DouYu: A Mix Of Positives And Negatives

Core Viewpoint - DouYu International Holdings Limited (NASDAQ:DOYU) is assigned a Hold investment rating due to mixed outlooks on revenue growth and profitability [1] Revenue Performance - DouYu's revenue decreased by -22.2% to RMB5,530.4 million in fiscal 2023, with a forecasted contraction narrowing to -21.3% this year and a projected positive sales growth of +4.5% next year [2] - The revenue contribution from DouYu's core live streaming business declined from 92.3% in Q1 2023 to 77.0% in Q1 2024, while advertising and other revenue accounted for 23.0% of total revenue [3] - A -41.5% drop in live streaming revenue to RMB800.9 million was partially offset by a +109.3% increase in advertising and other revenue to RMB238.8 million in Q1 2024 [3] - DouYu aims to increase the sales contribution ratio from advertising and other revenue from 13.2% in the prior year to at least 20.0% in the current year [4] Profitability Outlook - DouYu may experience some deleverage on profit levels due to ongoing adjustments in the live streaming business, leading to a -140 basis points YoY contraction in gross profit margin for Q1 2024 [5] - The company is projected to incur a normalized net loss of -RMB246 million in FY 2024, compared to a normalized net profit of +RMB154 million in FY 2023 [6] Shareholder Capital Return - DouYu's share repurchase activity has been modest, with only $2.7 million worth of shares bought back in the first three months of 2024, representing an annualized buyback yield of 3.3% [6][7] - The company does not pay dividends, making shareholder capital return reliant solely on buybacks, which may not meet investor expectations if the current repurchase rate continues [7] Market Valuation - The market is likely to focus on DouYu's revenue growth prospects, profitability outlook, and shareholder capital return when assessing the stock [8] - The current consensus price-to-revenue multiple of 0.54 times for DouYu may seem undemanding, but expected FY 2024 losses and modest share repurchase activity justify a valuation discount [8]