Doubling DTC Payments And iGaming Expansion Will Drive Future Profitability

Key Takeaways

• Expansion in iGaming and casual gaming is poised to significantly boost revenue, supported by strategic marketing cost efficiencies that enhance profitability.
  
• Increasing direct platform payments and successful acquisitions, including Paxie Games, will drive profitability and bolster revenue streams.
  
• Reliance on favorable currency rates and new business acquisitions poses volatility risks, while competitive pressures may challenge platform payment growth and impact financial stability.

Catalysts

Develops and services mobile games worldwide.

• Expansion in the iGaming and casual gaming genres is expected to drive significant revenue growth, as seen with the 41% increase in iGaming's NGR in January 2025 compared to the monthly average in Q4 2024. This will likely enhance overall revenue growth as these sectors continue to expand.
  
• The company's operating profit reached a record high due to stable EBITDA margins and cost efficiencies, such as reducing marketing expenses. As the company plans to maintain marketing expenses at an 8% revenue level while increasing efficiency, this could enhance net margins and overall profitability.
  
• DoubleUGames aims to double the share of payments from their DTC platform, which could increase EBITDA margins by 2% to 3%. This reduction in platform fees will likely improve profitability and allow for reinvestment in growth initiatives like marketing and new game development.
  
• Successful integration and growth of the Paxie Games acquisition, as well as other potential M&A activities, will contribute to increasing revenue streams and stabilize cash flows. This is expected to impact both revenue growth and earnings positively.
  
• Foreign exchange rate gains significantly boosted net income in Q4 2024 due to a favorable exchange rate and strong cash position in U.S. dollars. If this trend continues, it will contribute to enhanced earnings, especially given the forecast of higher average currency rates in Q1 2025.

DoubleUGames Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoubleUGames's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.7% today to 25.3% in 3 years time.
• Analysts expect earnings to reach ₩196.1 billion (and earnings per share of ₩8978.66) by about February 2028, up from ₩162.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩218.1 billion in earnings, and the most bearish expecting ₩155.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from 6.1x today. This future PE is lower than the current PE for the KR Hospitality industry at 11.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.61%, as per the Simply Wall St company report.

DoubleUGames Future Earnings Per Share Growth

Risks

• Changes in the currency exchange rate significantly boosted the company's net income in Q4 2024, but reliance on such factors may lead to volatility in future earnings if currency rates shift unfavorably. This can affect net income significantly.
  
• While marketing expenses were effectively reduced, leading to increased operating profit, any future need to increase these expenses to combat competition or market expansion could impact operating margins negatively.
  
• The company's foreign currency assets, largely held in U.S. dollars, expose them to potential currency risk and fluctuations, which could adversely impact their financial stability and net income.
  
• The company's growth heavily relies on the successful acquisition and integration of new businesses like Paxie Games. Any delay in acquisition approvals or integration challenges could hinder expected revenue growth.
  
• The expectation to double the percentage of their own platform payments might not be realized if competitors continue to offer more attractive or efficient platforms, potentially impacting EBITDA margins if savings from platform fees are not realized.

Valuation

• The analysts have a consensus price target of ₩63700.0 for DoubleUGames based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩69000.0, and the most bearish reporting a price target of just ₩57000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩774.7 billion, earnings will come to ₩196.1 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of ₩49550.0, the analyst price target of ₩63700.0 is 22.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.