DoubleUGames' Earnings Slow, but Target Price Holds at 78,000 Won... The Key to a Rebound

[Financial News] DoubleUGames is expected to report results below market expectations in the third quarter due to the impact of a decline in the exchange rate. However, analysts say the company remains attractive as growth is expected to resume in the fourth quarter, while cost reductions and expanded shareholder returns could provide additional support.
Eugene Investment & Securities maintained its Buy rating and target price of 78,000 won for DoubleUGames on the 2nd. Jeong Ui-hun, a researcher at Eugene Investment & Securities, said, "Downward revisions to earnings estimates due to changes in foreign exchange assumptions are unavoidable, but most of the weakness in the third quarter is attributable to foreign exchange effects, so the underlying business remains largely intact."
Jeong estimated DoubleUGames' third-quarter revenue at 199.7 billion won and operating profit at 65.6 billion won. These figures represent year-over-year increases of 7.3% and 10.9%, respectively, but declines of 5.2% and 6.4% from the previous quarter. Operating profit is expected to fall below the market forecast of 71.6 billion won.
He explained, "The decline in the won-dollar exchange rate from the previous quarter had a negative impact on both operating profit and net profit in the third quarter. Social casino revenue is expected to be affected by both the summer off-season and the decline in the exchange rate, but the decrease in dollar-denominated revenue should be limited."
Revenue from the iGaming segment is expected to remain similar to the previous quarter as the company cuts marketing spending in response to the UK's higher tax rate. Subsidiary Paxie Games is estimated to have posted a slight decline in revenue from the previous quarter as the recovery of its marketing investment was delayed.
Jeong said, "The recovery of the investment is believed to have been deferred to the fourth quarter because marketing spending was made upfront while more than 100 new titles were soft-launched."
Despite the slowdown in revenue growth, the cost-cutting trend is expected to continue. He stated, "Regardless of the sluggish revenue growth, operating expenses are expected to continue declining in the third quarter. As the DTC share exceeds 50% and the impact of lower Google Play fees is fully reflected, platform costs are expected to fall to 15.7% of revenue."
The fourth quarter was identified as the point at which earnings could rebound. Jeong explained, "If the won-dollar exchange rate remains at its current level of 1,363 won, the company is expected to benefit from entering the peak season for social casino games and from recovering its upfront investment in Paxie Games. Cost efficiency is also expected to continue, as platform costs decline with the expansion of DTC and the lower level of labor costs is maintained."

[email protected] Choi Do-seon Reporter