[Click eStock] DearU: No Events and Unfavorable FX... Target Price Lowered

DAOL Investment & Securities lowered its target price for DearU to 28,000 won from 33,000 won on October 21, saying that third-quarter results are expected to fall short of consensus estimates as the exchange rate weighed on earnings amid a lack of event-related catalysts.

"Revenue is expected to come in at 21.9 billion won and operating profit at 8.5 billion won in the third quarter, both below consensus," said Lim Doyoung, an analyst at DAOL Investment & Securities. "This reflects the negative impact of foreign exchange movements, which had been favorable in the first half, amid a lack of meaningful new IP launches on the platform."

"The number of global Bubble subscribers is estimated at around 1.98 million, due to the lack of meaningful new IP," Lim said. "However, actor Lee Kwang-soo's Bubble, which launched on October 1, has attracted attention, topping app store downloads and recording a subscriber count among the highest on the platform." He added, "It has also launched simultaneously on QQ Music, and a positive impact is expected based on its popularity in Asia. While there may be some initial volatility, subscriber numbers in the fourth quarter could grow from the previous quarter, given the high initial subscriber base."

On China and other global businesses, he said, "The number of Bubble subscribers in China is understood to have increased 20% from the previous quarter." However, "given growth centered on C-POP, which generates relatively low royalty rates, and the exchange rate, Bubble royalty revenue in China is expected to increase slightly less than the number of subscribers." He added, "Bubble royalties from JOOX, which were expected to be recognized in the third quarter, will be recognized in the fourth quarter instead due to administrative procedures."

On costs and new businesses, he said, "The electronic payment gateway (PG) conversion rate continues to rise, reaching 18%, while Bubble House New York, the company's new North American business, is set to hold a soft opening in mid-November ahead of its grand opening in early December." He added, "It will initially operate with RIIZE and Stray Kids concepts and is also expected to be used as a pop-up space."

"We lowered our fair value estimate by excluding the platform premium and applying the same multiples as those of major entertainment companies on the platform. We will maintain this approach until we see renewed visibility into growth in the core business, profitability improvements in line with expectations, and meaningful profit contributions from new businesses," he said.

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