HSBC raises DouYu stock rating, cuts price target to $9.00

On Sunday, HSBC analyst Ritchie Sun upgraded DouYu (NASDAQ:DOYU) stock rating from Reduce to Hold, while reducing the price target to $9.00 from the previous $11.00. The upgrade comes as the stock shows remarkable momentum, with a 16.27% gain in the past week and an impressive 592.24% return over the last year. According to InvestingPro analysis, DouYu appears undervalued at current levels. The adjustment reflects HSBC’s expectation that DouYu will intensify efforts to improve margins and achieve financial stability through significant cost-cutting strategies.

The firm’s analysis indicates that DouYu is set to focus on margin improvement by implementing deeper cuts in licensed content costs, reducing functional headcount, and enforcing performance-based compensation for streamers. With a strong current ratio of 3.66 and more cash than debt on its balance sheet, DouYu is well-positioned to execute these strategic changes. Additionally, DouYu plans to allocate more resources to expand its voice-based social networking services, Gugu Voice, which experienced rapid growth in 2024 due to consolidation of market share and attracting users moving away from live-streaming apps.

HSBC projects that Gugu Voice will maintain solid growth in 2025, although the firm remains neutral on its long-term growth prospects due to fierce competition and potential regulatory challenges. The firm has reduced its top-line forecast for DouYu by 2% for the years 2025-26, attributing this to an anticipated decline in live-streaming revenue as a result of strategic adjustments. This decline is expected to be partially offset by stronger growth from Gugu Voice.

The report concludes with HSBC’s anticipation of a modest profit for DouYu in 2025, aligning with InvestingPro forecasts showing an expected EPS of $0.15 for FY2025. This is based on the aggressive cost-cutting measures that are expected to lift the adjusted net margin by 5-6 percentage points. The revised rating and price target suggest a cautious but improved outlook for DouYu’s financial performance in the near future. For deeper insights into DouYu’s valuation and growth potential, access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, DouYu International Holdings reported a 12.3% decline in total net revenues for the fourth quarter of 2024, totaling RMB1.14 billion. The company’s innovative business segment showed significant growth, with revenues increasing by 47.2% quarter-over-quarter, contributing 35.7% to the total revenue. Despite the revenue decline, DouYu issued two special cash dividends amounting to $600 million, reflecting its commitment to shareholder returns. The company ended the year with cash and equivalents of RMB4.47 billion. DouYu’s gross margin decreased from 9.7% to 6.1% year-over-year, and the net loss widened to RMB163.7 million from RMB62.2 million the previous year. Analysts have noted the company’s strategic focus on reallocating resources to high-value business segments to improve financial stability. The company plans to enhance its innovative business, aiming for it to contribute 35% of total revenue by 2025. DouYu’s management remains optimistic about narrowing operational losses and achieving financial stability amid ongoing market challenges.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.