HUYA Stock Forecast: Live-Streaming Gaming Mushrooms

Huya Stock Forecast: In the late 1970s and early 1980s, the best place to play a video game was the local arcade. Teens gathered to improve their skills on titles like Space Invaders and Pac-Man, and friends came along to watch.

Soon, video games played an important role in the high school social scene – and in the larger culture. January 1983 marked the first world championship competition in video games.

It wasn’t long before companies like Nintendo and Sega brought gaming into homes, and by the early 1990s, handheld gaming devices were introduced. But no one could have imagined that these early games would eventually transform into massive virtual worlds – and that casual socializing at the local arcade would become an entire subculture.

Today, the global video game market is worth billions. Specifically, it is expected to reach $152.1 billion in revenues for 2019 – a year over year increase of 9.6 percent.

The US and China compete for first place in terms of total gaming revenue. In 2019, US gaming revenue came in at $36.9 billion, overtaking China for the first time since 2015.

Investors haven’t been shy about buying into successful gaming companies, but so far they have focused their attention on game and console developers. Many are paying close attention to the exploding popularity of mobile gaming, but most have not explored emerging peripheral technologies.

As technology advances and gaming becomes a fully-immersive experience, new concepts are coming to market. That means new and exciting opportunities for investors. One of the most interesting is HUYA [NYSE: HUYA] – a company focused on bringing gamers together through live streaming.

What Does HUYA Do? 

Outside of the gaming community, it is a little known fact that for gamers, watching peers compete is a popular pastime. Many skilled gamers make a living by broadcasting while they play, providing commentary along the way.

Viewers log into the livestream to comment on the action, connecting with other viewers along the way. In some cases, popular broadcasts are enjoyed over and over again, just like rewatching certain sporting events.

HUYA [NYSE: HUYA] prides itself on being the number one live streaming platform in China for gaming as measured by Monthly Active Users (MAU) and average time spent on the company’s mobile app per mobile active user.

It boasts the largest and most engaged live streaming community, and when compared to competing platforms, HUYA has the most active broadcasters.

In its second quarter results, HUYA leaders reported 4.9 million paying users, which represented an increase of 46.7 percent year over year. Monthly Average Users (MAUs) averaged 55.9 million – an increase of 57 percent.

HUYA [NYSE: HUYA] is a pioneer in this space, and it is rapidly expanding its offerings. The company partners with major game developers, game publishers, and e-sports events organizers to offer an array of gaming and e-sports live streams. It is currently exploring additional content options, such as anime, talent shows, and outdoor events, as the technology is transferable to a wide variety of activities.

Chinese gaming enthusiasts have embraced HUYA, making it a central location for meeting and interacting with others who share common interests. Through the platform, users can engage through real-time commenting, bullet chatting, and gifting. The biggest benefit for users is an opportunity to cultivate friendships regardless of distance.

For HUYA, the creation of an effective digital social experience has ensured on-going success. Users tend to stick with HUYA long-term, and their time on the platform trends upward as they develop important relationships with others.

HUYA [NYSE: HUYA] generates revenue from several channels. While users are the company’s primary source of cash, there is brisk business from talent agencies and broadcasters.

Between content generated from broadcasters and content generated by the users themselves, HUYA is constantly growing its library, which in turn grows the number of users and the amount of time each spends on HUYA.

HUYA [NYSE: HUYA] is on the cutting edge of technology in the area of live streaming, and its infrastructure is state of the art. Internal developers are driving new applications for big data and artificial intelligence, which could eventually be used in other industries.

Overall, the company is well-positioned for growth in coming years, but some investors aren’t convinced. After all, HUYA is the first to attempt a widespread presence in this space, and its IPO was fairly recent – May 11, 2018. For those considering HUYA stock, the question is simple: is HUYA a buy?

Is HUYA a Buy?

Current and potential investors watched HUYA’s last quarter with great interest, and the overall results exceeded expectations.

Year over year revenues increased by 93.6 percent to a total of $292.9 million – more than $41 million higher than predicted. Adjusted net income came in at $24.8 million, which represented a year over year increase of 61.7 percent.

Adjusted earnings per share were $0.11 – higher than the $0.08 estimates analysts made earlier in the year. These figures prompted an 11.2 percent increase in stock price the following weeks. However, about half of that gain disappeared the next month, highlighting the risks inherent in technology investments.

Overall, China’s technology sector is trending higher, so the drop in stock price is specific to HUYA. Some analysts believe investors got nervous about putting too much into the emerging streaming space, as there is the possibility that streaming may already have hit its peak.

Others are concerned with competition. One of the biggest threats is DouYu, which held its IPO in July 2019. Specifically, top broadcasters may be tempted away to competing platforms by larger shares of the revenue they generate. HUYA will have to match the increased revenue sharing offers to retain their most popular content creators.

Finally, it appears that Chinese regulators are increasing their focus on personal streaming, which could result in any number of restrictions to content. Any big changes in the regulatory landscape will have a dramatic impact on HUYA.

HUYA Stock Forecast: The Bottom Line

At the end of the day, it’s hard to be sure where HUYA will land. The company is growing revenue rapidly, but it is unclear whether this growth is sustainable.

A number of outside factors could change HUYA’s fortunes in an instant. With that said, the stock price is relatively low.

Investors willing to take on some risk may be rewarded if HUYA can build on past successes.