[Click eStock] "DearU, Excessive Stock Price Drop... Entering Undervalued Zone"

[Asia Economy Reporter Lee Jung-yoon] Kiwoom Securities maintained its buy rating on DearU on the 3rd but lowered the target price from 60,000 KRW to 52,500 KRW.

DearU's sales in the third quarter of this year recorded 12.1 billion KRW, down 13.3% from the same period last year, and operating profit decreased by 4% to 4 billion KRW. Operating expenses increased by 24.4% year-on-year to 8.1 billion KRW due to payment fees from subscription growth and the Bubble Live beta service. The average number of subscribers in the third quarter was 1.45 million, showing continuous growth following 1.3 million in the first quarter and 1.35 million in the second quarter. However, the relatively small sales scale compared to the number of subscribers seems to be due to changes in settlement rates according to artist-specific subscription growth and shifts in the Android user ratio.

Namsoo Lee, a researcher at Kiwoom Securities, explained, "Questions about growth are recurring, and multiple contractions in growth stocks and the entertainment industry have led to stock price weakness," adding, "Reflecting this, the target price has been lowered, but it is true that even if the current subscriber trend is maintained, the stock has entered an undervalued zone."

He continued, "In the third quarter, subscriber depth was strengthened, and new subscriptions appeared simultaneously," noting, "With the reopening, concert hosting has become active, making concert-utilized marketing effective." The researcher also stated, "World tours will continue after the fourth quarter, so the organic growth trend linked to artist activities will be maintained," and added, "DearU's business is a fandom industry, so concerns about retention risks such as resubscription faced by other platforms are low, and reinvestment burdens are small, leading to immediate profitability improvements through economies of scale." However, he evaluated that the pace of inorganic growth points that would drive subscription growth, such as entry into the Chinese Android market and expansion of overseas artist recruitment in the Americas and Japan, is somewhat disappointing.

In the fourth quarter, a fan club service is scheduled to be launched, with the global fan club agency for Stray Kids expected. The fan club activity period is until November 2023, and exposure on Bubble is expected to be maximized. Performance improvement is anticipated by expecting new subscriptions from fan club service agency and Bubble non-users.

For the fourth quarter, reflecting subscriber depth strengthening and partial monetization of Bubble Live, sales are expected to increase by 21.9% year-on-year to 13.3 billion KRW, and operating profit is forecasted to rise by 85% to 4.5 billion KRW. Even if inorganic growth from global expansion in China, the US, and Japan does not materialize in 2023, if the current growth rate of about 10% per quarter is maintained, sales are predicted to increase by 63.2% year-on-year to 79.6 billion KRW, and operating profit to rise by 33.2% to 33.2 billion KRW.

This content was produced with the assistance of AI translation services.