With shares of digital-game developer DoubleDown Interactive (DDI) still trading at a dirt-cheap multiple of just 5—even after its sixth earnings beat in a row—picking them up now could be your ticket to a big payoff.
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Seoul-based DoubleDown Interactive (DDI) has once again delivered impressive quarterly results. For Q2, revenue grew 17.4% year-over-year to $88.2 million, well above the $83.4 million consensus estimate. The October 2023 acquisition of SuprNation contributed $7.9 million to this growth, but DDI also enjoyed strong organic growth of 7%, fueled by higher engagement and enhanced monetization of its existing player base. Notably, average revenue per daily active user surged 26.7% to $1.26, the payer conversion rate (the percentage of players who make purchases within its social casino apps) improved to 6.7% from 6.0%, and average monthly revenue per payer jumped 22.6% to $288.
Additionally, DDI benefited from lower sales, marketing, and R&D expenses, an increased gain on foreign currency transactions, and a reduced effective tax rate. These factors combined to push net income up 36.2% to $33.2 million, or $0.67 per American depositary share (ADS), beating expectations by 18 cents.
This strong operational performance generated $34 million in free cash flow for the quarter, boosting DDI’s already substantial net cash and short-term investment balance by $31 million to $303 million. This equates to approximately $6.12 in net cash and equivalents per ADS, which accounts for nearly half of the current stock price.
What’s particularly notable is that DDI’s growth is occurring in a declining social casino industry, according to research and consulting firm Eilers & Krejcik Gaming, suggesting that the company is gaining market share. The ongoing rollout of its new meta features for DoubleDown Casino—which already contributed to the improved monetization and engagement metrics in the first half—and a promising lineup of internally developed mobile games set to launch later in 2024, position DDI for continued strong operating and free cash flow performance as the year progresses. Analyst sentiment mirrors this optimism, with the average price target on DDI rising by $1.62 to $19.31 following the August 12 report.
Given this strong performance and favorable outlook, the stock’s muted reaction seems more reflective of its low visibility due to its small size. With a ridiculously low current forward P/E of 5 (and less than 3 excluding net cash), I expect the stock to correct upwards soon.
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