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Huya's Latest Earnings Show There's More Room for Growth in Earnings and Revenue

By Lawrence Nga - Mar 26, 2021 at 8:25AM

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This Chinese live-streaming video platform achieved some strong milestones in 2020.

Huya (HUYA -13.08%), a leading Chinese video live-streaming platform, this week announced a commendable result for the fourth quarter of 2020. Revenue improved by 21% (in constant currency) while net income surged 59% thanks to growth in the number of paying users and the average spending per user.

Besides these top-line numbers, there are three major takeaways that investors should take into account about this company from the Q4 announcement.

1. Huya ended 2020 with a bang

The year 2020 was a challenging one for most companies amid the COVID-19 pandemic and the ensuing economic recession. Yet, as a video live-streaming business, Huya ended up benefiting from the changes the pandemic created as people who were stuck at home spent more time on its platform. Its latest result clearly shows that. 

A woman smiles while looking at her phone.

Image source: Getty Images.

As already noted, net revenue rose 21% to 3 billion yuan ($458 million) while net profit surged 59% to 253 million yuan ($39 million). Revenue growth was across the board, with live-streaming revenue growing 20% and advertising and other revenue surging 45%. Net profit expanded at a higher rate than revenue as a result of operating leverage.

User growth and better user engagement are key drivers of Huya's strong financial results. In particular, mobile monthly active users (MAUs) reached 80 million in the fourth quarter of 2020, up 29% from the same period last year. The strong growth in mobile MAUs resulted in a 19% improvement in total MAUs to 179 million in the quarter while also contributing to an 18% hike in the total number of paying users to 6 million.

Huya ended 2020 overall with a 30% growth in revenue and a monstrous 89% jump in net profit. And as Huya continues to expand its economy of scale, investors should expect net profit to grow at a higher rate than revenue over time.

2. Huya's 2021 forecast calls for more revenue diversification

After delivering a solid 2020, Huya outlined plans to sustain its growth momentum in 2021.

One focus for Huya will be to grow its video business, which will help it diversify its income over the long run. To this end, Huya is taking a patient approach to increasing its viewership through various experiments. That approach paid off in 2020 with viewership up 40%. The company also plans to better integrate its video business with its existing live-streaming business in 2021.

The other focus is on Huya's overseas investment in NIMO TV -- a live-streaming platform serving markets such as Southeast Asia and Latin America. After reaching a MAU metric of around 30 million in 2020, Huya now plans to strengthen its operations in strong performing countries and downsize those in weak performing countries. It also intends to build a comprehensive ecosystem -- with more content, broadcasters, and users -- for its overseas business. Basically, the Chinese company wants to replicate its local success in overseas markets.

3. Huya has a fortress balance sheet to help it invest in growth

The Chinese video live-streaming industry is a competitive market, with players like ByteDance's Douyin (which operates at TikTok outside of China), Kuaishou, and Bilibili all working on new efforts to grow their market share. To improve its market position, Huya needs to invest in content to delight its existing users, as well as in advertising and marketing to acquire new users. These investments require a lot of money.

Fortunately, Huya has plenty of available resources to tap into. It has 10.5 billion yuan ($1.6 billion) in cash and cash equivalents, short-term deposits, and short-term investments on its balance sheet, and it has zero debt. Moreover, unlike most growth companies, Huya is already cash-flow positive -- it generated 1.2 billion yuan ($190 million) in operating cash in 2020.

With its strong balance sheet (and its cash-generative business), Huya is well-positioned to invest to sustain and grow its business over the next few years.

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