With digital game developer DoubleDown Interactive (DDI) shares still trading at a dirt-cheap multiple of just 5x even after its sixth consecutive earnings increase, buying now could net you a big payout.
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Seoul-based DoubleDown Interactive (DDI) has once again delivered impressive quarterly results. In the second quarter, revenue increased 17.4% year-over-year to $88.2 million, well above the consensus estimate of $83.4 million. The acquisition of SuprNation in October 2023 contributed $7.9 million to this growth, but DDI also saw strong organic growth of 7%, driven by higher engagement and improved monetization of its existing player base. Notably, average revenue per daily active user increased 26.7% to $1.26, payer conversion rate (the percentage of players making purchases within the social casino apps) improved from 6.0% to 6.7%, and average monthly revenue per payer increased 22.6% to $288.
In addition, DDI benefited from lower sales, marketing and R&D expenses, higher gains from foreign currency transactions and a lower effective tax rate. Combined, these factors boosted net income by 36.2% to $33.2 million, or $0.67 per American Depositary Share (ADS), beating expectations by 18 cents.
This strong operating performance generated free cash flow of $34 million for the quarter and increased DDI’s already substantial net cash and short-term investment balance by $31 million to $303 million. This represents approximately $6.12 net cash and equivalents per ADS, which is nearly half the current share price.
What is particularly notable is that DDI’s growth is taking place in a declining social casino industry, according to research and advisory firm Eilers & Krejcik Gaming, suggesting that the company is gaining market share. The ongoing rollout of the new meta features for DoubleDown Casino—which has already contributed to improved monetization and engagement metrics in the first half of the year—and a promising slate of internally developed mobile games set to launch later in 2024 position DDI for continued strong operating and free cash flow performance over the remainder of the year. Analyst sentiment reflects this optimism, with the average price target for DDI rising $1.62 to $19.31 following the Aug. 12 report.
Given this strong performance and favorable outlook, the stock’s muted reaction seems to reflect more of its low visibility due to its small size. Given a ridiculously low current P/E of 5 (and less than 3 excluding net cash), I expect the stock to correct higher soon.
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