Smartphone And Digital Trends Will Unlock New Markets Despite Risks

Key Takeaways

• Advanced AI-driven production and successful brand scaling may accelerate revenue growth and diversify earnings with lower development risks and costs.
  
• Sustained product enhancements and monetization strategies support margin expansion, while effective market expansion could unlock new high-growth geographies.
  
• Declining core revenues, rising acquisition costs, limited portfolio diversification, and regulatory risks threaten profitability and growth despite strategic expansion efforts in regulated markets.

Catalysts

Engages in the development and publishing of casual games and mobile applications in South Korea.

• Analyst consensus expects marketing investment in SuprNation to drive gradual market share gains, but given the exceptionally rapid payback and strong performance across all three brands, SuprNation could scale much faster than expected in the U.K. and Sweden and accelerate revenue and EBITDA growth sooner as the operation achieves profitability ahead of schedule.
  
• While analysts broadly highlight ongoing product enhancements in DoubleDown Casino as incremental to retention and monetization, sustained improvements in ARPDAU and payer conversion rates-already at or near industry highs-suggest the platform can drive margin expansion beyond expectations, especially as the direct-to-consumer model scales and operational efficiencies compound.
  
• The company's disciplined and data-driven approach to new game development, enabled by advanced AI-assisted production pipelines, positions DoubleDown to potentially achieve breakthrough hits in new genres with significantly reduced development risk and cost, which can meaningfully diversify recurring revenue streams and drive long-term earnings growth.
  
• As global smartphone adoption and access to high-speed internet continue accelerating in underpenetrated markets, DoubleDown's proven ability to integrate acquisitions and scale brands gives it an elevated potential to unlock new high-growth geographies, ultimately expanding its addressable market and supporting robust multi-year revenue acceleration.
  
• The growing adoption of digital payments and in-app purchasing coupled with DoubleDown's expertise in optimizing monetization can yield industry-leading ARPU expansion, supporting both top-line growth and sustainable increases in operating margins.

DoubleDown Interactive Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on DoubleDown Interactive compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming DoubleDown Interactive's revenue will grow by 2.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 34.9% today to 32.1% in 3 years time.
• The bullish analysts expect earnings to reach $116.9 million (and earnings per share of $2.36) by about July 2028, down from $117.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 4.1x today. This future PE is lower than the current PE for the US Entertainment industry at 26.9x.
• 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 9.57%, as per the Simply Wall St company report.

DoubleDown Interactive Future Earnings Per Share Growth

Risks

• The company is experiencing declining revenue in its core social casino segment, with a 12 percent drop year-over-year in Q1 2025 and management indicating that industry forecasts predict further declines, raising concerns about sustained top-line revenues.
  
• Rising user acquisition costs, particularly due to heightened competition and aggressive marketing by sweepstakes game competitors, are impacting DoubleDown's ability to efficiently attract new players, which could compress net margins and elevate future marketing expenses.
  
• The decision not to commercialize a newly developed matching game after extensive testing suggests potential execution risk and difficulty in successfully expanding the game portfolio beyond legacy titles, resulting in increased revenue concentration and limiting diversification that is critical for long-term earnings growth.
  
• The growth strategy relies heavily on scaling SuprNation and acquiring new users in regulated markets like the UK and Sweden, but the business is still running at or below EBITDA breakeven, indicating ongoing execution risk and the potential for future losses which may weigh on consolidated profitability if growth investments do not yield the expected returns.
  
• Long-term secular and regulatory trends, such as tightening restrictions on gaming and gambling, shifts in public perception against social casino mechanics, and increased privacy laws impacting digital marketing, could reduce the addressable market and increase customer acquisition costs, ultimately constraining revenue expansion, net margins, and earnings potential.

Valuation

• The assumed bullish price target for DoubleDown Interactive is $22.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of DoubleDown Interactive's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $363.6 million, earnings will come to $116.9 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 9.6%.
• Given the current share price of $9.75, the bullish analyst price target of $22.0 is 55.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.