Global Expansion And Esports Partnerships Will Increase User Engagement Through AI Adoption

Key Takeaways

• Global expansion through new platform launches and strategic partnerships in gaming aims to diversify revenue and bolster market share.
  
• Adoption of AI and next-generation features aims to enhance user experience, operational efficiency, and net margins.
  
• Soop's revenue growth is threatened by compliance issues, increased costs, heavy CapEx for overseas expansion, reliance on unproven tech, and market competition.

Catalysts

Operates as an entertainment company in South Korea.

• Soop is expanding globally by launching a new platform beyond Korea, focusing on service stabilization and scaling up, which is expected to drive future revenue growth through international market expansion and a diversified content strategy.
  
• The adoption of next-generation technologies, including AI and features like gifting and subscriptions, aims to enhance user convenience and engagement, which could improve net margins by increasing operational efficiency and service quality.
  
• Strategic partnerships with Esports and gaming companies, such as exclusive broadcasting rights for popular games, are likely to boost advertising revenue and bolster content offerings, positively impacting earnings growth.
  
• Initiatives for global content sharing, including AI-powered translation tools and support for Korean streamers abroad, offer opportunities to diversify revenue streams and increase international user engagement, potentially raising overall market share and revenue.
  
• Plans for active investment in brand marketing campaigns and expansion of social content emphasize efforts to strengthen user community and global presence, which could lead to revenue and earnings growth as Soop scales its global business.

Soop Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Soop's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.1% today to 23.3% in 3 years time.
• Analysts expect earnings to reach ₩148.7 billion (and earnings per share of ₩13178.54) by about February 2028, up from ₩99.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 11.5x today. This future PE is lower than the current PE for the KR Interactive Media and Services industry at 18.8x.
• 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 7.9%, as per the Simply Wall St company report.

Soop Future Earnings Per Share Growth

Risks

• The ongoing audit by the Financial Supervisory Service (FSS) might indicate potential compliance issues or accounting practices concerns, creating uncertainty and potential impact on net income if adjustments are required.
  
• Despite showing revenue growth, Soop faces increased operating costs, including content production and advertising commissions, which could pressure net margins if not controlled.
  
• The company's overseas expansion involves significant investment in CapEx, which may strain cash flows and delay returns, affecting overall earnings if the global strategy doesn't deliver expected growth.
  
• There is dependency on new and unproven AI tools and live streaming technologies that might not convert into sustainable revenue streams, thereby impacting future revenue forecast.
  
• The company faces competitive pressure in new markets along with regulatory challenges, particularly in social content, which could limit revenue growth and market share expansion.

Valuation

• The analysts have a consensus price target of ₩153315.789 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 ₩195000.0, and the most bearish reporting a price target of just ₩120000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩638.3 billion, earnings will come to ₩148.7 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of ₩106800.0, the analyst price target of ₩153315.79 is 30.3% 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.