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Investing in DoubleDown Interactive: A Hidden Gem in the Booming Online Gaming Market

Hannah Perry | January 30, 2025

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Investing in DoubleDown Interactive: An Emerging Opportunity in the Gaming Sector

The world of online gaming is filled with excitement and potential, but beneath the surface lies a wealth of investment opportunities. One such opportunity is DoubleDown Interactive Co., Ltd. (DDI), a small-cap stock with a market capitalization of $502.47 million that has recently begun to capture the interest of deep-value investors. The company operates within the online social casino gaming space, where players engage in gaming activities using virtual currency. More recently, DDI has ventured into the realm of real-money iGaming thanks to its acquisition of SuprNation in 2023, marking an important pivot for the business.

Solid Financial Performance

DoubleDown Interactive has showcased a substantial financial performance in its latest earnings report. For the third quarter ending September 30, 2024, DDI reported revenue of $82.98 million, reflecting a noteworthy increase of 13.7% year-over-year. In addition, the company saw its operating income grow by 18.7% from the previous year, reaching $35.24 million. The adjusted EBITDA increased by 21.5%, amounting to $36.1 million. Notably, DDI’s comprehensive attributable net income reached $29.31 million, a year-on-year increase of 16.9%. Furthermore, the company’s earnings per share (EPS) for the quarter stood at $10.11.

Historical Growth and Future Projections

Over the past three years, DoubleDown Interactive has experienced impressive growth, with its net income CAGR at 14.4%, while EBITDA has grown at a CAGR of 4.3%. The firm’s tangible book value has witnessed a remarkable CAGR of 32.9%. Looking ahead, analysts have favorable estimates for DDI, with a consensus revenue forecast of $85.67 million for the upcoming fiscal fourth quarter, indicating a 3.1% increase year-over-year. The anticipated EPS for Q4 is $0.59, denoting a 15.7% rise compared to the prior year.

Market Valuation and Profitability Metrics

In terms of valuation, DDI is considerably undervalued in comparison to the industry average. The company’s forward non-GAAP P/E ratio is 4.20x, which is 71.2% lower than the industry average of 14.58x. Its forward EV/EBIT and EV/EBITDA multiples stand at 1.21 and 1.18, respectively, markedly lower than industry standards. Moreover, with a trailing EBITDA margin of 41.21%120.6% higher than the industry average—and a net income margin of 33.28%, DDI demonstrates robust profitability compared to its peers.

Challenges on the Horizon

Despite its impressive performance, DoubleDown Interactive faces several challenges that could impact its long-term growth trajectory. The company has admitted to a declining user base and is grappling with regulatory hurdles in the iGaming sector. These factors pose potential risks that investors should be aware of as they consider their investment strategies.

Investor Sentiment and Opportunities Ahead

Despite a 3% dip in stock performance year-to-date, DDI remains an attractive option for investors seeking deep-value opportunities. The company’s robust cash generation model, combined with a net cash position that constitutes 65% of its market cap, provides significant upside potential. The core social casino business continues to evolve, while the iGaming segment is gaining traction, positioning DDI well in the competitive digital gaming market.

Bottom Line

In summary, DoubleDown Interactive presents an enticing proposition for investors looking to capitalize on a solidly positioned, undervalued stock in a rapidly changing sector. Whether you prioritize growth, value, or quality, DDI’s fundamentals speak to its potential. With a healthy balance sheet and a commitment to strategic growth, investors may wish to consider DDI as a compelling addition to their portfolio. To keep abreast of DDI’s market developments, you can explore the company’s insights by following their ongoing announcements.