Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

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Huya, one of the major live streaming platform in China and a subsidiary of the US listed <a href="https://www.smartkarma.com/entities/285" target="_blank" data-smartkarma-citation="entities:285:1">YY Inc ADR (YY US)</a> , is raising a maximum of USD200m in its US listing. As per media reports, the company is looking at a valuation of two billion dollars. In this insight, we will cover the following topics:<ul><li>What does the company do? How does it make money?</li><li>What are the trends of the live streaming industry in China? </li><li>What's worth noting in the company's operating data and financials?</li><li>Who are the shareholders of the company?</li></ul>

Huya, one of the major live streaming platform in China and a subsidiary of the US listed YY Inc ADR (YY US) , is raising a maximum of USD200m in its US listing. As per media reports, the company is looking at a valuation of two billion dollars. In this insight, we will cover the following topics:What does the company do? How does it make money?What are the trends of the live streaming industry in China? What's worth noting in the company's operating data and financials?Who are the shareholders of the company?

Huya Live Streaming IPO: Fast Growing Industry but Competition Is Intense (Part 1)

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/26983" target="_blank" data-smartkarma-citation="entities:26983:1">HUYA Inc (HUYA US)</a> filed for an NYSE IPO to raise $200 million on 9 April. It is a leading game live streaming platform in China, backed by <a href="https://www.smartkarma.com/entities/285" target="_blank" data-smartkarma-citation="entities:285:1">YY Inc ADR (YY US)</a>, a 48.3% controlling shareholder and <a href="https://www.smartkarma.com/entities/26" target="_blank" data-smartkarma-citation="entities:26:1">Tencent Holdings Ltd (700 HK)</a>, a 34.6% shareholder.Chinese live streaming IPOs seem quite in vogue with <a href="https://www.smartkarma.com/entities/26978" target="_blank" data-smartkarma-citation="entities:26978:1">Inke Inc (1368478D HK)</a> and Douyu expected to list this year. Our overall view is that investors seeking exposure to the Chinese live streaming market are better off buying YY shares as it provides exposure to YY Live (better monetisation and margins) and an option on a potential first day pop in Huya’s share price. For investors, seeking a pure-play exposure to Chinese game live streaming, Douyu’s rumoured IPO will likely be a better bet. Our recommendation is based on our view that Huya’s fundamentals are unattractive because:<ol><li>With market growth forecasted to rapidly moderate, Huya is losing ground to YY Live regarding monetisation. YY has stated in its earnings call that due to the characteristics of the game live streaming market, the paying ratio and monthly average revenue per paying user (ARPPU) for Huya are lower than YY Live. Notably, the gap between YY Live’s and Huya’s monthly ARPPU has widened from RMB114 in 4Q16 to RMB159 in 4Q17.</li><li>While Huya claims to be the No.1 game live streaming platform in China, the reality is more nuanced as Huya and Douyu, the key competitor, are going toe-to-toe with each other regarding market share. Douyu narrowly beat Huya in terms of daily active users in December 2017 (Questmobile), and its app ranked higher than Huya’s app regarding revenue in 2018 (AppAnnie).</li><li>Tencent’s recent investments suggest that it remains unclear which game live streaming platform will emerge as the de facto leader. After its $462 million investment in Huya, Tencent invested a further $632 million in Douyu. Tencent also operates its own game live streaming platform, Tencent Egame.</li><li>Huya has structurally lower margins compared to YY Live. Huya has a lower gross margin as the two largest cost times (revenue-sharing fees/content costs and bandwidth costs) will likely remain higher than YY Live. Game live streaming platforms rely heavily on a small number of top game hosts and share a higher percentage of revenue with these hosts. While relatively similar regarding mobile monthly active users, Huya spends more on bandwidth costs on an absolute basis than YY Live.</li></ol>We will provide a view of valuation once the IPO price range is announced. We also direct readers to <a href="https://www.smartkarma.com/insights/inke-ipo-preview-not-quite-right" target="_blank" data-smartkarma-citation="insights:19204">Inke IPO Preview: Not Quite Right</a> to get our view on Inke's upcoming IPO.

HUYA Inc (HUYA US) filed for an NYSE IPO to raise $200 million on 9 April. It is a leading game live streaming platform in China, backed by YY Inc ADR (YY US), a 48.3% controlling shareholder and Tencent Holdings Ltd (700 HK), a 34.6% shareholder.Chinese live streaming IPOs seem quite in vogue with Inke Inc (1368478D HK) and Douyu expected to list this year. Our overall view is that investors seeking exposure to the Chinese live streaming market are better off buying YY shares as it provides exposure to YY Live (better monetisation and margins) and an option on a potential first day pop in Huya’s share price. For investors, seeking a pure-play exposure to Chinese game live streaming, Douyu’s rumoured IPO will likely be a better bet. Our recommendation is based on our view that Huya’s fundamentals are unattractive because:With market growth forecasted to rapidly moderate, Huya is losing ground to YY Live regarding monetisation. YY has stated in its earnings call that due to the characteristics of the game live streaming market, the paying ratio and monthly average revenue per paying user (ARPPU) for Huya are lower than YY Live. Notably, the gap between YY Live’s and Huya’s monthly ARPPU has widened from RMB114 in 4Q16 to RMB159 in 4Q17.While Huya claims to be the No.1 game live streaming platform in China, the reality is more nuanced as Huya and Douyu, the key competitor, are going toe-to-toe with each other regarding market share. Douyu narrowly beat Huya in terms of daily active users in December 2017 (Questmobile), and its app ranked higher than Huya’s app regarding revenue in 2018 (AppAnnie).Tencent’s recent investments suggest that it remains unclear which game live streaming platform will emerge as the de facto leader. After its $462 million investment in Huya, Tencent invested a further $632 million in Douyu. Tencent also operates its own game live streaming platform, Tencent Egame.Huya has structurally lower margins compared to YY Live. Huya has a lower gross margin as the two largest cost times (revenue-sharing fees/content costs and bandwidth costs) will likely remain higher than YY Live. Game live streaming platforms rely heavily on a small number of top game hosts and share a higher percentage of revenue with these hosts. While relatively similar regarding mobile monthly active users, Huya spends more on bandwidth costs on an absolute basis than YY Live.We will provide a view of valuation once the IPO price range is announced. We also direct readers to Inke IPO Preview: Not Quite Right to get our view on Inke's upcoming IPO.

Huya IPO Preview: What's All the Fuss About?

United States

HUYA Inc. operates as a game live streaming platform. The Company offers interactive video broadcast services including e-sports, music, reality show, entertainment genres, talent shows, and anime and outdoor activities. HUYA serves customers in China.

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HUYA (HUYA US)

Huya Live Streaming IPO: Fast Growing Industry but Competition Is Intense (Part 1)

Huya, one of the major live streaming platform in China and a subsidiary of the US listed YY Inc ADR (YY US) , is raising a maximum of USD200m in...

Ke Yan, CFA, FRM

Huya IPO Preview: What's All the Fuss About?

HUYA Inc (HUYA US) filed for an NYSE IPO to raise $200 million on 9 April. It is a leading game live streaming platform in China, backed by YY Inc...

Arun George

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52-week Range

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