operating activities for the foreseeable future.”
In other words, Truth Social is not profitable and may never be. That puts it in the same category as another much larger social network, Reddit, whose parent company went public last week despite a loss-making balance sheet.
Trump himself could also pose a risk to shareholders:
“TMTG’s success depends in part on the popularity of our brand and the reputation and popularity of its Chairman, President Trump. The value of TMTG’s brand may be diminished if President Trump’s popularity is affected,” the filing said. “Adverse reactions to publicity related to President Trump, or the loss of his services, could Adversely affect TMTG’s revenues, results of operations and its ability to maintain or create a consumer base. President Trump is involved in numerous lawsuits and other matters that could damage his reputation, cause him to be distracted from work or force him to resign from the TMTG Board of Directors.
Accordingly, investors looking to invest in Truth Social this week following the expected SPAC deal may face double risks: those related to the SPAC companies themselves and those related to this SPAC specifically.
But for now, investors seem to be getting on board. Shares of Digital World Acquisition Corp. were trading up more than 12% as of midday Monday, and are up more than 138% year to date.
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