DouYu 3Q21 Earnings Analysis

Catalysts:

• China has the largest eSport market in the world with $37.9 billion in revenues in 2018 (vs $30.4 billion for the US) and is growing at 25% annually.

Risks:

• Antitrust probes on Chinese Big Tech

• Volatility of Chinese emerging tech stocks

• Chinese government has unfavorable opinion on gaming

• Delisting of Chinese stocks on US exchanges

Financial Analysis:

Valuations

• My personal Biases

  • 1.4% of my portfolio - worst-performing investment

  • First invested as an arbitrage opportunity

• Assumptions

  • Revenue growth of 15% annually for the next 5 years (17% annually from 2019 to 2021)

  • FCF margin of 8% on average (currently 12%)

  • Terminal Growth rate of 5%

  • Discount Rate of 15%

• Exit Multiples Analysis

  • Based on Multiples of P/FCF in 2025

  • 23% higher in bull case and 10% lower in bear case

  • 10% shares repurchased in these 5 years

Conclusion

• Stock undervalued with a 20% margin of safety, it would be fairly valued

• Still a BUY but because of my exposure, I’m not going to buy more for the time being

Full Research and Analysis: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/27998689