[Click eStock] "DearU's Growth Story Remains Intact... Correction Is a Buying Opportunity"

On June 26, Shinhan Investment Corp. stated that although DearU's stock price has plummeted due to concerns over delays in its China launch and profit-taking, the company's growth story and expectations for improved profitability remain intact. The firm analyzed that the recent correction represents a buying opportunity.

Ji Inhae, a research analyst at Shinhan Investment Corp., explained, "While there has been an overall correction in entertainment stocks, the most pronounced weakness in DearU was primarily due to two factors: the earlier-than-expected sell-on supply related to the business launch with Tencent Music Entertainment (TME) in China, and concerns such as, 'It's already the end of June, why is it so quiet? Has the China service launch been delayed again?'"

However, Ji emphasized, "To be clear, nothing has changed." The launch schedule for DearU's Bubble service within China's QQ Music remains unchanged, as previously communicated, with the launch set for late June to July. Currently, the launch is "imminent." Ji predicted, "Bubble's utilization will be very high, especially since Tencent Music is aiming to revitalize its social entertainment division."

Beyond the China business, DearU's performance improvement factors are evident in several areas. Ji pointed out, "From the second quarter of this year, the number of paid subscriptions, which had stagnated for seven consecutive quarters, has rebounded significantly due to the addition of SM boy groups NCT Wish and Riize." He highlighted the increase in subscribers driven by expanded content offerings.

In terms of profitability, the introduction of the PG payment method starting in July is expected to be a turning point. Ji stated, "The adoption of PG payments will sharply improve profitability by reducing payment processing fees, which will be cut to about half of the previous level." Additionally, he expects the average revenue per paying user (ARPPU) to rise through value-added services such as handwritten messages and PetBubble.

In the long term, DearU's global expansion strategy also appears to be progressing smoothly. Ji forecasted, "Over time, the inclusion of C-pop artists in China Bubble and K-pop artists in Japan Bubble will gradually increase overseas royalty income, which will be a driver for margin improvement."

He added, "The investment thesis for profitability improvement remains completely unchanged, and the correction is a buying opportunity. The earlier-than-expected sell-on could be a good opportunity for some investors."