Shares of Seoul-based DoubleDown Interactive (DDI) have climbed over 18% on the back of a strong start to 2024 reported by the company on May 8. Q1 revenue rose 13.5% year-over-year to $88.1 million and came in comfortably ahead of the $82.3 million consensus. While the October 2023 acquisition of SuprNation contributed $8.3 million to this gain, DDI also enjoyed solid organic growth of 2.8% on higher engagement of its existing player base as evidenced by a 22.3% increase in average revenue per daily active user to $1.26, an improvement in its payer conversion rate (the percentage of players who pay within the social casino apps) to 6.4% from 5.8%, and a 27.1% jump in average monthly revenue per payer to $281. With additional assistance from higher gross margin, lower marketing expenses, increased interest income and a reduced effective tax rate, net income climbed 28% to $29.4 million or 61 cents per American depositary share (ADS), 14 cents better than expected.
This solid operating performance also led to the production of a whopping $34.9 million in free cash flow during the quarter, allowing DDI to increase its already sizable net cash and short-term investment balance to $272.4 million. That works out to about $5.50 in net cash and equivalents per ADS, or still more than 40% of the current stock price, even after its recent bounce.
It was not entirely good news. DDI said the launch of its first skill-based game, Cash Me Out Bingo, did not meet its performance requirements and that it has decided not to proceed with user acquisition activities for this game. Though this means that Cash Me Out Bingo clearly won’t be the kind of meaningful revenue diversifier to its main DoubleDown Casino game the company was hoping for, it also indicates that marketing expense will likely be below the Q1 level in the quarters ahead.
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Combined with the rollout of new features for DoubleDown Casino—which already contributed to the improved monetization and engagement metrics in Q1 and call for the launch of Mission Pass (which offers players daily, weekly and monthly quests alongside casino games) in Q2—and its slate of other promising internally developed mobile games expected to launch later in 2024, I think the company remains in excellent position to continue enjoying strong operating and free cash flow performance as the year progresses. As this plays out, I don’t expect the stock to remain at the ridiculously low forward P/E of 6.1 it is still trading at for much longer.
