[Click eStock] "DearU's Domestic Growth Potential Is Limited... The Key Lies in the Global Market"

LS Securities Lowers Target Price but Maintains Buy Rating

On September 9, LS Securities maintained its 'Buy' investment rating on DearU, the operator of "Bubble," a communication platform connecting artists with fans, but revised its target price downward by 19.4% from 36,000 won to 29,000 won. Compared to the previous day's closing price (18,360 won), LS Securities sees an upside potential of 58.0%. While domestic subscriber growth has slowed, overseas operations are expanding rapidly, leading the firm to judge that the medium- to long-term outlook remains positive in spite of the lower target price.

Seongho Park, a researcher at LS Securities, stated, "The current share price is undervalued compared to the three major entertainment companies, especially when considering the potential for mid- to long-term business expansion," and shared this analysis.

Researcher Park evaluated that DearU has established a differentiated position in the entertainment sector as a fan platform specializing in communication with artists. Unlike competing platforms that have expanded into e-commerce or content businesses, DearU has focused on strengthening its core business of fan communication—and this strategy has paid off. Based on this approach, the company has secured nearly 2 million paying subscribers in Korea and attracted around 726 domestic and international artist intellectual properties (IP) onto the platform. Of note is the company’s AI-based "Pet Bubble" service introduced last year, which allows fans to exchange one-on-one messages with character versions of artists’ pets. Although this service has yet to make a significant sales contribution, it is expected that, as characters and features become more sophisticated, both user engagement and additional payment frequency will increase.

LS Securities forecasts DearU's consolidated sales this year at 94.3 billion won (up 12.5% year-on-year) and operating profit at 38.6 billion won (up 22.9% year-on-year, with an operating margin of 40.9%). However, growth in the domestic business has stagnated to some extent. In the second quarter, the number of domestic Bubble subscribers stood at 1.97 million, down 2% from the previous quarter and 9% from the same period last year. This volatility is attributed to major artists with large fandoms joining or leaving the platform, which directly impacts subscriber numbers.

By contrast, overseas business is showing strong growth. At the end of the second quarter, the Japanese service "Bubble Japan" had 108,000 subscribers, representing an 8% increase from the previous quarter and a 71% surge from the same period last year. The number of local artist IPs also grew to 76, ensuring smooth supply. In China, "QQ Music Bubble" has entered a phase of full-scale expansion, with the number of C-Pop (Chinese popular music) artists on the platform rising sharply to 129 at the end of the second quarter from 98 at the end of the first quarter.

Another key to improving profitability is the shift in payment methods. The proportion of PG (payment gateway) transactions—which bypass the App Store—rose slightly to 17% by the end of the second quarter, up from the previous quarter. As PG payments increase, the burden of app market fees decreases, which is expected to accelerate profit growth. However, the conversion of existing in-app payment users to PG has been slower than anticipated, leading to a slight upward revision in the annual estimated commission rate.

"As the number of domestic subscribers has already neared 2 million, further growth potential is limited," said Researcher Park, adding, "However, if subscriber expansion in Japan and China translates to overall profit growth and the monetization potential of new AI-driven services is confirmed, a revaluation of the company’s valuation will be possible."

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