It's been over a month since World of Warcraft developer Activision Blizzard was thrust into the political realm following its suspension of Hearthstone player Chung Ng Wai, who had shouted support for protesters in Hong Kong during a live-streamed Blizzard interview.
While critics challenge the company's assertion that the suspension was not influenced by Blizzard's dealings in mainland China, the controversy has helped bring China's influence in the gaming world front-and-center. Regulations imposed by the Chinese government, such as a recent curfew and spending limit placed on gaming youth, have also thrust the industry's challenges there into the global headlines.
So how might investors snatch some cash from the Asian country's gaming industry? One way is through the various live-stream platforms through which esports tournaments and professional video gamers entertain their audiences.
Here's a quick rundown of three major live-stream services based in China, along with their market caps and some numbers from their most recently reported quarters.
| Company | Revenue (YOY Change) | Net Income (YOY Change) | Monthly Active Users (YOY Change) | Cash & Equivalents | Market Cap (as of Nov. 15) |
|---|---|---|---|---|---|
| YY Inc. (YY 1.35%) | $963 million (68%) | $15.4 million (-84%) | 470 million (mobile) | $557 million | $5 billion |
| Huya (HUYA 5.79%) | $317 million (77%) | $17.2 million (107%) | 146 million (48%) | $201 million | $4.9 billion |
| DouYu (DOYU +2.55%) | $273 million (133%) | $3.4 million (compared to Q3 2018 net loss of $32.6 million) | 163 million (33%) | $641 million | $2.4 billion |
Data sources: The companies and Nasdaq.com.
1. YY Inc.
As the elder statesman of the bunch, YY first launched its chief software title, the YY Client, way back in 2008. At the time, gamers used YY to have live audio and text chats, but the company gradually broadened its target beyond just gamers while adding video capabilities. Currently, YY offers various platforms targeting different themes, such as its Likee short-video platform being something of a Snapchat or TikTok competitor.
Image source: Getty Images.
But despite its comparative maturity, the company is struggling to stay profitable. Its Q3 earnings per share of only $0.16 is less than the $0.80 per share it earned five years ago in Q3 2014.
As revenue has grown, expenses have also soared substantially. In particular, while sales and marketing expenses were a minority in 2014, they accounted for over half of the company's total expenses in the recently ended Q3. In August, Chief Financial Officer Bing Jin said during the company's conference call with analysts that the company's spending was a result of overseas expansion, such as its March acquisition of Singapore-based Bigo -- which owns a live-stream platform and a short-form video platform -- for $1.45 billion in cash and stock.
Bigo claims to have users in 150 countries worldwide, primarily across Asia and the United States. Including Bigo's user base, YY reported having 470 million monthly active users on mobile devices during Q3, with 78% from outside China.
YY's overseas growth might help propel the company's profit upward, but investors should watch this aspect closely to make sure the company's investments pay off.
2. Huya
As a spinoff from YY, Huya, which more narrowly focuses on gaming and esports live-streams, has seen its stock return to the low $20 range, after teasing $30 in March and September. So what could the company do to cheer up investors?
Well, considering Huya's gaming-centric approach, management is prioritizing content diversification. This includes adding broadcasts of animated content, reality shows, musical performances, and other non-video-game content.
Additionally, much like YY, Huya is ramping up international expansion. The company has about 17 million monthly active users (MAU) outside of China, with hopes of hitting 20 million by the end of 2019. One initiative toward this goal was last month's launch of Nimo TV, a Spanish-language gaming and esports broadcast across Latin America. Current markets include Argentina, Brazil, and Mexico. Since approximately 500 million people speak Spanish worldwide, Nimo TV's potential market is huge.
But, investors should be cautious. In order to raise cash for its content diversification efforts, among other goals, the company performed a secondary stock offering in April that sold over 13 million shares at $24 apiece. While this alone isn't necessarily bad, investors should keep an eye on the company's cash flow and spending moving forward.
3. DouYu
Esports-centric DouYu is the stock that almost never was. After considering a listing on the Hong Kong Stock Exchange in 2018, the Tencent-backed company opted to go public in New York instead. DouYu filed paperwork with the SEC in January, but delayed its IPO in May, citing unfavorable market conditions. Its IPO odyssey culminated when DouYu finally went public in July, although its stock has substantially sold off from the closing price on its first day of trading of $11.50.
Image Source: Getty Images.
When the company announces third-quarter earnings on Nov. 27, investors should remember DouYu's heavy focus on esports. According to its IPO paperwork from April, the company describes itself as a "nexus of the eSports ecosystem" which relies "heavily on a number of eSports games to generate our user traffic." In particular, League of Legends, PlayerUnknown's Battlegrounds, and King of Glory were the three games that attracted the most traffic by viewer count and collective hours watched during Q4 2018.
DouYu perhaps serves up the least diversified content of the bunch. Whether this is a benefit or hindrance depends on an investor's broader belief in the long-term appeal of professional gaming and factors related to the constantly changing array of popular titles. Additionally, moves by the Chinese government intended to crackdown on gaming, esports, and related entertainment could affect DouYu's core business. For now, though, an investment in DouYu might be an investment specifically in esports entertainment across China, for better or worse.
