DouYu Stock Down 50%
- Ishfaaq Peerally
- Apr 26, 2021
- 2 min read
📉 I've been buying DouYu $DOYU since December 2020. It gained 70% before crashing by 50%. DouYu is the worst performing stock in my portfolio and I'm down about 20% on average.
🎮 DouYu is known as the 𝙏𝙬𝙞𝙩𝙘𝙝 𝙤𝙛 𝘾𝙝𝙞𝙣𝙖. The Chinese gaming market is the largest in the world and growing at about 35% per year. In the US and the rest of the world, one can livestream on YouTube $GOOG or Twitch $AMZN but these are banned in China. The market there is dominated by DouYu, Huya and Tencent and together they have 80% of market share.
DOYU increased their revenues by 10X in 4 years and from 2019, they are profitable.
🤝 The main reason why I bought DOYU was because of the 𝙖𝙧𝙗𝙞𝙩𝙧𝙖𝙜𝙚 𝙤𝙥𝙥𝙤𝙧𝙩𝙪𝙣𝙞𝙩𝙮. DouYu is going to be acquired by Huya in an all-stock transaction. The spread on the arbitrage is currently 40%.
The spread is so big because the market thinks the Chinese authorities won't allow Huya and DouYu to merge because Tencent is a major shareholder in both companies and they eventually want to merge their own live streaming business to the new Huya. We know that there's an antitrust probe against Alibaba $BABA . That's why the market is a little scared.
🇨🇳Another reason why the shares are going down is because of a 𝙨𝙚𝙡𝙡𝙤𝙛𝙛 𝙞𝙣 𝙧𝙚𝙘𝙚𝙣𝙩 𝙬𝙚𝙚𝙠𝙨 𝙤𝙣 𝘾𝙝𝙞𝙣𝙚𝙨𝙚 𝙨𝙩𝙤𝙘𝙠𝙨 $MCHI . Being a small cap emerging tech Chinese stock, it was hit by this selloff.
If the deal doesn't go through, then I believe that DouYu is an undervalued stock. Therefore, even if we can't make money by arbitrage, over the long-term, it would still be a good investment.
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Full analysis of DouYu:
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