DoubleDown Stock Could Be Near Double in the Making

Social casino operator DoubleDown Interactive (NASDAQ:DDI) went public earlier this month. While the stock is trading slightly below its initial public offering (IPO) price, it’s drawing some early optimism in the analyst community.

In a recent note to clients, B. Riley analyst David Bain initiates coverage on DoubleDown with a “buy” rating and a 12-month $30 price target. That’s well above the stock’s current handle of $17.55, and more than 62 percent higher than its $18.50 IPO price.

We believe shares do not yet reflect DDI’s (1) highly predictable and consistently growing revenue/EBITDA/FCF anchored by unique content, best-in-class data-based analytics, and real-time marketing in its core online social casino business; (2) better-than-peer average key performance indicators (KPIs),” said Bain.

B. Riley was the lead underwriter for the DoubleDown IPO, and also announced a tender offer to purchase an additional two million shares of the newly public gaming company.

More Catalysts for DoubleDown Stock

The universe of publicly traded mobile games developers and social casino operators, of which DoubleDown is one, is rapidly expanding. However, the recent crop of IPOs in this space is a mixed bag, with some names plunging following public debuts.

“We forecast CY22E/CY23E earnings before interest, taxes, depreciation and amortization (EBITDA) growth of +8%/+13%, net free cash flow of $95 million/$108 million, and CY23E ending net cash of approximately $393 million. DDI trades at CY22E/CY23E EV/EBITDA of 4.6x/3.4x, versus peers at 15.9x/14.3x,” adds Bain.

Social Casino Growth Could Power DoubleDown Stock

While the social casino investment thesis is largely overshadowed by iGaming and sports wagering, data confirm it’s on a torrid growth pace of its own, and South Korea-based DoubleDown is participating in that growth.

“DDI generates core revenue/EBITDA from the $7.5B online social casino industry, which has an eight-year CAGR of ~23%. Despite CY20A COVID-led +25% industry growth (DDI revenue growth was +31%), CY21 is tracking Y/Y growth, which should accelerate in CY22E/CY23E, in our view,” notes Bain.

“We believe potential upside optionality versus our forecast includes (1) our likely conservative social casino industry outlook, (2) DDI’s expansion into a new mobile game category (simultaneous with its social casino scale/mix of licensed versus proprietary games keeping steady to upward EBITDA margin momentum), and (3) potential significant margin benefits from reduced platform fees due to a recent legal decision that may broaden in-app (or out-of-app) consumer purchasing options,” concludes Bain.