What happened
Shares of Huya (HUYA -1.93%) were rallying 33.4% as of 12:30 p.m. EDT on Tuesday, on the back of better-than-feared earnings, as well as more-general optimism that China's economy could be bottoming out.
The livestreaming esports platform has had a rough go of it in China, with its stock down 67% on the year even after today's massive rally. Despite widespread lockdowns tied to China's zero-COVID policy, which one might think would increase engagement in esports, Huya's financials have suffered as China's economy struggled under the weight of those lockdowns, the bust in the property sector, and other headwinds.
In that light, today's "less bad" results, along with some optimism for a change in China's zero-COVID policy, helped shares rally in a big way.
So what
In the third quarter, Huya's revenue declined 20%, but was well ahead of expectations, while adjusted earnings per share of $0.06 also beat expectations by $0.07.
Despite the declines in revenue and profits, Huya did manage to increase monthly active users from 85.1 million in the year-ago quarter to 86 million. However, cash-strapped Chinese consumers aren't spending as much on gaming as they used to, and advertising-focused businesses have also taken a hit as the economy has slowed and unemployment has gone up this year. Of those 86 million, only 5.5 million were paying users, compared with 6 million last year. Of note, China's youth unemployment rate for people ages 16 to 24 was 17.9% last month.
CEO Rongjie Dong said in the press release: "Faced with ongoing macro headwinds that impacted the broader industry and our Company, we continued to drive live-streaming technology improvements, explore new product features and enrich our quality content. These steps are designed to improve our resilience in uncertain market conditions by helping us to better engage with our users, placing us in a stronger position to capture future opportunities in the game and live-streaming market."
Huya also helped its own cause by cutting costs: Operating expenses declined 27.3%, which is what investors want to see from tech companies these days.
Now what
Today's massive move is nice for Huya, but to get a sustained rally, the Chinese economy would have to rebound in a more substantial way. This week, authorities unveiled a new rescue package for property developers, with the intention of putting a floor under China's declining property sector. Furthermore, the government announced a partial relaxation of zero-COVID regulations, although the general policy remains in place.
Today, there were violent protests against the restrictive government COVID-19 policy in the southern city of Guangzhou. That might spur further loosening of the policy, which has damaged consumer sentiment throughout the year.
Lastly, President Joe Biden met with his Chinese counterpart, Xi Jinping, this week. While differences remain between the U.S. and China, the meeting seemed to be a step in the right direction to de-escalate tensions between the two countries. That would be another positive for U.S.-listed Chinese stocks, whose status on U.S. exchanges have been in question throughout the year.
All of these factors are likely helping Huya today, along with that solid earnings report.
