Chinese game live streaming IPO shows speed of development in the industry

Last Friday, Huya, the game streaming arm of YY, raised $180 million with its initial public offering on the New York Stock Exchange. The company offered 15 million American depositary shares at $12 per share, the high end of its estimated ADS price. The prices of the company’s shares have since jumped and the closing price of the company’s stocks was $18.38 yesterday.

The company is backed by YY and Tencent. In a statement issued by Huya after the offering, the company announced that its parent company would hold 54.9% voting power in the company, while Tencent would control 39.5%.

In the company’s IPO prospectus report, Huya stated that it is currently the largest game live streaming platform in China, having reached 86.7 million average monthly active users (MAU) in the fourth quarter of 2017. The company also reported revenues of $335.8 million (RMB 2,184.8 million) in 2017, a whopping 174% increase from the year before.

According to local media, Dong Rongjie (董荣杰), the CEO of Huya, was very emotional about his company’s IPO. “Huya’s public listing is an important turning point for China’s game streaming industry. After this, we plan to continue on integrating our resources and strengthening our collaborations with our partners upstream and downstream,” Dong says. “For us, this is just the beginning.”

The company has come a long way since its establishment in 2012. Huya was one of the earliest players in China’s game live streaming market. In 2014, its market supremacy began to be challenged by Douyu. Today, Douyu is still Huya’s biggest competitor and the race between the two live streaming companies remains too close to call. Earlier this year, there were also rumors that Douyo was planning for an IPO in Hong Kong. According to QuestMobile, Huya boasted more MAUs than Douyu this March, but data from a Jiguang report also shows that the latter actually surpassed the former in market penetration rate in February.

Tencent, Huya’s second-largest shareholder, has also invested heavily in Douyu. In March, news media reported that both Huya and Douyu had received equity financing from the internet giant. Huya secured $461.6 million in its series B financing round led by Tencent; Douyu received $630 million (RMB 4 billion) worth of financing from the company. Prior to that, Tencent invested in Douyu twice, leading a $100 million B financing round along with Sequoia and Nanshan Capital in March of 2016 and participating in a series C financing round worth RMB 1.5 billion ($236.5 million) in August that same year.

Research from a Frost & Sullivan report shows that China is currently the world’s largest gaming market. In 2017, the country had 646 million gamers and its numbers are estimated to grow to 917 million in 2022. Game streaming in China, along with other sectors of live streaming, is a fast-growing industry. Last year, the revenues of game streaming were worth $1.2 billion, a significant increase from the $121 million the industry yielded in 2015. According to the report, projections are that revenues will reach $4.9 billion in 2022.

Despite the fact that Huya’s public trading seems to be off to a rosy start, industry analysts are predicting there will still be many challenges awaiting the live streaming company in the near future. Some call to question Huya’s profitability as the company had been incurring significant losses these past few years. One of the greatest expenses for Huya and other game live streaming companies is the recruiting of talent, with the revenues of these companies depending highly on whether or not they’re able to attract popular live streaming hosts to their platform. It’s one of the risks that Huya itself has also admitted to; in the prospectus, Huya stated that the ability to attract and retain broadcasters is crucial to the company’s survival in a highly competitive market and that failure to do so would adversely affect the company’s financial conditions.