DouYu Stock Down 50%
- Ishfaaq Peerally
- Apr 26, 2021
- 2 min read
š 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.
š® DouYu is known as the šš¬šš©šš š¤š š¾ššš£š. 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.
š¤ The main reason why I bought DOYU was because of the šš§ššš©š§ššš š¤š„š„š¤š§š©šŖš£šš©š®. 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.
šØš³Another reason why the shares are going down is because of a šØšš”š”š¤šš šš£ š§šššš£š© š¬ššš šØ š¤š£ š¾ššš£ššØš šØš©š¤šš šØ $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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