Wall Street traders are telling me they will’t wait for the Securities and Exchange Commission to offer the green light to Digital World Acquisition Corp., the shell company holding former President Donald Trump’s latest right-wing Twitter alternative named “Truth Social.”
And it’s not because they just like the stock.
Traders are already eyeing the so-called Special Purpose Acquisition Corp., or SPAC, for the mother of all shorts, betting that shares will eventually fall to penny-stock levels ($5 or less). A part of the pessimism stems from Truth Social’s lousy rollout; it has been affected by technological glitches and management upheaval since its February launch.
However the possible nail within the coffin for Truth Social is Tesla founder Elon Musk’s bid to take over Twitter. With a net value of around $250 billion, Musk has agreed to plunk down $44 billion to buy the financially troubled but influential micro-blogger, making a right-leaning Twitter alternative like Truth Social largely obsolete.
Musk, recall, predicated his interest on rooting out Twitter’s progressive bias that has been alleged for years by the conservative politicians and commentariat despite vehement denials from Twitter itself. Many Musk watchers expect him to reinstate Trump and others who had been suspended by Twitter’s PC algorithms.
Whether Trump or, say, vaccine skeptic Alex Berenson gets back on the location stays to be seen, after all (Trump has said he’s not interested), but already outstanding conservatives within the media who boycotted Twitter are returning to the fold because of Musk. They’re also helping to make Wall Street’s bear-case bet against Truth Social.
Downloads way down
Downloads have been falling on the previous president’s social media app. CHRIS DELMAS/AFP via Getty Images
The largest appeal of Truth Social, after all, has been Trump, who was booted from Twitter after the Jan. 6, 2021, Capitol riot. But the previous president hasn’t put much effort into the brand new enterprise, having made only one post since its launch — until Thursday, when he posted again on Truth Social, sparking an uptick in downloads for the location. Still, in accordance with Statistica, roughly 2 million users downloaded Truth Social in its first two weeks; downloads then fell to 218,000, suggesting Trump may have to do loads more to make this thing work.
Former President Donald Trump was suspended from Twitter following the Capitol riot.James Devaney/GC Images
And with conservative politics again trending toward Twitter, traders say Truth will fail to generate anywhere near enough user traction to justify Digital World’s current share price of about $52, well off its 2022 high of just above $97 that it hit earlier within the yr, even with last week’s Trump-inspired rally.
That’s why the shorts are salivating. In a brief sale, you borrow shares of the goal company you’re selling, with the bet that you would be able to satisfy the borrow with less pricey shares when the stock falls. You make cash — sometimes loads — on the difference.
Traders tell me they’re shorting Digital World only across the margins now since it is difficult to borrow shares which might be in limited supply. But when the SEC approves the SPAC, they expect about 200 million shares to flood the market, and the stock to crumble to as little as
$5 as people weigh the utility of a right-wing Twitter substitute.
The SEC, after all, could just say no to Truth Social’s blank-check holding company, Digital World, and all this is able to be moot. Regulators are currently looking into some possibly funky trading within the stock and asked for communications of senior executives, board members and investors.
And the short thesis won’t be such easy money. Truth Social’s techies could fix the glitches, and Trump could re-engage long-term and attract many more people to the platform. It needs to be noted that downloads of Truth Social jumped to No. 1 in Apple’s free App Store ahead of Twitter — just after Musk and Twitter announced they reached a deal, mockingly.
Elon Musk has promised to be in favor of free speech on Twitter. Patrick Pleul/AP
Like Trump, Musk has a famously volatile personality, which made Elon as popular because the ex-president on the platform with 89 million followers. Just last week, Musk went after Twitter’s top lawyer despite an apparent post-deal non-disparagement clause, and Musk mused he might buy Coca-Cola so he could “put the cocaine back in.”
Such volatility, nevertheless, isn’t all the time welcomed on Wall Street. That’s why some traders are betting against Musk actually carrying through along with his Twitter bid and coming through with the required $21 billion in equity comprised of his Tesla stock despite the $1 billion breakup fee if he walks.
These traders, often called merger arbs, cite several reasons for his or her bearishness — which has left Twitter shares trading significantly below Musk’s $52.40 offer — including his declining net value since announcing the takeover.
Yes, Elon can seem crazy — remember when he had a “deal” to take Tesla private at $420 a share, an apparent reference to April 20, known by tokers as an unofficial “National Marijuana Day.” The deal never happened and the SEC sued him for making it up.
Some expect Musk to reinstate Trump on Twitter, but the previous president said he is not going to rejoin. Gregory Bull/AP
Investors forgave him, after all, because he saved Tesla from near-bankruptcy and cranked out many more electric vehicles than analysts believed possible, while shares soared and he became the world’s richest man.
For each merger-arb guy betting against him, I hear there’s at the very least one trader betting against Trump and Truth Social.