If you are considering adding a position in streaming companies, HUYA Inc. (NYSE:HUYA) has some real potential. The China-based live game-streaming platform has content partnerships with several esports organizers, game developers, and publishers.

Huya's content portfolio includes gameplay, esports shows, and tournaments. While investing in China stocks can some times be tricky given the low level of transparency, adding a stake in Huya is too good to ignore at its current valuation. Here's why.

Huya continues to gain monthly active users

Huya is one of the largest game-streaming platforms in China. According to a report from Chinese tech media site TechNode, Huya and competitor Douyu account for 60% of China's game-streaming space.

At the end of the third quarter, Huya's average mobile monthly active users (MAUs) rose 29.1% year over year to 63.8 million, up from 49.4 million in the prior-year quarter. Its average overall MAUs were up 47.6% to 146.1 million in the third quarter. The number of paying users rose by 28.5% to 5.3 million as well.

Huya attributed the growth in monthly users to the execution of its mobile strategy and continued promotion of esports activities. The summer break from school also helped drive monthly users higher, as did an increase in esports tournaments hosted in the third quarter. Huya hosted 110 esports tournaments in Q3 with a viewership of 516 million, up from 510 million in the prior-year period.

Young person playing a video game

Image Source: Getty Images.

How Huya aims to expand its user base

In October 2019, Huya signed a strategic contract with top gaming publisher Riot Games, the maker of games such as League of Legends. Huya has managed to secure exclusive broadcasting rights for League of Legends Champions in Korea between 2020 and 2022. It also bagged business development and funding promotion for this game across various Chinese marketing channels for the next three years.

One of the key drivers for esports platforms to grow a user base includes exclusive streaming partnerships, not only with publishers but also with top gaming teams. Huya has already aligned with four of the 16 participating teams of World 2019 for exclusive streaming partnerships in China.

During the company's earnings call, CFO Henry Sha stated , "The broadcasting content of those top teams on Huya platform has proven to be an effective driver in terms of user acquisition and time spent in the LL content sector, in addition to broadcasting the mobile game blockbusters that we have already excelled at."

While broadcasting attracts viewership, Huya has also hosted self-organized tournaments to increase viewership and customer engagement. In the third quarter, it hosted 38 self-organized tournaments resulting in viewership of 76 million.

This was notably higher than 20 events and 49 million viewers in the prior-year period. The average daily viewership of Huya's PUBG Destiny Cup 2019 almost doubled this year.

Expanding product portfolio

Gaming content accounts for the majority of Huya's revenue. However, in the third quarter, nongaming content accounted for 45% of streaming revenue, with almost half of its active users opting for nongaming content on the platform.

Huya has been able to cultivate a strong user base in its nongaming sector with a focus on comic content and anime. The company believes there is a significant overlap in the demographic that streams esports as well as content in the anime and comic category. These categories, in fact, grew viewing hours by 100% year over year in the third quarter as Huya focused on improving content and production.

Now, Huya is also trying its hand at game publishing. The company launched an action-adventure game called Control, in Southeast Asia, Hong Kong, and Taiwan, as it continues to explore opportunities in the upstream gaming value chain.

In Argentina, Huya launched Nimo TV in October and has expanded operations to other Spanish-speaking regions like Mexico. It ended Q3 with 17 million international monthly active users and expects this figure to touch 20 million by the end of this year.

Is Huya worth an investment play?

Huya has posted revenue ahead of management estimates for the past six consecutive quarters. Analysts expect company sales to grow 70.7% year over year to $1.17 billion in 2019. They have estimated revenue growth of 36.5% in 2020.

Wall Street forecasts earnings growth of 46.7% in 2019 and 79.5% in 2020. Compare this to Huya stock's forward price-to-earnings multiple of 21.5. and we can see that it's trading at an attractive valuation.

Huya's market cap stands at $3.71 billion, or 2.54 times forward sales, again considerably cheap for a company with its growth metrics. Huya stock went public on May 11, 2018, and closed trading at $16.06 that day. It is currently trading at similar levels and has strong upside potential, especially considering its growing user base and revenue diversification opportunities.