Summary: ON SALE
Score: 10/20
MOS: 66%
Share Price: $21
Sticker Price: $64
Is Huya stock a good buy?
Huya is a China stock suggestion from one of our newest Tykr members.
Huya is a Chinese video live streaming service. The site is one of the largest of its kind in China. Similar to other streaming services like Twitch (based out of San Francisco, CA), the site primarily focuses on video game live streaming and includes official broadcasts of Esports competitions. In addition, Huya also has live broadcasts for a variety of other genres, including cooking, traditional sports and “real life” streams.
The global video game industry is larger than the movie industry. By comparison, the video game industry is $159B and the movie industry is $136B. Typically when I hear of a video game related stock, I’ll take a deeper look into the business. Let’s dive into Huya…
This is how Huya works. You have 2 types of users on the platform:
- Broadcasters (People who play video games)
- Fans (People who watch broadcasters play video games)
Essentially, fans can buy virtual gifts such as gold stars, thumps up, trophies, etc for broadcasters. Each gift is a small fee but similar to transaction fee business models (PayPal, Square, Visa, and Mastercard) the payments can add up quickly. Both Huya and the broadcaster share in the revenue of those gifts. Gifts can range in price between $.01 and $100 on average.
Huya generates revenue two ways:
- Virtual gifts as explained above (94% of revenue)
- Advertising (6% of revenue)
Okay, before we go any further, you’re probably asking the same question I’m asking… virtual gifts, what? I had no idea that was a major revenue generator. I did a little digging and this is what I discovered.
In China, gifts are given to show respect, gratitude, friendship, love, and hospitality. It is a common courtesy. The etiquette of gift-giving in China is different from western countries. For thousands of years, China’s etiquette has been passed down generation by generation. For Chinese residents, courtesy demands reciprocity, which means people who are well-mannered to others will receive kindness and favors. If they receive a gift, invitation, or hospitality treatment from someone, they will offer it back when it is suitable. This is called “Li Shang Wang Lai” in Chinese. The customary reciprocity is also considered a traditional way to build and maintain friendships.
The creators of Huya and other China based companies leverage this behavior and incorporate gift giving into the business model. I find this very fascinating as I have not seen gift giving as a significant revenue model in the US.
Here are some really interesting Huya facts to pay attention to:
- They have over 200 million active users
- They have over 700 thousand broadcasters
- They have over 3,800 games
- They were founded in 2016 and this year they’ve already surpassed $10B in revenue
- They’ve doubled their revenue over the last year
- They’ve increased their revenue by 10X over the last 5 years
- They’ve also doubled their free cash over the last year
Also note this recent article from The Motley Fool which echos the positive points above. Here are a few highlights…
- Operating profit surged by 249% over the last year.
- Two years ago, Huya started it’s overseas business Nimo TV which serves Southeast Asia and Latin America. It’s viewers increased from 24 million to 36 million this year.
- Last month Huya announced that it will acquire rival company DouYu which will drive the users from 200 million up to 300 million.
I have to say this is a very interesting investment opportunity. With a score of 10/20, the financials are looking good. With a MOS of 66% (Share Price of $21 vs Sticker Price of $64) this stock has some upside potential.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.