Please ensure Javascript is enabled for purposes of website accessibility

Why Huya Stock Fell 15.1% in April

By Keith Noonan – May 4, 2019 at 3:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese streaming company's stock is still up more than 50% this year despite the recent selloff. Is it a buy?

What happened

Shares of Huya (HUYA -0.38%) slipped 15.1% in April, according to data from S&P Global Market Intelligence . The Chinese gaming-video streaming stock slumped after the company detailed a plan for a new share offering and its chief competitor moved to file for an initial public offering later in the month.

HUYA Chart

HUYA data by YCharts

Douyu, a service that also allows users to broadcast themselves playing video games, officially revealed that it had filed for its IPO on April 22 and was aiming to raise roughly $500 million through its first public share offering. Huya's basic pitch has been that it's "the Twitch of China," so the focus on another company that's operating in that same role probably put some pressure on the stock. 

A hand on a computer mouse.

Image source: Getty Images.

So what

Huya and Douyu each claim to be China's top gaming video content streaming platform, and there are enough different metrics and opaqueness in the viewership and engagement stats that it's not easy to make a clear distinction. That said, Huya generated more revenue than its rival last year -- $678.3 million versus $531.5 million -- and there's a good chance that China's game streaming market can support multiple players.

This seems to be the line of thinking at Tencent Holdings, a Chinese multimedia conglomerate that owns, invests in, and develops a wide range of media content and technology businesses. Tencent has invested hundreds of millions in both game streaming companies and will probably continue to play a significant role in each company's future. The Douyu IPO hasn't changed Huya's outlook -- and shareholders shouldn't sweat it.

Now what

Huya stock has regained a bit of ground in May, trading up roughly 3.4% in the month so far. 

HUYA Price Chart

HUYA Price data by YCharts

The market that the streaming video company is operating in is young and volatile, but demand for esports and other gaming-video content is growing at an explosive clip, and Huya has shown that its viewer-donation based business model can deliver strong sales growth.

Gaming video content is going to see dramatic growth over the next few decades. It's not clear that Huya will be a long-term winner in the category, but it's built an early leadership position in the space. Trading under $24 a share and valued at just under 50 times this year's expected earnings, Huya stock is a worthwhile buy for growth-focused, risk-tolerant investors. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool recommends Huya. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HUYA Stock Quote
HUYA
HUYA
$2.66 (-0.38%) $0.01
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$34.87 (-2.33%) $0.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.