huya investment thesis

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Huya’s Upbeat Q1 Results and Strategic Growth Outlook Prompt Buy Rating

CMB International Securities analyst Sophie Huang maintained a Buy rating on Huya ( HUYA – Research Report ) today and set a price target of $6.80.

Sophie Huang has given her Buy rating due to a combination of factors including Huya’s first-quarter results of 2024 which surpassed expectations in terms of margins, and projections for continued revenue growth paired with significant improvements in profitability. Huang’s optimism is particularly fueled by the expected turnaround in Huya’s livestreaming segment and additional revenue growth from its other segments, such as game-related services, advertising, and in-game item sales, which are anticipated to grow by 25% quarter-over-quarter in the second quarter of 2024.

Moreover, Huang’s confidence is bolstered by Huya’s strategic cooperation with Tencent, which is likely to enhance game-related business monetization through multiple titles, including DNF Mobile. The anticipation of improved gross profit margins, stable operating expenses, and an upward revision of Huya’s full-year 2024 net profit estimates from RMB 132 million to RMB 254 million also contribute to the Buy recommendation. Huang’s analysis indicates a healthy financial outlook for Huya, supported by effective monetization strategies and operational efficiencies, maintaining the target price at US$6.8 based on discounted cash flow valuation.

In another report released today, HSBC also upgraded the stock to a Buy with a $6.00 price target.

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Huya (HUYA) Company Description:

HUYA, Inc. is a holding company, which engages in the development of game live streaming platform. The company provides live streaming content for mobile, personal computer, and console games. It also offers content to other entertainment genres, such as talent shows, anime, and outdoor activities. The company was founded in 2014 and is headquartered in Guangzhou, China.

Read More on HUYA:

• Huya Inc. Reports Growth and Shareholder Returns
• Options Volatility and Implied Earnings Moves Today, May 13, 2024
• Options Volatility and Implied Earnings Moves This Week, May 13 – May 16, 2024
• Is HUYA a Buy, Before Earnings?
• Huya Inc. Announces Filing of 2023 Annual Report

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HUYA Inc Class A

Huya earnings: revenue mix shift toward games translates to strong profitability.

No-moat Huya’s first-quarter earnings were above our estimates, and management lifted profitability guidance for the full year. This led us to lift our forecasts for the company, but the favorable valuation impact from this was offset by Huya paying out its $150 million in special dividends as shares went ex-dividend on May 9. Overall, we maintain Huya’s fair value estimate at $7.70 per share. We reiterate that the bulk of Huya’s value stems from its net cash position equivalent to $5.60 per share at the end of March, excluding special dividends, against the stock price of $4.70 as of the market close on May 13.

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The HUYA Absurdity: Negative Enterprise Value On A Profitable Business

['net', 'cash', 'ncav', 'share', 'company'].

HUYA is now trading at 36% of NCAV and 40.5% of net cash, with NCAV of $5.81 per ADR and net cash of $5.18 per ADR. Read more here.

My preferred investment style is to purchase shares of companies at substantially below net asset value or theoretical liquidation value. The Chinese market has recently reintroduced the true net-net flavor of asset-based investing, with several stocks trading not just below net asset value, but below net current asset value and net cash. The HUYA Opportunity: Largest Discount To NCAV And Net Cash I Have Seen Yet The purpose of diving into the Chinese net-net case studies of GSMG and CANG is to demonstrate how investors can make money from stocks trading below their net asset value, as well as to demonstrate the different approaches management have at their disposal to close to gap between share price and NCAV or otherwise return value to shareholders. HUYA is trading at just 36% of NCAV of $5.81 and 40.5% of net cash of $5.18. Investors in HUYA can buy ~$3 of net current assets for $1, and buy ~$2.5 of net cash for $1. In addition, they get the profitable underlying business for free, which generated $0.38 per ADR in net income in 2021 and turned a profit in each of the past 3 years. To point out another absurdity, the company is trading at an enterprise value of negative $730M, meaning that a theoretical acquirer would put up no cash to buy the business, and would walk away with the business for free along with $730M in cash. Market Cap $508M Total Liabilities $360.6M - Cash and Cash Equivalents $1.6B Enterprise Value -$731.4M While this absurdity does confirm the investment thesis that HUYA is tremendously undervalued from a net asset perspective, it almost certainly rules out the possibility of HUYA being acquired.

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What Is an Investment Thesis?

• Understanding the Thesis

Special Considerations

• What's Included?

The Bottom Line

• Portfolio Management

Investment Thesis: An Argument in Support of Investing Decisions

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

The term investment thesis refers to a reasoned argument for a particular investment strategy, backed up by research and analysis. Investment theses are commonly prepared by (and for) individual investors and businesses. These formal written documents may be prepared by analysts or other financial professionals for presentation to their clients.

Key Takeaways

• An investment thesis is a written document that recommends a new investment, based on research and analysis of its potential for profit.
• Individual investors can use this technique to investigate and select investments that meet their goals.
• Financial professionals use the investment thesis to pitch their ideas.

Understanding the Investment Thesis

As noted above, an investment thesis is a written document that provides information about a potential investment. It is a research- and analysis-based proposal that is usually drafted by an investment or financial professional to provide insight into investments and to pitch investment ideas. In some cases, the investor will draft their own investment thesis, as is the case with venture capitalists and private equity firms.

This thesis can be used as a strategic decision-making tool. Investors and companies can use a thesis to decide whether or not to pursue a particular investment, such as a stock or acquiring another company. Or it can be used as a way to look back and analyze why a particular decision was made in the first place—and whether it was the right one. Putting things in writing can have a huge impact on the direction of a potential investment.

Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued . The thesis states that the investor plans to hold the stock for three years, during which its price will rise to reflect its true worth. At that point, the stock will be sold at a profit. A year later, the stock market crashes, and the investor's pick crashes with it. The investor recalls the investment thesis, relies on the integrity of its conclusions, and continues to hold the stock.

That is a sound strategy unless some event that is totally unexpected and entirely absent from the investment thesis occurs. Examples of these might include the 2007-2008 financial crisis or the Brexit vote that forced the United Kingdom out of the European Union (EU) in 2016. These were highly unexpected events, and they might affect someone's investment thesis.

If you think your investment thesis holds up, stick with it through thick and thin.

An investment thesis is generally formally documented, but there are no universal standards for the contents. Some require fast action and are not elaborate compositions. When a thesis concerns a big trend, such as a global macro perspective, the investment thesis may be well documented and might even include a fair amount of promotional materials for presentation to potential investing partners.

Portfolio management is now a science-based discipline, not unlike engineering or medicine. As in those fields, breakthroughs in basic theory, technology, and market structures continuously translate into improvements in products and in professional practices. The investment thesis has been strengthened with qualitative and quantitative methods that are now widely accepted.

As with any thesis, an idea may surface but it is methodical research that takes it from an abstract concept to a recommendation for action. In the world of investments, the thesis serves as a game plan.

What's Included in an Investment Thesis?

Although there's no industry standard, there are usually some common components to this document. Remember, an investment thesis is generally a proposal that is based on research and analysis. As such, it is meant to be a guide about the viability of a particular investment.

Most investment theses include (but aren't limited to) the following information:

• The investment in question
• The investment goal(s)
• Viability of the investment, including any trends that support the investment
• Potential downsides and risks that may be associated with the investment
• Costs and potential returns as well as any losses that may result

Some theses also try to answer some key questions, including:

• Does the investment align with the intended goal(s)?
• What could go wrong?
• What do the financial statements say?
• What is the growth potential of this investment?

Putting everything in writing can help investors make more informed decisions. For instance, a company's management team can use a thesis to decide whether or not to pursue the acquisition of a rival. The thesis may highlight whether the target's vision aligns with the acquirer or it may identify opportunities for growth in the market.

Keep in mind that the complexity of an investment thesis depends on the type of investor involved and the nature of the investment. So the investment thesis for a corporation looking to acquire a rival may be more in-depth and complicated compared to that of an individual investor who wants to develop an investment portfolio.

Examples of an Investment Thesis

Portfolio managers and investment companies often post information about their investment theses on their websites. The following are just two examples.

Morgan Stanley

Morgan Stanley ( MS ) is one of the world's leading financial services firms. It offers investment management services, investment banking, securities, and wealth management services. According to the company, it has five steps that make up its investment process, including idea generation, quality assessment, valuation, risk management , and portfolio construction.

When it comes to developing its investment thesis, the company tries to answer three questions as part of its quality assessment step:

• "Is the company a disruptor or is it insulated from disruptive change? 
• Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity and low leverage? 
• Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?"

Connetic Ventures

Connetic Adventures is a venture capital firm that invests in early-stage companies. The company uses data to develop its investment thesis, which is made up of three pillars. According to its blog, there were three pillars or principles that contributed to Connetic's venture capital investment strategy. These included diversification, value, and follow-on—each of which comes with a pro and con.

Why Is an Investment Thesis Important?

An investment thesis is a written proposal or research-based analysis of why investors or companies should pursue an investment. In some cases, it may also serve as a historical guide as to whether the investment was a good move or not. Whatever the reason, an investment thesis allows investors to make better, more informed decisions about whether to put their money into a specific investment. This written document provides insight into what the investment is, the goals of the investment, any associated costs, the potential for returns, as well as any possible risks and losses that may result.

Who Should Have an Investment Thesis?

An investment thesis is important for anyone who wants to invest their money. Individual investors can use a thesis to decide whether to purchase stock in a particular company and what strategy they should use, whether it's a buy-and-hold strategy or one where they only have the stock for a short period of time. A company can craft its own investment thesis to help weigh out whether an acquisition or growth strategy is worthwhile.

How Do You Create an Investment Thesis?

It's important to put your investment thesis in writing. Seeing your proposal in print can help you make a better decision. When you're writing your investment thesis, be sure to be clear and concise. Make sure you do your research and include any facts and figures that can help you make your decision. Be sure to include your goals, the potential for upside, and any risks that you may come across. Try to ask and answer some key questions, including whether the investment meets your investment goals and what could go wrong if you go ahead with the deal.

It's always important to have a plan, especially when it comes to investing. After all, you are putting your money at risk. Having an investment thesis can help you make more informed decisions about whether a potential investment is worth your while. Make sure you put your thesis in writing and answer some key questions about your goals, costs, and potential outcomes. Having a concrete proposal in place can spell the difference between earning returns and losing all your money. And that's if your thesis supports the investment in the first place.

Harvard Business School. " Writing a Credible Investment Thesis ."

Lanturn. " What is an Investment Thesis and 3 Tips to Make One ."

Morgan Stanley. " Global Opportunity ."

Medium. " The Data That Built Our Fund's Investment Thesis ."

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Bridging private equity’s value creation gap

For the past 40 years or so, private equity (PE) buyout managers largely invested capital in an environment of declining interest rates and escalating asset prices. During that period, they were able to rely on financial leverage, enhanced tax and debt structures, and increasing valuations on high-quality assets to generate outsize returns for investors and create value.

Times have changed , however. Since 2020, the cost of debt has increased and liquidity in debt markets is harder to access given current interest rates, asset valuations, and typical bank borrowing standards. Fund performance has suffered as a result: PE buyout entry multiples declined from 11.9 to 11.0 times EBITDA through the first nine months of 2023. 1 2024 Global Private Markets Review , McKinsey, March 2024.

Even as debt markets begin to bounce back, a new macroeconomic reality is setting in—one that requires more than just financial acumen to drive returns. Buyout managers now need to focus on operational value creation strategies for revenue growth, as well as margin expansion to offset compression of multiples and to deliver desired returns to investors.

Based on our years of research and experience working with a range of private-capital firms across the globe, we have identified two key principles to maximize operational value creation.

First, buyout managers should invest with operational value creation at the forefront . This means that in addition to strategic diligence, they should conduct operational diligence for new assets. Their focus should be on developing a rigorous, bespoke, and integrated approach to assessing top-line and operational efficiency. During the underwriting process, managers can also identify actions that could expand and improve EBITDA margins and growth rates during the holding period, identify the costs involved in this transformation, and create rough timelines to track the assets’ performance. And if they acquire the asset, the manager should: 1) clearly establish the value creation objectives before deal signing, 2) emphasize operational and top-line improvements after closing, and 3) pursue continual improvements in ways of working with portfolio companies. Meanwhile, for existing assets, the manager should ensure that the level of oversight and monitoring is closely aligned with the health of each asset.

Second, everyone should understand and have a hand in improving operations . Within the PE firm, the operating group and deal teams should work together to enable and hold portfolio companies accountable for the execution of the value creation plan. This begins with an explicit focus on “linking talent to value”—ensuring leaders with the right combination of skills and experience are in place and empowered to deliver the plan, improve internal processes, and build organizational capabilities.

In our experience, getting these two principles right can significantly improve PE fund performance. Our initial analysis of more than 100 PE funds with vintages after 2020 indicates that general partners that focus on creating value through asset operations achieve a higher internal rate of return—up to two to three percentage points higher, on average—compared with peers.

The case for operational efficiency

The ongoing macroeconomic uncertainty has made it difficult for buyout managers to achieve historical levels of returns in the PE buyout industry using old ways of value creation. 2 Overall, roughly two-thirds of the total return for buyout deals that were entered in 2010 or later, and exited 2021 or before, can be attributed to market multiple expansion and leverage. See 2024 Global Private Markets Review .   And it’s not going to get any easier anytime soon, for two reasons.

Higher-for-longer rates will trigger financing issues

The US Federal Reserve projects that the federal funds rate will remain around 4.5 percent through 2024, then potentially drop to about 3.0 percent by the end of 2026. 3 “Summary of economic projections,” Federal Reserve Board, December 13, 2023.   Yet, even if rates decline by 200 basis points over the next two years, they will still be higher than they were over the past four years when PE buyout deals were underwritten.

This could create issues with recapitalization or floating interest rate resets for a portfolio company’s standing debt. Consider that the average borrower takes a leveraged loan at an interest coverage ratio of about three times EBIDTA (or 3x). 4 The interest coverage ratio is an indicator of a borrower’s ability to service debt, or potential default risk.   With rising interest expenses and additional profitability headwinds, these coverage ratios could quickly fall below 2x and get close to or trip covenant triggers around 1x. In 2023, for example, the average leveraged loan in the healthcare and software industries was already at less than a 2x interest coverage ratio. 5 James Gelfer and Stephanie Rader, “What’s the worst that could happen? Default and recovery rates in private credit,” Goldman Sachs, April 20, 2023.   To avoid a covenant breach, or (if needed) increasing recapitalization capital available without equity paydown, managers will need to rely on operational efficiency to increase EBITDA.

Valuations are mismatched

If interest rates remain high, the most recent vintage of PE assets is likely to face valuation mismatches at exit, or extended hold periods until value can be realized. Moreover, valuation of PE assets has remained high relative to their public-market equivalents, partly a result of the natural lag in how these assets are marked to market. As the CEO of Harvard University’s endowment explained in Harvard’s 2023 annual report, it will likely take more time for private valuations to fully reflect market conditions due to the continued slowdown in exits and financing rounds. 6 Message from the CEO of Harvard Management Company, September 2023.

Adapting PE’s value creation approach

Operational efficiency isn’t a new concept in the PE world. We’ve previously written  about the strategic shift among firms, increasingly notable since 2018, moving from the historical “buy smart and hold” approach to one of “acquire, align on strategy, and improve operating performance.”

However, the role of operations in creating more value is no longer just a source of competitive advantage but a competitive necessity for managers. Let’s take a closer look at the two principles that can create operational efficiency.

Invest with operational value creation at the forefront

PE fund managers can improve the profitability and exit valuations of assets by having operations-related conversations up front.

Assessing new assets. Prior to acquiring an asset, PE managers typically conduct financial and strategic diligence to refine their understanding of a given market and the asset’s position in that market. They should also undertake operational diligence—if they are not already doing so—to develop a holistic view of the asset to inform their value creation agenda.

Operational diligence involves the detailed assessment of an asset’s operations, including identification of opportunities to improve margins or accelerate organic growth. A well-executed operational-diligence process can reveal or confirm which types of initiatives could generate top-line and efficiency-driven value, the estimated cash flow improvements these initiatives could generate, the approximate timing of any cash flow improvements, and the potential costs of such initiatives.

The results of an operational-diligence process can be advantageous in other ways, too. Managers can use the findings to create a compelling value creation plan, or a detailed memo summarizing the near-term improvement opportunities available in the current profit-and-loss statement, as well as potential opportunities for expansion into adjacencies or new markets. After this step is done, they should determine, in collaboration with their operating-group colleagues, whether they have the appropriate leaders in place to successfully implement the value creation plan.

These results can also help managers resolve any potential issues up front, prior to deal signing, which in turn could increase the likelihood of receiving investment committee approval for the acquisition. Managers also can share the diligence findings with co-investors and financiers to help boost their confidence in the investment and the associated value creation thesis.

It is crucial that managers have in-depth familiarity with company operations, since operational diligence is not just an analytical-sizing exercise. If they perform operational diligence well, they can ensure that the full value creation strategy and performance improvement opportunities are embedded in the annual operating plan and the longer-term three- to five-year plan of the portfolio company’s management team.

Assessing existing assets. When it comes to existing assets, a fundamental question for PE managers is how to continue to improve performance throughout the deal life cycle. Particularly in the current macroeconomic and geopolitical environment, where uncertainty reigns, managers should focus more—and more often—on directly monitoring assets and intervening when required. They can complement this monitoring with routine touchpoints with the CEO, CFO, and chief transformation officer (CTO) of individual assets to get updates on critical initiatives driving the value creation plan, along with ensuring their operating group has full access to each portfolio company’s financials. Few PE managers currently provide this level of transparency into their assets’ performance.

To effectively monitor existing assets, managers can use key performance indicators (KPIs) directly linked to the fund’s investment thesis. For instance, if the fund’s investment thesis is centered on the availability of inventory, they may rigorously track forecasts of supply and demand and order volumes. This way, they can identify and address issues with inventory early on. Some managers pull information directly from the enterprise resource planning systems in their portfolio companies to get full visibility into operations. Others have set up specific “transformation management offices” to support performance improvements in key assets and improve transparency on key initiatives.

We’ve seen managers adopt various approaches with assets that are on track to meet return hurdles. They have frequent discussions with the portfolio company’s management team, perform quarterly credit checks on key suppliers and customers to ensure stability of their extended operations, and do a detailed review of the portfolio company’s operations and financial performance two to three years into the hold period. Managers can therefore confirm whether the management team is delivering on their value creation plans and also identify any new opportunities associated with the well-performing assets.

If existing assets are underperforming or distressed, managers’ prompt interventions to improve operations in the near term, and improve revenue over the medium term, can determine whether they should continue to own the asset or reduce their equity position through a bankruptcy proceeding. One manager implemented a cash management program to monitor and improve the cash flow for an underperforming retail asset of a portfolio company. The approach helped the portfolio company overcome a peak cash flow crisis period, avoid tripping liquidity covenants in an asset-backed loan, and get the time needed for the asset’s long-term performance to improve.

Reassess internal operations and governance

In addition to operational improvements, managers should also assess their own operations and consider shifting to an operating model that encourages increased engagement between their team and the portfolio companies. They should cultivate a stable of trusted, experienced executives within the operating group. They should empower these executives to be equal collaborators with the deal team in determining the value available in the asset to be underwritten, developing an appropriate value creation strategy, and overseeing performance of the portfolio company’s management.

Shift to a ‘just right’ operating model for operating partners. The operating model through which buyout managers engage with portfolio companies should be “just right”—that is, aligned with the fund’s overall strategy, how the fund is structured, and who sets the strategic vision for each individual portfolio company.

There are two types of engagement operating models—consultative and directive. When choosing an operating model, firms should align their hiring and internal capabilities to support their operating norms, how they add value to their portfolio companies, and the desired relationship with the management team (exhibit).

Take the example of a traditional buyout manager that acquires good companies with good management teams. In such a case, the portfolio company’s management team is likely to already have a strategic vision for the asset. These managers may therefore choose a more consultative engagement approach (for instance, providing advice and support to the portfolio company for any board-related issues or other challenges).

For value- or operations-focused funds, the manager may have higher ownership in the strategic vision for the asset, so their initial goal should be to develop a management team that can deliver on a specific investment thesis. In this case, the support required by the portfolio company could be less specialized (for example, the manager helps in hiring the right talent for key functional areas), and more integrative, to ensure a successful end-to-end transformation for the asset. As such, a more directive or oversight-focused engagement operating model may be preferred.

Successful execution of these engagement models requires the operating group to have the right talent mix and experience levels. If the manager implements a “generalist” coverage model, for example, where the focus is on monitoring and overseeing portfolio companies, the operating group will need people with the ability (and experience) to support the management in end-to-end transformations. However, a different type of skill set is required if the manager chooses a “specialist” coverage model, where the focus is on providing functional guidance and expertise (leaving transformations to the portfolio company’s management teams). Larger and more mature operating groups frequently use a mix of both talent pools.

Empower the operating group. In the past, many buyout managers did not have operating teams, so they relied on the management teams in the portfolio companies to fully identify and implement the value creation plan while running the asset’s day-to-day operations. Over time, many top PE funds began to establish internal operating groups  to provide strategic direction, coaching, and support to their portfolio companies. The operating groups, however, tended to take a back seat to deal teams, largely because legacy mindsets and governance structures placed responsibility for the performance of an asset on the deal team. In our view, while the deal team needs to remain responsible and accountable for the deal, certain tasks can be delegated to the operating group.

Some managers give their operating group members seats on portfolio company boards, hiring authority for key executives, and even decision-making rights on certain value creation strategies within the portfolio. For optimal performance, these operating groups should have leaders with prior C-suite responsibility or commensurate accountability within the PE fund and experience executing cross-functional mandates and company transformations. Certain funds with a core commitment to portfolio value creation include the leader of the operating group on the investment committee. Less-experienced members of the operating group can have consultative arrangements or peer-to-peer relationships with key portfolio company leaders.

Since the main KPIs for operating teams are financial, it is critical that their leaders understand a buyout asset’s business model, financing, and general market dynamics. The operating group should also be involved in the deal during the diligence phase, and participate in the development of the value creation thesis as well as the underwriting process. Upon deal close, the operating team should be as empowered as the deal team to serve as stewards of the asset and resolve issues concerning company operations.

Some funds also are hiring CTOs  for their portfolio companies to steer them through large transformations. Similar to the CTO in any organization , they help the organization align on a common vision, translate strategy into concrete initiatives for better performance, and create a system of continuous improvement and growth for the employees. However, when deployed by the PE fund, the CTO also often serves as a bridge between the PE fund and the portfolio company and can serve as a plug-and-play executive to fill short-term gaps in the portfolio company management team. In many instances, the CTO is given signatory, and occasionally broader, functional responsibilities. In addition, their personal incentives can be aligned with the fund’s desired outcomes. For example, funds may tie an element of the CTO’s overall compensation to EBITDA improvement or the success of the transformation.

Bring best-of-breed capabilities to portfolio companies. Buyout managers can bring a range of compelling capabilities to their portfolio companies, especially to smaller and midmarket companies and their internal operating teams. Our conversations with industry stakeholders revealed that buyout managers’ skills can be particularly useful in the following three areas:

• Procurement. Portfolio companies can draw on a buyout manager’s long-established procurement processes, team, and negotiating support. For instance, managers often have prenegotiated rates with suppliers or group purchasing arrangements that portfolio companies can leverage to minimize their own procurement costs and reduce third-party spending.
• Executive talent. They can also capitalize on the diverse and robust network of top talent that buyout managers have likely cultivated over time, including homegrown leaders and ones found through executive search firms (both within and outside the PE industry).
• Partners. Similarly, they can work with the buyout manager’s roster of external experts, business partners, suppliers, and advisers to find the best solutions to their emerging business challenges (for instance, gaining access to offshore resources during a carve-out transaction).

Ongoing macroeconomic uncertainty is creating unprecedented times in the PE buyout industry. Managers should use this as an opportunity to redouble their efforts on creating operational improvements in their existing portfolio, as well as new assets. It won’t be easy to adapt and evolve value creation processes and practices, but managers that succeed have an opportunity to close the gap between the current state of value creation and historical returns and outperform their peers.

Jose Luis Blanco is a senior partner in McKinsey’s New York office, where Matthew Maloney is a partner; William Bundy is a partner in the Washington, DC, office; and Jason Phillips is a senior partner in the London office.

The authors wish to thank Louis Dufau and Bill Leigh for their contributions to this article.

This article was edited by Arshiya Khullar, an editor in McKinsey’s Gurugram office.

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Huya inc. reports fourth quarter and fiscal year 2023 unaudited financial results and announces special cash dividend.

GUANGZHOU, China , March 19, 2024 /PRNewswire/ -- HUYA Inc. ("Huya" or the "Company") (NYSE: HUYA), a leading game live streaming platform in China , today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2023 .

Fourth Quarter 2023 Highlights [1]

Total net revenues for the fourth quarter of 2023 were RMB1,529.8 million ( US$215.5 million ), compared with RMB2,119.4 million for the same period of 2022.

Net  loss attributable to HUYA Inc. was RMB275.0 million ( US$38.7 million ) for the fourth quarter of 2023, compared with RMB562.7 million for the same period of 2022.

Non-GAAP net loss attributable to HUYA Inc. [2] was RMB189.7 million ( US$26.7 million ) for the fourth quarter of 2023, compared with RMB438.7 million for the same period of 2022.

Average mobile MAUs [3] of Huya Live for the fourth quarter of 2023 remained flat at 85.5 million, compared with 85.5 million for the same period of 2022.

Fiscal Year 2023 Highlights

Total net revenues  for fiscal year 2023 were RMB6,994.3 million ( US$985.1 million ), compared with RMB9,264.4 million for 2022.

Net loss attributable to HUYA Inc. for fiscal year 2023 was RMB204.5 million ( US$28.8 million ), compared with RMB547.7 million for 2022.

Non-GAAP net income attributable to HUYA Inc. for fiscal year 2023 was RMB119.1 million ( US$16.8 million ), compared with a non-GAAP net loss attributable to HUYA Inc. of RMB290.7 million for 2022.

Average mobile MAUs of Huya Live for fiscal year 2023 was 84.1 million, compared with 84.3 million for 2022.

Mr. Junhong Huang , Acting Co-Chief Executive Officer and Senior Vice President of Huya, commented, "In the fourth quarter of 2023, we continued to attract and engage a broad audience with rich game and e-sports content while upgrading interactive features to enhance the viewing experience. Meanwhile, we made good progress in revamping our technology, products, and operational strategies to provide more innovative game-related services. As a result, Huya Live's user base remained stable during the quarter, with average mobile MAUs of 85.5 million. Paying users [4] on Huya Live increased sequentially for the fourth quarter, rising marginally to 4.3 million thanks to more users paying for our platform's new game-related service offerings. As we enter 2024, despite the rapidly changing market conditions, we will continue to solidify our core live streaming business while propelling the development of game-related services to expand our business horizons and unlock new revenue streams. We remain confident in our future business prospects as we steadily implement our strategic transformation."

"Given the soft industry environment along with our proactive business adjustments, our live streaming revenues contracted in the fourth quarter. Nevertheless, we were encouraged to see that advertising and other revenues increased by 40.5% quarter-over-quarter and by 29.2% year-over-year, mainly due to the growth of game advertising and distribution revenues as we deepened cooperation with game companies," said Ms. Ashley Xin Wu , Huya's Acting Co-Chief Executive Officer and Vice President of Finance. "For the full year of 2023, we recorded total net revenues of approximately RMB7 billion . However, we drove a meaningful year-over-year margin expansion across the board through continuous, comprehensive efforts to improve cost efficiency and operational performance. Also, we're committed to enhancing shareholder value through disciplined capital allocation. As of the end of 2023, we had repurchased US$28.8 million of Huya shares. In addition, we're pleased to declare a special cash dividend totaling approximately US$150 million for our shareholders. Going forward, we will continue to strengthen our operational and financial capabilities to drive sustainable development."

Fourth Quarter 2023 Financial Results

Live streaming revenues were RMB1,343.5 million ( US$189.2 million ) for the fourth quarter of 2023, compared with RMB1,975.2 million for the same period of 2022, primarily due to the soft macro and industry environment and the Company's proactive business adjustments in support of its strategic transformation and prudent operations.

Advertising and other revenues were RMB186.3 million ( US$26.2 million ) for the fourth quarter of 2023, compared with RMB144.2 million for the same period of 2022, primarily due to increased revenues from game advertising and distribution services.

Cost of revenues decreased by 36.6% to RMB1,514.6 million ( US$213.3 million ) for the fourth quarter of 2023 from RMB2,387.1 million for the same period of 2022, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs.

Revenue sharing fees and content costs decreased by 39.4% to RMB1,316.4 million ( US$185.4 million ) for the fourth quarter of 2023 from RMB2,170.6 million for the same period of 2022, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues, as well as lower costs related to e-sports content and content creators.

Bandwidth costs decreased by 18.6% to RMB81.5 million ( US$11.5 million ) for the fourth quarter of 2023 from RMB100.1 million for the same period of 2022, primarily due to improved bandwidth cost management, favorable pricing terms and continued technology enhancement efforts.

Gross profit was RMB15.2 million ( US$2.1 million ) for the fourth quarter of 2023, compared with a gross loss of RMB267.7 million for the same period of 2022. Gross margin was 1.0% for the fourth quarter of 2023, compared with negative 12.6% for the same period of 2022, primarily due to decreased revenue sharing fees and content costs as a percentage of total net revenues.

Research and development expenses decreased by 5.6% to RMB137.0 million ( US$19.3 million ) for the fourth quarter of 2023 from RMB145.1 million for the same period of 2022, primarily due to decreased share-based compensation expenses.

Sales and marketing expenses decreased by 10.8% to RMB113.3 million ( US$16.0 million ) for the fourth quarter of 2023 from RMB127.0 million for the same period of 2022, primarily due to decreased personnel-related expenses.

General and administrative expense s increased by 17.8% to RMB100.2 million ( US$14.1 million ) for the fourth quarter of 2023 from RMB85.1 million for the same period of 2022, primarily due to provisions and increased professional services fees, partially offset by decreased share-based compensation expenses.

Other income was RMB13.1 million ( US$1.8 million ) for the fourth quarter of 2023, compared with RMB43.8 million for the same period of 2022, primarily due to lower indirect tax refunds and government subsidies.

Operating loss was RMB322.3 million ( US$45.4 million ) for the fourth quarter of 2023, compared with RMB581.2 million for the same period of 2022.

Interest and short-term investments income was RMB129.5 million ( US$18.2 million ) for the fourth quarter of 2023, compared with RMB101.7 million for the same period of 2022, primarily due to increased interest rates and improved management of deposit products.

Impairment loss of investments was RMB79.9 million ( US$11.3 million ) for the fourth quarter of 2023, compared with RMB55.2 million for the same period of 2022, primarily due to the recognition of increased impairment charges on the Company's investments.

Net loss attributable to HUYA Inc. was RMB275.0 million ( US$38.7 million ) for the fourth quarter of 2023, compared with RMB562.7 million for the same period of 2022.

Non-GAAP net loss attributable to HUYA Inc. was RMB189.7 million ( US$26.7 million ) for the fourth quarter of 2023, compared with RMB438.7 million for the same period of 2022.

Basic and diluted net loss per American depositary share ("ADS") were each RMB1.14 (US$0.16) for the fourth quarter of 2023. Basic and diluted net loss per ADS were each RMB2.32 for the fourth quarter of 2022. Each ADS represents one Class A ordinary share of the Company.

Non-GAAP basic and diluted net loss per ADS were each RMB0.79 (US$0.11) for the fourth quarter of 2023. Non-GAAP basic and diluted net loss per ADS were each RMB1.81 for the fourth quarter of 2022.

As of December 31, 2023 , the Company had cash and cash equivalents, short-term deposits and long-term deposits of RMB9,916.4 million ( US$1,396.7 million ), compared with RMB10,676.8 million as of September 30, 2023 .

Fiscal Year 2023 Financial Results

Total net revenues were RMB6,994.3 million ( US$985.1 million ) for fiscal year 2023, compared with RMB9,264.4 million for the prior year.

Live streaming revenues were RMB6,450.8 million ( US$908.6 million ) for fiscal year 2023, compared with RMB8,195.9 million for the prior year, primarily due to the soft macro and industry environment and the Company's proactive business adjustments in support of its strategic transformation and prudent operations.

Advertising and other revenues were RMB543.5 million ( US$76.6 million ) for fiscal year 2023, compared with RMB1,068.4 million for the prior year, primarily due to a significant decrease in content sub-licensing revenues.

Cost of revenues decreased by 28.2% to RMB6,179.1 million ( US$870.3 million ) for fiscal year 2023 from RMB8,610.7 million for the prior year, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs.

Revenue sharing fees and content costs decreased by 28.6% to RMB5,378.4 million ( US$757.5 million ) for fiscal year 2023 from RMB7,535.7 million for the prior year, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues, as well as lower costs related to e-sports content and content creators.

Bandwidth costs decreased by 33.0% to RMB360.7 million ( US$50.8 million ) for fiscal year 2023 from RMB537.9 million for the prior year, primarily due to improved bandwidth cost management, favorable pricing terms and continued technology enhancement efforts.

Gross profit increased by 24.7% to RMB815.2 million ( US$114.8 million ) for fiscal year 2023 from RMB653.6 million for the prior year, primarily due to decreased cost of revenues driven by lower revenue sharing fees and content costs. Gross margin was 11.7% for fiscal year 2023, compared with 7.1% for fiscal year 2022, primarily due to decreased revenue sharing fees and content costs as a percentage of total net revenues.

Research and development expenses decreased by 15.5% to RMB578.6 million ( US$81.5 million ) for fiscal year 2023 from RMB684.4 million for the prior year, primarily due to decreased personnel-related expenses and share-based compensation expenses.

Sales and marketing expenses decreased by 16.9% to RMB440.6 million ( US$62.1 million ) for fiscal year 2023 from RMB530.5 million for the prior year, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses.

General and administrative expenses decreased by 6.0% to RMB320.8 million ( US$45.2 million ) for fiscal year 2023 from RMB341.2 million for the prior year, primarily due to decreased personnel-related expenses and share-based compensation expenses.

Other income was RMB81.3 million ( US$11.4 million ) for fiscal year 2023, compared with RMB166.3 million for the prior year, primarily due to lower indirect tax refunds and government subsidies.

Operating loss was RMB443.6 million ( US$62.5 million ) for fiscal year 2023, compared with RMB736.2 million for the prior year.

Interest and short-term investments income were RMB479.7 million ( US$67.6 million ) for fiscal year 2023, compared with RMB298.2 million for the prior year, primarily due to increased interest rates and improved management of deposit products.

Impairment loss of investments was RMB225.8 million ( US$31.8 million ) for fiscal year 2023, compared with RMB55.2 million for the prior year, primarily due to the recognition of increased impairment charges on the Company's investments.

Net loss attributable to HUYA Inc. was RMB204.5 million ( US$28.8 million ) for fiscal year 2023, compared with RMB547.7 million for the prior year.

Non-GAAP net income attributable to HUYA Inc. was RMB119.1 million ( US$16.8 million ) for fiscal year 2023, compared with a non-GAAP net loss attributable to HUYA Inc. of RMB290.7 million for the prior year.

Basic and diluted net loss per ADS were each RMB0.84 (US$0.12) for fiscal year 2023. Basic and diluted net loss per ADS were each RMB2.27 for fiscal year 2022.

Non-GAAP basic and diluted net income per ADS were RMB0.49 (US$0.07) and RMB0.48 (US$0.07) , respectively, for fiscal year 2023. Non-GAAP basic and diluted net loss per ADS were each RMB1.20 for fiscal year 2022.

Share Repurchase Program

On August 15, 2023 , the board of directors of the Company authorized a share repurchase program under which the Company may repurchase up to US$100 million of its ADSs or ordinary shares over a 12-month period. As of December 31, 2023 , the Company had repurchased 9.2 million ADSs with a total aggregate consideration of US$28.8 million under this program.

Declaration of Special Cash Dividend

The board of directors of the Company has declared a special cash dividend of US$0.66 per ordinary share, or US$0.66 per ADS, to holders of ordinary shares and holders of ADSs of record as of the close of business on May 10, 2024 , payable in U.S. dollars. The ex-dividend date will be May 9, 2024 . The total amount of cash to be distributed for the dividend is expected to be approximately US$150 million , which will be funded by surplus cash on the Company's balance sheet. The payment date for holders of ordinary shares and holders of ADSs is expected to be on or around May 24, 2024 . The dividend to be paid to the Company's ADS holders through the depositary bank will be subject to the terms of the deposit agreement.

Director Appointment

Mr. Junhong Huang , Acting Co-Chief Executive Officer and Senior Vice President of the Company, has recently been appointed as a director of the Company, effective March 13, 2024 .

Earnings Webinar

The Company's management will host a Tencent Meeting Webinar at 8:00 a.m. U.S. Eastern Time on March 19, 2024 ( 8:00 p.m. Beijing / Hong Kong time on March 19, 2024 ), to review and discuss the Company's business and financial performance.

For participants who wish to join the webinar, please complete the online registration in advance using the links provided below. Upon registration, participants will receive an email with webinar access information, including meeting ID, meeting link, dial-in numbers, and a unique attendee ID to join the webinar.

Participant Online Registration :

A live webcast of the webinar will be accessible at  https://ir.huya.com , and a replay of the webcast will be available following the session.

About HUYA Inc.

HUYA Inc. is a leading game live streaming platform in China . As a technology-driven company, Huya offers rich and dynamic content across games, e-sports, and other entertainment genres where it has cultivated a large, highly engaged, interactive, immersive community of game enthusiasts. Building on its success in game live streaming and through close collaboration with game companies, e-sports tournament organizers, broadcasters and talent agencies, Huya is expanding its presence in the game industry, both domestically and internationally. By providing more innovative game-related services, the Company is committed to meeting the evolving needs of game enthusiasts, content creators, and industry partners.

Use of Non-GAAP Financial Measures

The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), except that the consolidated statement of changes in shareholders' equity, consolidated statements of cash flows, and the detailed notes have not been presented. Huya uses non-GAAP gross (loss) profit, non-GAAP operating loss, non-GAAP net (loss) income attributable to HUYA Inc., non-GAAP net (loss) income attributable to ordinary shareholders, non-GAAP basic and diluted net (loss) income per ordinary shares, and non-GAAP basic and diluted net (loss) income per ADS, which are non-GAAP financial measures. Non-GAAP gross (loss) profit is gross (loss) profit excluding share-based compensation expenses allocated in cost of revenues. Non-GAAP operating loss is operating loss excluding share-based compensation expenses and amortization of intangible assets from business acquisitions. Non-GAAP net (loss) income attributable to HUYA Inc. is net (loss) income attributable to HUYA Inc. excluding share-based compensation expenses, gain on fair value change of investments and disposal of equity investments, net of income taxes, impairment of goodwill and investments, loss on equity method investment, net of income taxes, and amortization of intangible assets from business acquisitions, net of income taxes, to the extent applicable. Non-GAAP net (loss) income attributable to ordinary shareholders is net (loss) income attributable to ordinary shareholders excluding share-based compensation expenses, gain on fair value change of investments and disposal of equity investments, net of income taxes, impairment of goodwill and investments, loss on equity method investment, net of income taxes, and amortization of intangible assets from business acquisitions, net of income taxes, to the extent applicable. Non-GAAP basic and diluted net (loss) income per ADS is non-GAAP net (loss) income attributable to ordinary shareholders divided by weighted average number of ADS used in the calculation of non-GAAP basic and diluted net (loss) income per ADS. The Company believes that separate analysis and exclusion of the impact of (i) share-based compensation expenses, (ii) gain on fair value change of investments and disposal of equity investments, net of income taxes, (iii) impairment of goodwill and investments, (iv) loss on equity method investment, net of income taxes, and (v) amortization of intangible assets from business acquisitions (net of income taxes), add clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measures for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measures represent useful supplemental information for investors and analysts to assess its operating performance without the effect of (i) share-based compensation expenses, and (ii) amortization of intangible assets from business acquisitions (net of income taxes), which have been and will continue to be significant recurring expenses in its business, and (iii) gain on fair value change of investments and disposal of equity investments, net of income taxes, (iv) impairment of goodwill and investments, and (v) loss on equity method investment, net of income taxes, which may recur when there is observable price change in the future. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company's net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider a non-GAAP financial measure in isolation from or as an alternative to the financial measures prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "HUYA Inc. Unaudited Reconciliations of GAAP and Non-GAAP Results" at the end of this announcement.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB7 .0999 to US$1.00 , the noon buying rate in effect on December 29, 2023, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the Renminbi or U.S. dollars amounts referred to in this announcement could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this announcement, as well as Huya's strategic and operational plans, contain forward-looking statements. Huya may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Huya's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Huya's goals and strategies; Huya's future business development, results of operations and financial condition; the expected growth of the game live streaming market; the expectation regarding the rate at which to gain active users, especially paying users; Huya's ability to monetize the user base; Huya's efforts in complying with applicable data privacy and security regulations; fluctuations in general economic and business conditions in China ; the economy in China and elsewhere generally; any regulatory developments in laws, regulations, rules, policies or guidelines applicable to Huya; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in Huya's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Huya does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact: 

HUYA Inc. Investor Relations Tel: +86-20-2290-7829 E-mail: [email protected]

Piacente Financial Communications Jenny Cai Tel: +86-10-6508-0677 E-mail: [email protected]

In the United States :

Piacente Financial Communications   Brandi Piacente Tel: +1-212-481-2050 E-mail: [email protected]

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SOURCE HUYA Inc.