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Douyu vs HUYA: Dominating China's Game Streaming Market! DOYU Stock | HUYA Stock aka Twitch of China - YouTube
Channel: The Newbie Investor
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All around the world, live game streaming
has picked up steam and two companies have
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got an almost complete hold of the game streaming
market in China.
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The names of those two companies?
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Douyu and HUYA!
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There are a lot of reasons why I believe that
both of them are amazing investment opportunities
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right now!
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If you want to find out more, stick around
and please smash that like button to help
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out the channel.
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There is one thing that you need to know about
the game streaming market.
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China will dominate it.
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At least, that is the message that all the
market research platforms give off!
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The Chinese game streaming market is currently
valued at $4.6 billion dollars and expected
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to grow by 32% next year.
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Douyu and HUYA currently control 80% of that
game streaming market!
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80%!
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It is literally a monopoly and, if you follow
Warren Buffett, you know that you should always
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buy companies that run a monopoly.
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In fact, the two companies were going to merge
earlier this year, but last week on 12th July,
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Douyu and HUYA officially announced the termination
of their merger agreement.
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The merger was blocked by the Chinese market
regulators based on antitrust grounds, essentially
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meaning that Douyu and HUYA would become too
big.
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The whole merger was orchestrated by Tencent
which holds a third of both companies.
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Tencent has been running into some issues
with regulators lately so it is possible that
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this was another reason why the merger did
not happen.
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Personally, I don't think that this will affect
Douyu and HUYA too much.
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However, we have seen a massive drop in their
stock price as a result which is good.
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It's great!
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Why?
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It creates the perfect buying opportunity!
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Warren Buffett always says that you should
buy when others are afraid which is precisely
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what is happening right now with HUYA and
Douyu.
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Investors are afraid, but the fundamentals
of both companies have remained the same!
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The long-term prospects are the same!
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Lets take a look at them.
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First off, we've got the monthly active users.
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In 2020, both companies saw a big surge in
users so it was expected that there would
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not be much of a growth in 2021.
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Looking at HUYA, we can see that this was
accurate.
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Their monthly active users increased by less
than a million from 74.7 million in the first
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quarter of 2020 to 75.5 million in the first
quarter of 2021.
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Their paying users actually dropped from 6.1
million in Q1 of 2020 to 5.9 million in Q1
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of 2021.
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However, Douyu actually managed to grow their
user base by 21.3% from 158.1 million in Q1
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of 2020 to 191.9 million in Q1 of 2021 although
they also saw a drop in paying users from
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an average of 7.6 million in Q1 of 2020 to
7.0 million in Q1 of 2021.
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Both companies attributed this to the economy
returning to normal, which was expected.
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Did this affect their revenue though?
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Did they see a drop in sales?
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HUYA actually saw an increase of 8% in revenue
to $397.6 million dollars as compared to the
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same period last year.
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Their live streaming revenues rose 5.2% to
$365 million dollars and the ad revenue went
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up by 54.6% to $32.4 million!
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You can tell that they have started to monetise
using advertisements!
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HUYA's earnings also went up 8.4% to $28.3
million dollars as compared to last year.
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They also had a positive net cash flow of
$25.4 million which is not huge, but it is
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good to see that they are keeping a positive
cash flow.
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In comparison, Douyu saw a big drop in earnings
from a profit of 254 million Chinese yuan
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in Q1 of 2020 to a loss of 102 million Chinese
yuan in Q1 of 2021.
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This was combined with a 5% drop in revenue,
but I'm not really worried.
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Why?
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Simple.
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Douyu's userbase is growing fast.
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The company is still in the early stages of
monetisation and right now it is more important
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to maintain and grow its userbase.
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They have two and a half times the users of
HUYA.
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As long as they maintain that leadership,
Douyu will do fine.
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There is another reason why.
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Right now, Douyu is sitting on a cash equivalents
pile worth $1.2 billion dollars while they
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trade at a market cap of almost $1.44 billion!
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The company has more than enough cash to sustain
its operations and this tiny loss of about
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$15 million dollars is nothing!
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They have less than $10 million dollars worth
of current and long-term debt.
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This also means that they have an enterprise
value of $240 million dollars!
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Their revenue for the last twelve months was
almost $1.5 billion dollars meaning that their
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EV-to-Revenue ratio was only 0.16! 0.16!
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This is extremely, extremely cheap!
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If the company drops a bit further, they will
literally trade for the cash on their books.
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They will essentially be a free company!
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When we also consider that their forward PE
for 2022 is 17.8 and their price-to-book ratio
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is 1.36, we can tell that Douyu is a bargain
right now.
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Douyu is currently trading for $4.45.
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It has literally never before traded that
low!
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The discounted cash flow model from Finbox
gives us a fair price of $9.07 dollars while
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Simply Wallstreet uses the free cash flow
of Douyu to estimate a fair price of $16.13,
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which is over 360% upside!
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It obviously depends whether you want to be
conservative or optimistic, but I personally
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think that Douyu can hit $16 dollars although
it will take at least a year.
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If it sounds too optimistic to you, bear in
mind that the average analyst price target
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is $11.12 according to Yahoo Finance.
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This is real.
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Plus, Douyu still has an insider ownership
of 22.5% which means two things.
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One, the management is invested in the company
and wants to see a higher stock price.
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Two, it can lead to a massive price boost
later on when institutions buy in.
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Douyu has also reduced the amount of shares
outstanding from 334 million in 2020 to 321
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million in 2021, which also improves the company's
metrics and makes it more attractive to investors.
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What about HUYA though?
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Are they also a good deal?
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Absolutely.
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Despite having less users than Douyu, HUYA
is generating more revenue and earnings.
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They have higher margins due to better operational
efficiency.
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Essentially, HUYA is one step ahead of Douyu
in terms of monetising and optimising their
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business.
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Plus, similar to Douyu, HUYA owns a lot of
cash equivalents, about $1.6 billion dollars
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on a market cap of $3.35 billion dollars.
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Their total debt is also around $10 million
dollars, meaning that their enterprise value
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is about $1.75 billion dollars or half of
their current market cap!
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Over the last 12 months, they made about $1.7
billion dollars in revenue so their EV-to-Revenue
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ratio is 1, which is extremely cheap!
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Their PE is 24.5, their forward PE is 14.9
and their price-to-book is higher than Douyu's
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at about 2.2, but it is still cheap.
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HUYA is currently trading for $14.4 dollars
and the last time that HUYA traded this low
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was during the COVID crash in March 2020.
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The discounted cash flow model from Finbox
gives us a fair price of $40.3 dollars while
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SimplyWallstreet values HUYA at $17.6, but
I personally think that the higher valuation
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is justified given HUYA's past record and
potential.
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Analysts also expect a higher target price
of $22 according to Yahoo Finance.
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We can easily achieve a 50% upside in the
next 12 months and perhaps over 100% after
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another year.
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There are two main risks involved with Douyu
and HUYA.
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One, it is the fact that Tencent owns a third
of both companies.
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Having such a massive stakeholder owning two
competitors is a red flag.
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Tencent will not be able to merge the two
companies now so it is likely that it will
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sell its position in one of the companies
and focus on the other, driving one share
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price down and another up.
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Also, we have the risk of regulation.
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Right now, neither company has faced regulatory
issues on its own, but Chinese regulators
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could interfere if we see massive expansion
or anti-competitive practices.
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I don't think that this will happen any time
soon though, but it is something to watch.
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Finally, seeing companies that are this undervalued
is a red flag.
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Typically, I would agree.
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However, both HUYA and Douyu are leaders in
the game streaming market, they have a massive
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presence, they are still growing, they have
massive cash stockpiles to ensure that they
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can continue their operations, they are either
making a profit or close to doing so.
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Their price crashed because of the events
and fear around them, not because they are
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underperforming companies!
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This is not a financial advice, it is just
my opinion, but both of these companies are
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strong buys in my books with Douyu being my
favourite!
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I own both of them and I plan on buying more
while they trade at such low prices!
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What do you think?
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Are Douyu and HUYA worth it?
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Let me know down below!
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Also, check out my video of Baidu, another
solid company and a favourite of mine!
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If you enjoyed this video, please like, share,
comment and subscribe!
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Thank you for watching and I will see you
again soon!
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