Exploring the Potential of DoubleDown Interactive Co., Ltd. as a Deep-Value Investment
With a market capitalization of $502.47 million, DoubleDown Interactive Co., Ltd. (DDI) is emerging as a compelling option for deep-value investors seeking opportunities in the digital gaming sector. DDI, which operates within the realm of online social casino gaming—where players gamble with virtual money—has recently expanded into real-money iGaming through its acquisition of SuprNation in 2023.
Impressive Financial Performance
In its third-quarter earnings report, the company revealed impressive growth metrics. For the quarter ending September 30, 2024, DDI reported a revenue of $82.98 million, marking a 13.7% increase compared to the previous year. Operating income also saw a commendable rise of 18.7%, amounting to $35.24 million.
Additionally, DDI’s adjusted EBITDA surged 21.5% to $36.10 million, showcasing its ability to generate cash flow, despite a cash outflow from operating activities totaling $101.13 million compared to an inflow of $8.89 million earlier. Comprehensive attributable net income reached $29.31 million, reflecting a 16.9% increase, while its earnings per share (EPS) stood at $10.11.
As of September 30, 2024, DDI’s cash and cash equivalents increased significantly to $292.65 million from $206.91 million at the end of 2023.
Historical Growth Indicators
Over the past three years, DDI has demonstrated robust historical performance, with its net income growing at a compound annual growth rate (CAGR) of 14.4%. EBITDA rose at a CAGR of 4.3%, while EPS experienced a CAGR of 10.6%. Additionally, its tangible book value improved significantly with a CAGR of 32.9%.
Favorable Analyst Expectations
Looking ahead, analysts are optimistic about DDI’s prospects. The consensus revenue estimate for the fiscal fourth quarter (ended December 2024) is projected at $85.67 million, reflecting a 3.1% year-over-year increase. Moreover, the anticipated EPS of $0.59 signifies a 15.7% improvement compared to the previous year.
For the fiscal year 2025, estimates project marginal growth, with anticipated revenue reaching $350.90 million and an expected EPS of $2.31.
Valuation Versus Industry Standards
In terms of valuation, DDI appears attractively priced. The stock currently trades at a forward non-GAAP P/E of 4.20x, which is 71.2% lower than the industry average of 14.58x. Furthermore, the stock’s forward EV/EBIT and EV/EBITDA multiples, at 1.21 and 1.18, are 92.1% and 85.4% lower than the industry averages, respectively.
High Profitability Metrics
DDI’s profitability further underscores its potential as a strong investment. The company boasts a trailing-12-month EBITDA margin of 41.21%, which is 120.6% higher than the 18.68% industry average. Its levered free cash flow margin and net income margin of 24.50% and 33.28%, respectively, significantly outpace the industry norms.
POWR Ratings and Market Position
DDI’s robust fundamentals are reflected in its POWR Ratings. The stock currently holds an overall rating of A, equivalent to a Strong Buy, in our proprietary rating system, which considers 118 distinct factors. It has secured an A grade for Value and Quality, which mirrors its favorable valuation and superior profitability metrics. DDI is also ranked first among 18 stocks in the A-rated Entertainment — Toys & Video Games industry.
Conclusion: Worth the Investment?
Despite experiencing a slight dip of nearly 3% year-to-date, DDI remains an attractive prospect for investors focusing on value. With a robust cash generation model, a net cash position that constitutes 65% of its market capitalization, and substantial growth opportunities within both social casino and iGaming segments, DDI appears well-positioned for future success in the digital gaming arena.
Considering its solid balance sheet and increasing profitability, investors seeking a well-positioned, low-priced stock in a rapidly evolving sector might find DDI to be a wise investment.
