Huya (HUYA -3.20%), which owns one of China's largest game streaming platforms, went public just over two years ago at $12 per share. Its robust growth in revenue and users attracted the bulls, and the stock subsequently doubled from its IPO price.

Huya was initially spun off of its parent company YY (now known as JOYY (YY -1.12%)). Earlier this year, Tencent (TCEHY -0.27%) gained control of Huya by boosting its existing stake from 34.6% to 50.1%. Huya still operates independently and remains listed on the NYSE.

A female gamer streams a PC game.

Image source: Getty Images.

Huya's stock has already rallied 35% this year as the COVID-19 lockdowns boosted viewership of its streaming videos. But does this resilient growth stock still have room to run?

How fast is Huya growing?

Huya generates most of its revenue from its live streaming business, which lets viewers buy virtual gifts for their favorite streamers. The rest of its revenue mainly comes from online ads.

Huya's revenue surged 113% in 2018 and rose another 80% to 8.37 billion yuan ($1.2 billion) in 2019. It ended the year with 150.2 million monthly active users (MAUs), up 29% from a year earlier.

A woman plays a streaming video on a laptop.

Image source: Getty Images.

On the bottom line, Huya posted its first GAAP profit of 468 million yuan ($67 million) in 2019, compared to a loss of 1.94 billion yuan ($280 million) in 2018. It attributed its profit growth to its growing scale, "improved efficiencies" across its platform, and its growth in paying users, which rose 6% annually to 5.1 million in the fourth quarter of 2019.

In the first quarter of 2020, which bore the full impact of the COVID-19 lockdowns, Huya's revenue rose 48% annually to 2.41 billion yuan ($341 million), its MAUs grew 22% to 151.3 million, and its paying users grew another 13% to 6.1 million. Its GAAP net income surged 170% to 171.2 million yuan ($24.2 million).

For the second quarter, Huya expects its revenue to rise 29%-31% annually. It didn't provide a full-year forecast, but analysts expect its revenue and non-GAAP earnings to rise 34% and 44%, respectively. Those are impressive growth rates compared to its forward P/E of 22.

The potential tailwinds and headwinds

Tencent's takeover of Huya could significantly strengthen its gaming ecosystem. Tencent is already the world's largest game publisher, and it could promote exclusive gaming events for its top titles on Huya. It could also deeply integrate Huya's videos into its own Tencent Video and WeChat ecosystems to reach more viewers.

Tencent's takeover also sparked rumors of a merger with DouYu International (DOYU -1.17%), Huya's top rival in the esports streaming space. Tencent also owns a major stake in DouYu, and a merger could bolster the value of both companies by creating a market-leading platform with over 300 million MAUs.

Yet Huya also faces two near-term challenges. First, Chinese regulators recently forced Huya, DouYu, and other popular live streaming apps to temporarily suspend new user signups and content updates until they cleared out their "vulgar" and "problematic" content. The suspension will likely be short-lived, but it could still impact Huya's growth in the second quarter.

Second, the U.S. Senate recently passed a bill that could force all Chinese companies to either open their books to auditors or delist their stocks. The bill hasn't been passed by the House or signed into law by President Trump yet, but it represents a looming threat to all U.S.-listed Chinese stocks.

The potential rewards outweigh the near-term risks

Huya dominates a growing niche in China's sprawling live streaming market, and it offers investors an attractive combination of double-digit revenue growth and stable GAAP profits. Huya's stock deserves a far higher premium than its current forward P/E multiple, and its long-term growth potential still outweighs the near-term risks. Huya's not a stock for queasy investors, but it's still a worthy buy for growth-oriented investors with an appetite for risk.