Citi raises DouYu stock rating, price target to $10.50 from $5.90

On Tuesday, Citi analysts upgraded DouYu International Holdings Ltd (NASDAQ:DOYU) stock from ’Sell’ to ’Neutral’ and increased the price target to $10.50, up from $5.90. This adjustment follows DouYu’s fourth-quarter earnings report for 2024, which exceeded expectations. The stock has shown remarkable momentum, with a 604% return over the past year and a 198% gain in the last six months. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics.

DouYu’s revenue for the fourth quarter of 2024 showed a year-over-year decrease of 12% but increased by 7% quarter-over-quarter, totaling Rmb1.14 billion. This figure was 8% higher than Citi’s projections. The live-streaming segment saw a 28% decline year-over-year, which was mitigated by a significant 47% growth in the company’s innovative business, reaching Rmb405 million. With a current market capitalization of $296 million and a price-to-book ratio of 0.51, the company trades at attractive valuations despite recent challenges.

The company’s non-GAAP net loss, excluding one-time impairments on investments, intangibles, and goodwill, was -Rmb68.8 million, aligning with Citi’s expectations. As DouYu enters 2025, the firm is expected to concentrate on growing higher-value segments such as voice-based social networking and game prop sales. These efforts aim to compensate for the diminishing live-streaming sector and shift the revenue mix towards innovative business and other areas. InvestingPro data reveals strong financial health indicators, with a current ratio of 3.66 and more cash than debt on its balance sheet. Get access to 12 additional ProTips and comprehensive analysis with an InvestingPro subscription.

DouYu’s management has shown a commitment to cost reduction by eliminating low-return-on-investment licensed copyrights, optimizing the live-streaming structure, and streamlining the workforce. Citi analysts believe these measures could accelerate DouYu’s path to break-even within 2025, with net margins projected at 2.2% and 4.5% for 2026 and 2027, respectively.

The revised price target of $10.50 is based on a valuation of 0.6 times the expected 2025 revenues of Rmb3.9 billion, which represents an improvement from the previous 0.3 times revenue multiple. This change is attributed to a more favorable outlook on profitability. The upgrade to a ’Neutral’ rating reflects the adjustments in estimates and the company’s strategic direction for the coming years.

In other recent news, DouYu International Holdings reported a 12.3% year-over-year decline in total net revenues for the fourth quarter of 2024, amounting to RMB1.14 billion. Despite the overall revenue drop, the company saw a significant 47.2% quarterly increase in its innovative business revenues, which now contribute 35.7% to total revenue. HSBC analyst Ritchie Sun upgraded DouYu’s stock rating from Reduce to Hold, while reducing the price target to $9.00 from the previous $11.00. This adjustment reflects HSBC’s expectation that DouYu will focus on improving margins and achieving financial stability through cost-cutting strategies.

The company issued two special cash dividends totaling $600 million, and as of December 31, 2024, DouYu held cash and equivalents of RMB4.47 billion. The gross margin declined from 9.7% to 6.1% year-over-year, with a notable decrease in live streaming revenues by 28.4% to RMB0.73 billion. Moving forward, DouYu aims to increase the revenue contribution from its innovative business to 35% by 2025, focusing on AI-driven productivity enhancements. Management expressed optimism about narrowing operational losses and achieving financial stability amid macroeconomic fluctuations.

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