Social Casino Expansion Will Boost Digital Footprint Amid Margin Risks

Key Takeaways

• Expansion into new geographies and growing direct-to-consumer revenues position the company for improved profitability and reduced third-party dependence.
  
• Investment in personalization and new features drives user retention and higher margins, supporting sustained revenue growth and risk diversification.
  
• Heavy dependence on aging social casino products and US markets, amid rising expenses and expansion risks, threatens long-term revenue, margins, and future earnings growth.

Catalysts

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

• The accelerating shift of global entertainment toward digital and mobile platforms-combined with DoubleDown's expansion of its social casino business into new geographies (e.g., acquisition of WHOW Games for European growth)-positions the company to capture a growing user base internationally, supporting future top-line revenue growth.
  
• Younger demographics' increasing engagement and spending in digital gaming, paired with rising payer conversion rates and robust average monthly revenue per payer, suggest long-term improvement in user lifetime value and ARPU, which are likely to drive higher net margins over time.
  
• Growing consumer normalization of in-app purchases and microtransactions is enabling DoubleDown to increase the share of direct-to-consumer (DTC) revenues (now above 15% of social casino revenues and rising), which structurally enhances profitability by reducing third-party platform fees-positively impacting both gross and net margins.
  
• The company's disciplined investment in data-driven personalization, new monetization features, and real-time in-game events in both social casino and iGaming verticals is expected to further increase user retention and engagement, translating to sustained growth in revenue and potential for long-term margin expansion.
  
• DoubleDown's strong balance sheet and consistent free cash flow allow for ongoing M&A potential and geographic/product diversification, which reduce revenue concentration risk and provide a platform for future earnings growth through operational leverage and broader market reach.

DoubleDown Interactive Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoubleDown Interactive's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.9% today to 27.2% in 3 years time.
• Analysts expect earnings to reach $110.5 million (and earnings per share of $2.35) by about August 2028, down from $117.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from 4.0x today. This future PE is lower than the current PE for the US Entertainment industry at 31.3x.
• 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 9.62%, as per the Simply Wall St company report.

DoubleDown Interactive Future Earnings Per Share Growth

Risks

• Declining year-over-year revenues and profitability in the core Social Casino segment, as evidenced by a 14% drop in Q2 2025 versus Q2 2024, indicate long-term stagnation and user fatigue, which may lead to sustained future pressure on total revenue and net margins if portfolio diversification is not successful.
  
• Industry revenues are forecasted to decline in 2025, creating difficult year-over-year comparisons and highlighting broader secular headwinds for social casino operators, which could further weigh on DoubleDown's top-line growth and earnings potential.
  
• Heavy reliance on mature legacy social casino products and concentration in core markets (historically the U.S.) expose the company to demographic shifts, emerging platform trends, and intensifying competition, risking loss of market share and downward pressure on user engagement metrics that impact long-term revenue and ARPDAU.
  
• Expansion into European markets through M&A (e.g., WHOW Games acquisition) introduces integration, regulatory, and execution risks; if these incremental opportunities underperform or encounter region-specific legal headwinds, expected revenue growth and operating leverage may not materialize, straining margins and returns.
  
• Increased operating expenses, especially sales and marketing, alongside flat or declining ARPU and soft organic social casino revenue growth, suggest greater spending is needed to acquire and retain users-potentially leading to continued margin compression and reduced future earnings if efficiencies or successful scaling are not achieved in new verticals.

Valuation

• The analysts have a consensus price target of $18.333 for DoubleDown Interactive 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 $21.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $406.0 million, earnings will come to $110.5 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of $9.39, the analyst price target of $18.33 is 48.8% 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.