DouYu 4Q20 Earnings Analysis


Business Description:


  • Operates a similar business to Twitch by enabling gamers to livestream while they are playing.

  • Since Twitch and YouTubeare banned in China, the market is really dominated by three main players, Huya, DouYu and Tencent

  • Users can watch live streams for free but will need to be a paid user to live stream themselves. DouYu also makes money from ads with 91% of revenues coming from live streams in 4Q20

  • DouYu has 337 million (FY19) users with MAUs of 174.4 million (FY20) with 17.5 million paying users.


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.

  • Arbitrage opportunity in case of merger with spread of over 40%

  • All Stock deal where each ADS of Douyu will be converted into 0.730 ADS of Huya

  • Merger of equals and the pro-forma company will have two co-CEOs (the current CEOs of each company). Tencent will own 68% of the new company.

  • On the day of the merger, both DouYu and Huya willeach pay a special cash dividend of $60 million and$200 million respectively


Risks:

  • Antitrust probes on Chinese Big Tech

  • Volatility of Chinese emerging tech stocks

  • Currency fluctuations

  • Delisting of Chinese stocks on US exchanges


Financial Analysis:

  • Revenues of RMB 2.26 Billion ($347 million) in 4Q20 vs RMB 2.06 Billion in 4Q19

  • Revenues of RMB 9.60 Billion ($1.47 billion) in FY20 vs RMB 7.28 billion in FY19

  • Net loss of RMB 228 million ($35 million) in 4Q20 vs net income of RMB 157 million in 4Q19

  • Net income of RMB 404 million ($62 million) in FY20 vs net income of RMB 33 million for FY19

  • Balance Sheet

  • Total assets: $1.36 billion ; total liabilities: $295 million; book value: $1.06 billion

  • Cash: $809 million, No debts, current assets: $1.23 billion, current liabilities: $288 million

  • Net current asset value of Benjamin Graham: $930 million


Read the full analysis on my Research Partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/31465220

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