DoubleDown Interactive(DDI) - 2021 Q4 - Annual Report

Financial Performance - Total revenue increased to $363.2 million in 2021 from approximately $358.3 million in 2020, reflecting a growth rate of about 0.5%[21] - DoubleDown Casino generated 96.6% of the company's revenue in 2021, down from 95.7% in 2020, indicating a strong reliance on this game for financial performance[26] - Approximately 73% of the company's revenue for the year ended December 31, 2021, and 72% for the year ended December 31, 2020, were attributable to mobile device use[82] - The company’s revenues are primarily generated through DDI-US in the United States, with significant operations based in Seoul, Korea[60] Player Engagement and Retention - The average monthly paying users (MPUs) decreased from 2020 to 2021, while the overall payer conversion rate increased from 5.4% in 2020 to 5.7% in 2021[25] - The ability to attract and retain paying players is critical for future growth, with ongoing competition and economic conditions posing risks[22] - The company must increase player spending and the number of purchasing players to sustain revenue levels, emphasizing the importance of engaging content and incentives[25] - The company must effectively analyze player demographics and preferences to enhance existing games and develop new ones to retain paying players[27] - The company’s ability to acquire and retain players is driven by the quality and quantity of games in its portfolio, necessitating continuous innovation[57] Market Expansion and Strategy - The company aims to expand its player base through geographic expansion in Asia-Pacific and Western Europe, contingent on effective market understanding and regulatory navigation[23] - The company plans to invest significantly in research and development, analytics, and marketing to refresh existing games and launch new titles to maintain player engagement[26] - The company may pursue strategic acquisitions to expand operations, but there are risks associated with identifying and integrating these acquisitions successfully[97][98] Legal and Regulatory Risks - Legal and regulatory challenges could limit growth opportunities and increase operational costs[20] - The company faces risks from potential regulatory changes regarding social casino games, which could impose stringent regulations or even prohibit operations in certain jurisdictions[44] - The company is currently involved in a patent infringement case, with the outcome uncertain and pending appeal, which could impact its operations[42] - The company has incurred significant expenses related to defending against lawsuits, with no guarantee of insurance coverage for these costs[38] - The company is subject to various evolving laws and regulations that could impose additional compliance costs and affect operations[108][110] Operational Challenges - Future performance is subject to uncertainties, including the impact of COVID-19 and evolving industry standards[14] - The company’s profitability may be adversely affected by its ability to manage growth and maintain game quality[21] - The company relies on third-party platforms like Apple, Facebook, Google, and Amazon for game distribution, which are critical for revenue generation[29] - The company relies on skilled employees for game development, and a lack of such talent could negatively impact business plans and financial condition[103] - The company faces risks from natural disasters that could disrupt operations and impact financial results[104] Data Privacy and Security - The company is subject to various U.S. and international data privacy and security laws, including GDPR and the California Consumer Privacy Act, which could increase operational costs[65] - Changes in data privacy laws may require the company to modify data processing practices, potentially affecting financial results[68] - Any limitation on the collection and use of player data could lead to a loss of revenues, as the company uses this data to deliver relevant content and advertisements[76] - The company may incur significant costs and liabilities if it fails to comply with privacy policies or legal obligations, impacting player trust and business reputation[69] - The company may be negatively impacted by existing and proposed laws and regulations related to cybersecurity and data protection[74] Shareholder and Corporate Governance - As of April 1, 2022, DoubleU Games holds approximately 67.1% of the company's shares, granting it significant voting control over key decisions[127] - The company is classified as a "controlled company" under NASDAQ rules, allowing it to follow home country practices instead of certain NASDAQ corporate governance standards[128] - The company has outstanding loans with DoubleU Games totaling US$42.2 million (KRW 50 billion) as of December 31, 2021, with a fixed interest rate of 4.60% per annum[134] - The company does not currently intend to pay dividends on its common shares for the foreseeable future, as it plans to invest future earnings to fund growth[143] - The company is required to disclose intended arrangements with major shareholders to its board of directors, necessitating a two-thirds majority approval for such arrangements[132] Economic and Market Conditions - Changes in consumer spending due to economic downturns or global events could adversely impact demand for the company's games and overall financial performance[100] - The online gaming industry has benefited from the COVID-19 pandemic, with monthly revenue increasing during stay-at-home orders, although this benefit is expected to decrease as restrictions ease[102] - The company has experienced fluctuations in operating results due to seasonality, with player activity generally slower in the second and third quarters, particularly during summer months[105] - Tax law changes, including potential global minimum taxes, could materially impact the company's financial position and results of operations[119]