IPO Preview: DoubleDown Interactive Seeks Expansion Capital From U.S. IPO

IPOStreet

DoubleDown Interactive (DDI) intends to raise $100 million in an IPO of its ADSs representing ordinary shares, according to an F-1 registration statement.

The firm creates a variety of casual video games for a worldwide audience.

DDI is growing revenue and producing strong net profits and free cash flow in an industry with favorable growth characteristics ahead of it.

Seoul, Republic of Korea-based DoubleDown was founded to develop a family of gaming titles for casual gaming enthusiasts.

Management is led by director and CEO In Keuk Kim, who has been with the firm since leading the acquisition of DoubleDown by DoubleU Games and has extensive executive experience in the cloud computing, trading and corporate M&A industries.

Below is a brief review of DoubleDown Casino game by a user:

Source: LEON HOUSE

The company’s primary offerings include social casino games including DoubleDown Casino, DoubleDown Fort Knox, DoubleDown Classic and Ellen's Road to Riches.

DoubleDown has received at least $345 million from investors including DoubleU Games and STIC Special Situation Diamond

Customer/User Acquisition & Market

The company obtains customers through all manner of online acquisition, including mobile game app stores, search engines, and social earned visibility.

Sales & Marketing expenses as a percentage of total revenue have been uneven but trending upward as revenues have increased.

The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, rose from 0.2x to 0.5x in the most recent reporting period.

According to a 2020 market research report by Mobile Marketer, in 2019, mobile games accounted for 60% of revenue for global video game activity, generating $49 billion in revenue, profit of $16.9 billion.

The mobile gaming market is forecast to grow at a 2.9% annual rate through 2024.

The main drivers for this expected growth are more capable smartphones able to generate more compelling and sophisticated game experiences and continued investment by mobile game developers in innovative display presentation and game dynamics.

DoubleDown’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • Increasing gross profit and higher gross margin
  • Stable operating profit
  • Increased net income
  • Uneven but strong cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

ddipl

Source: Company registration statement

As of March 31, 2020, DoubleDown had $36.5 million in cash and $405.8 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was an impressive $78.9 million.

DoubleDown intends to raise $100 million in gross proceeds from an IPO of its ADSs representing ordinary shares, although the final amount may differ.

Investor STIC Special Situation Diamond (32.3% ownership) plans to sell an as-yet unspecified number of shares in the offering.

Management says it will use the net proceeds from the IPO ‘for working capital and general corporate purposes. We believe that our funds and the proceeds from this offering will be sufficient to continue our business and operations as currently conducted through 2021. We will not receive any proceeds from the sale of our ADSs by the selling shareholder.’

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are J.P. Morgan, BofA Securities, and Macquarie Capital.

Commentary

DoubleDown is seeking U.S capital to fund its multi-pronged expansion efforts, which include growing its newest game title, DoubleDown Fort Knox and expanding internationally in Australia, Western Europe and the greater Asia Pacific region.

The firm’s financials show an impressive business that is producing net profits and enviable free cash flow.

Sales & Marketing expenses as a percentage of total revenue have trended upward, but its Sales & Marketing efficiency rate has more than doubled, from 0.2x to 0.5x.

The market opportunity for casual gaming is large, global and expected to continue its recent strong growth, so the firm has enviable industry dynamics in its favor over the near term.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 61.8% since their IPO. This is a top-tier performance for all major underwriters during the period.

I look forward to hearing about the IPO’s pricing and valuation assumptions from management and will provide an opinion at that time.

Expected IPO Pricing Date: To be announced.

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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