SOOPi, Savic And SARSA Will Drive Global Viewer Engagement

Key Takeaways

• Launching new technologies and expanding globally, particularly in Southeast Asia, is expected to drive growth in platform revenue and user engagement.
  
• Acquisition of PlayD and partnerships with games like VALORANT could boost advertising revenue and enhance platform visibility and engagement.
  
• Potential revenue volatility and execution risk from global expansion and recent acquisitions may strain cash flows and challenge earnings stability despite revenue growth.

Catalysts

Operates as an entertainment company in South Korea.

• Soop is launching new technologies and services such as the AI video assistant SOOPi, AI-driven video generation with Savic, and the streamer management tool SARSA. These innovations are expected to boost streamer engagement and platform usage, ultimately driving growth in platform revenue.
  
• The company's global expansion efforts, particularly in Southeast Asia, including Thailand and Taiwan, are expected to increase international streamer and viewer participation. This expansion could significantly contribute to overall revenue and profitability growth.
  
• Soop's introduction of an extensive branding campaign, Soop Adventure, starting May 16, aims to enhance brand awareness and attract more streamers and viewers. This initiative could positively impact revenue by increasing platform visibility and user acquisition globally.
  
• The recent acquisition of PlayD is anticipated to create synergies that enhance Soop's advertising business. This could result in increased advertising revenue and improved profitability as Soop integrates PlayD's capabilities into its operations.
  
• New game partnerships and esports content, such as collaborations with games like VALORANT and events like Soop Nations Cup, are likely to drive viewership and engagement. This focus on popular gaming content can stimulate growth in platform revenue from subscriptions and increased advertising spends.

Soop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Soop's revenue will grow by 12.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 24.5% today to 22.2% in 3 years time.
• Analysts expect earnings to reach ₩131.0 billion (and earnings per share of ₩11739.84) by about May 2028, up from ₩101.2 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ₩152.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 8.6x today. This future PE is lower than the current PE for the KR Interactive Media and Services industry at 18.0x.
• 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 8.1%, as per the Simply Wall St company report.

Soop Future Earnings Per Share Growth

Risks

• Despite a 14% year-on-year increase in total revenue, Soop experienced a 4% quarter-on-quarter revenue decline, indicating potential volatility in its revenue streams. This could impact future earnings stability.
  
• Advertising revenue, although up 50% year-on-year, fell 22% quarter-on-quarter due to the fading of the peak season effect, highlighting potential variability in advertising revenue streams affecting net margins.
  
• Operating expenses increased 14% year-on-year, driven by higher employment and variable costs associated with revenue growth, potentially impacting net income if cost controls are not effectively managed.
  
• The acquisition of PlayD has not yet contributed to Q1 earnings, and future impacts remain uncertain, which could pose a risk to projected revenue growth and synergy realization.
  
• The company's ambitious global expansion and simulcasting plans require significant investment, which may not yield immediate returns. This could strain cash flows and impact short-term earnings while introducing execution risk in penetrating new markets.

Valuation

• The analysts have a consensus price target of ₩129315.789 for Soop 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 ₩170000.0, and the most bearish reporting a price target of just ₩82000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩588.9 billion, earnings will come to ₩131.0 billion, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of ₩82100.0, the analyst price target of ₩129315.79 is 36.5% 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.