Elevator Pitch

I charge DouYu Worldwide Holdings Restricted (NASDAQ:DOYU) as a Maintain.

Beforehand, my July 24, 2023 article was centered on the regulatory developments and the top-line outlook for DouYu. The present replace evaluates DOYU’s key monetary and working metrics.

I depart my present Maintain score for DouYu unchanged. I’m disillusioned with DOYU’s This fall 2023 person metrics and administration’s commentary referring to the corporate’s 2024 income prospects. However DouYu’s shares have already suffered from a considerable pullback following the discharge of its outcomes, and there are potential catalysts related to profitability and capital return. In that respect, I’ve chosen to retain a Maintain score for DOYU.

Submit-Outcomes Share Value Correction Is Warranted

DouYu’s inventory worth declined for 3 consecutive buying and selling days between March 26, 2024 and March 28, 2024. Particularly, the corporate’s shares dropped by a considerable -16.5% throughout the three-day interval earlier than Good Friday. Notably, DOYU launched its This fall 2023 and FY 2023 financial results announcement on March 26 earlier than the market opened.

The corporate’s post-results share worth underperformance is essentially justified, contemplating the unfavorable read-throughs from DOYU’s newest outcomes announcement and administration commentary.

Firstly, DOYU’s person base shrank in the latest quarter.

The corporate’s paying customers and cell MAUs (Month-to-month Energetic Customers) decreased by -34% YoY and -10% YoY, respectively, for the ultimate quarter of the prior 12 months.

DouYu famous in its outcomes announcement that “the soft macroeconomic environment and reduced revenue-generating promotions” had affected its person metrics in a destructive approach. At its Q4 2023 results briefing, the corporate additionally acknowledged that “As the live streaming sector matures, there is always competition over streamers.” In different phrases, the weak Chinese language financial system and a better degree of aggressive depth may need contributed to the decline in customers for DOYU.

Secondly, the market’s view of DOYU’s income progress prospects turned destructive following the administration’s feedback on the current earnings briefing.

On the firm’s newest quarterly earnings name, DouYu indicated that “we expect live-streaming revenue to experience downward pressure in 2024 as the overall revenue share from live-streaming remains significant.” In particular phrases, DOYU sees its core live-streaming enterprise contributing barely lower than 80% of its prime line for fiscal 2024. As a reference, DouYu’s live-streaming income fell by -36% YoY in the latest quarter.

As such, it’s no shock that the promote facet analysts’ consensus FY 2024 income estimate for the corporate was revised downwards by -13% (supply: S&P Capital IQ) following DOYU’s outcomes launch on March 26, 2024 morning. Because it stands now, the market anticipates that DouYu’s prime line in native foreign money or RMB phrases will contract by -22% within the present fiscal 12 months.

Two Potential Catalysts To Watch

It is not all gloom and doom for DOYU. The corporate’s person base contraction for This fall 2024 and its weak FY 2024 income outlook are key negatives as outlined within the previous part. However there are potential catalysts for DouYu which deserve consideration.

One potential catalyst is above-expectations profitability in 2024.

As per the consensus knowledge obtained from S&P Capital IQ, the promote facet at present forecasts that DOYU’s normalized web revenue will lower by -86% to RMB21 million. It’s doubtless that analysts thought of the consequences of destructive working leverage in projecting their earnings for DouYu, as I’ve famous the consensus FY 2024 top-line destructive progress estimate of -22% within the earlier part.

Nevertheless, DouYu does have sure profitability enchancment levers which could enable its precise revenue for the present 12 months to shock on the upside. DOYU talked about at its This fall 2023 earnings briefing that it has plans for “further workforce adjustments” in Q1 2024, and the corporate additionally famous that it’s “continuing to make ROI (Return On Investment)-driven decisions” in areas similar to advertising spend.

The opposite potential catalyst is a step up in share repurchases for the remainder of 2024.

DouYu’s new buyback program appears to be progressing at a slower-than-expected tempo. Earlier, on December 28, 2023, DOYU disclosed the initiation of a brand new one-year $20 million share repurchase plan which got here into impact on January 1, 2024.

The corporate did not reveal in its earnings announcement whether or not it did any share buybacks because the begin of this 12 months. DouYu famous at its This fall 2023 outcomes briefing that it’s “currently in the initial phase of implementing our share repurchase program”, I added the emphasis as I feel it implies {that a} restricted quantity of share buybacks is more likely to have been executed because the starting of 2024.

Nevertheless, assuming that DouYu does ultimately full the $20 million share buyback program by the top of this 12 months, it will translate into a big buyback yield of round 9.5%.

Closing Ideas

My view of DOYU is blended. The corporate’s variety of customers declined within the current quarter, and its top-line outlook for 2024 is unfavorable. On the flip facet, DouYu’s shares have already taken a beating and there may be the opportunity of a inventory worth restoration assuming that catalysts linked to buybacks and profitability are realized.

DouYu is now buying and selling at a consensus subsequent twelve months’ price-to-revenue a number of of 0.35 occasions (supply: S&P Capital IQ). The inventory’s undemanding valuations are justified by its weak income progress prospects (consensus -22% top-line contraction) and its modest profitability (consensus low-single-digit normalized web margin estimate) for 2024. As such, a Maintain score for DouYu is warranted.