On Thursday, Citi maintained its Sell rating on shares of DouYu (NASDAQ: DOYU), while increasing the price target to $5.90, up from the previous $5.50. The adjustment comes after the company reported third-quarter earnings for 2024, which revealed revenues of RMB 1.06 billion.
This figure represents a 22% decrease year-over-year but a 3% increase quarter-over-quarter, exceeding both Citi's and the Bloomberg consensus estimates by 10% and 7%, respectively.
The company's growth in the third quarter was notably driven by a 29% sequential increase in other revenues, particularly from social network services and game memberships. This growth helped to mitigate the slower deceleration in live-streaming revenue. DouYu's Non-GAAP net loss for the quarter was RMB 40 million, which was better than Citi's and the Street's expectations, aided by continued operational expense control.
Looking forward to the fourth quarter of 2024, Citi anticipates that DouYu's social network and game membership segments may continue to build momentum, which could partially offset the ongoing deceleration in live-streaming revenues.
As the company approaches 2025, the focus is expected to shift towards optimizing content costs. This includes modifying streamer compensation packages and negotiating procurement content early next year.
While acknowledging that these content adjustments may impact the company in the near term, management's strategy aims to balance user traffic and monetization with a more efficient cost structure. Citi's revised price target of $5.90 is based on an unchanged multiple of 0.3 times DouYu's expected 2025 revenues of RMB 4.20 billion. Despite the raised target price, the firm's Sell rating on the stock remains unchanged.
In other recent news, DouYu International Holdings (NASDAQ:DOYU) Limited experienced a decline in total net revenues by 25.9% year-over-year to RMB1.03 billion in the second quarter of 2024. Notably, the company's mobile monthly active users (MAUs) also decreased by 12.3% year-over-year, settling at 44.1 million, while livestreaming revenues fell by 37.2% to RMB0.79 billion.
Despite these challenges, DouYu saw an increase in revenues from innovative businesses, which jumped by 80.7% to RMB242 million.
The company initiated a share repurchase program, with US$11.2 million worth of ADS repurchased by the end of Q2 2024, and declared a special cash dividend of approximately US$300 million in early July 2024. These recent developments come as DouYu is refining its strategy to adapt to these challenges and is investing in long-term growth opportunities, including revenue diversification and tighter cost controls.
InvestingPro Insights
Recent InvestingPro data provides additional context to DouYu's financial situation and market performance. As of the last twelve months ending Q2 2024, DouYu's revenue stood at $650.42 million, with a concerning revenue growth of -25.62%. This aligns with Citi's observation of decreasing year-over-year revenues in the third quarter.
The company's Price to Book ratio of 0.34 suggests that the stock might be undervalued, which could be of interest to value investors. However, this should be considered alongside other financial metrics and the company's growth prospects.
InvestingPro Tips highlight that DouYu holds more cash than debt on its balance sheet, which could provide financial flexibility as the company navigates through its operational challenges and implements cost optimization strategies. Additionally, the stock has seen a significant price uptick over the last six months, with a 100.58% total return, indicating renewed investor interest despite the company's financial struggles.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for DouYu, providing a deeper understanding of the company's financial health and market position.
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