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Bear of the Day: DoubleDown Interactive (DDI)

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DoubleDown Interactive (DDI - Free Report) is a Zacks Rank #5 (Strong Sell) that engages in the development and publishing of digital games on mobile and web-based platforms for casual players in South Korea. 

Since the company came to market with an IPO in September of last year, the stock has slowly drifted lower. The first IPO trades were around he $18 mark, but now the stock trades under $10.

With the poor stock performance, investors should continue to avoid the name until the financials show something positive. For now, that is not the case.  

About the Company

DoubleDown is headquartered in Seoul, South Korea. The company was incorporated in 2008 and was formerly know as The8Games.

The area of focus for the company is digital social casino games. DoubleDown offers games titled DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Undead World: Hero Survival games.

DDI is valued at $500 million and has a Forward PE of 7. The company holds a Zacks Style Score of “A” in Value, but “D” in Growth. The stock pays out no dividend.

Q1 Earnings

The company reported EPS back in early May, seeing a 5% miss on EPS. This was the second miss in a row and the company has only beaten once in its short publicly traded life.

Net income was lower year over year, coming in at $18.5M vs the $19.4M last year. Revenues were lower as well, coming in at $85.5M vs the $96.7M last year. Adjusted EBOTDA was also lower, coming in at $26.9M v the 33.1M last year.

Investors did not respond well, selling the stock under the $9 level. The stock did rally all the way to $12, but with estimates going down, the bulls might be getting ahead of themselves.

Estimates

Since this is an illiquid low market cap name, not many analysts cover the stock. However, the ones that do are taking their numbers lower over the last 60 days.

For the current quarter, estimates have fallen from $0.40 to 0.36, or 10%. For the current year, the numbers have dropped 9.6%, from $1.66 to $1.50.

Technical Take

This is a low volume stock with big spreads. So the short-term charts can be tricky. However, if you zoom out it is clear that the stock has done nothing but bleed since the IPO.

For now, the stock is an avoid as it trades below its 50-day moving average at $11. If the stock can get above this level, then perhaps it can trade the 200-day MA near $14.

However, all signs point to this stock continuing to struggle until they start beating their numbers. If new lows come, look for the $6.50, which is the 161.8% Fib extension drawn from the recent lows to highs.

In Summary

Casino and gaming names have been hard enough. Investors don’t get excited when you start adding extra elements like digital casinos and foreign companies. Look for DDI to struggle unless they start growing their numbers.

For now, a better option in the sector might be DouYu (DOYU). The stock is a Zacks Rank #2 (Buy) and while the company is coming off a quarter where it met expectations, it has never missed.    


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