Before the US stock market on May 13, HUYA.US (HUYA.US) announced its financial results for the first quarter of 2024.

According to financial reports, Huya achieved revenue of 1,504 billion yuan, a year-on-year decrease of 23.36%; while relying on “savings and contraction” on the cost side, it achieved net profit of 710.33 million yuan, an increase of 79.32% over the previous year; at the same time, Huya's current MAU was 82.5 million, an increase of only 0.6% over the same period last year, which is stable at 82.1 million, which can be described as weak growth.

However, after the disclosure of this financial report, the market gave quite positive feedback. The Zhitong Finance App observed that from May 13 to 15, Huya's stock price closed up 7.01%, 16.70%, and 1.09%, respectively. In fact, since the beginning of the year, Huya's stock price has risen sharply by 78.13%, which is enough to show that Wall Street is optimistic about Huya.

However, in reality, due to the decline in the game live streaming industry in recent years, the market's attitude towards Huya is unclear. Previously, after Huya's 2023 annual report revealed that its total revenue fell 18.77% year on year and net loss increased by 124.08% year on year, Huya's stock price continued to fall, and fell to an intraday low of 2.5 US dollars on January 22 this year. There was no 180° shift in market attitudes until the Q1 quarter of this year, and what investors need to do is analyze the reasons for the shift in Wall Street attitude from their Q1 earnings report and determine whether the Huya market can continue in the future.

The number of anchors and users is no longer growing linearly

Judging from the traditional Internet commercialization logic, users are the foundation of platform growth. However, in this 2024Q1 financial report, the answer given by Huya was “no longer pursuing linear user growth.”

According to the Zhitong Finance App, Huya achieved revenue of 1,504 billion yuan in the current period, a decrease of 23.36% over the previous year. Corresponding to this is a slight year-on-year increase in mobile MAU to 82.6 million in the first quarter, a decrease of 2.9 million compared to last year's Q4 quarter. At the same time, the company's paid users were 4.4 million, a year-on-year decrease of 153,800.

In fact, if the timeline is extended further, in the Q1 quarter of 2022, the number of monthly active Huya mobile users was 81.9 million, while the number of paid users reached 5.9 million. As can be seen, from 2022 to 2024, Huya's MAU only grew by 700,000, but the number of paying users dropped by 1.5 million.

However, from the perspective of segment business revenue, the growth of C-side MAU users stagnated and paid users declined. The direct impact was actually only Huya's live streaming business. According to the data, Huya Live's revenue for the current period was 1.26 billion yuan, and the overall revenue share was still high, reaching 83.78%. Compared with the same period last year, the business's revenue declined by 32.3%.

It is easy to see that the sharp decline in revenue from the live streaming business, which is the main revenue stream, is the direct reason for the decline in Huya's total revenue. However, judging from the decline gap between the two, Huya clearly still had growing businesses in the Q1 quarter, namely the game service business and advertising business.

According to financial reports, Huya's current revenue for game-related services, advertising and other services was 244 million yuan, an increase of 137.6% over the previous year. The year-on-month increase was 30.7%. Furthermore, this portion of revenue accounts for 16.2% of total revenue, up from 5.2% in the same period last year.

Huya seems to be shifting to a more profitable game service and advertising business. This is reflected not only on the revenue side, but also on the cost and expense side.

According to the Zhitong Finance App, in the 2024Q1 quarter, Huya's revenue cost fell from US$1,693 billion in the same period last year to US$1,284 billion, a year-on-year decrease of 24.15%. The main costs involved were revenue sharing expenses and content costs associated with anchors, as well as bandwidth costs related to platform operation.

On the cost side, Huya's current R&D expenses, sales expenses, and management expenses all fell by double digits year on year, and overall operating expenses fell 17.8% year on year.

Thanks also to a sharp decline in costs and expenses, Huya was able to once again achieve profits in the face of declining revenue. Under non-US GAAP (non-GAAP), net profit attributable to Huya for the quarter was 92.5 million yuan.

From C-side to B-side, from domestic to overseas

The problem that Huya has always been criticized for until now is that the revenue structure is too uniform, and after 2017, domestic game live streaming moved from a growth period to stock competition, and the marginal effects of the platform's money burning declined. Coupled with the platform's weak profitability at the time, maintaining high share costs and sales expenses only dragged down the platform's growth expectations. In this context, transformation is imperative, and Huya chose to open up the live streaming ecosystem and switch to a game service and advertising business with higher gross margins.

The reason why Wall Street's attitude towards Huya changed in the Q1 quarter is not unrelated to Huya's business-level transformation and phased results.

For Huya, reducing the revenue from the live streaming business means divesting the original platform-anchor-user development logic, and the resulting loss of users is a tangible loss that the platform can see. For example, last year, Huya also experienced the loss of leading anchors such as Zhang Daxian from Wang Zhe Rongyao District and Nao Nan from League of Legends Zone. However, this does not seem to affect the game distribution and sales business currently promoted by Huya.

In terms of game distribution business, Huya is mainly upgrading the “Game Center” section of the app, so that users can make one-stop reservations and download new games in the game library, while platform anchors can also participate in live game promotion activities.

In terms of game item sales business, Huya has completed the development of game item store functions. Currently, it has reached relevant cooperation with various games such as “Wang Zhe Rongyao” and “Crossing the Line of Fire” to sell virtual items on a small scale. Users can directly place orders and purchase while watching the game anchor's live broadcast. For example, in October 2023, Huya collaborated with a game manufacturer to launch a custom skin package for a popular anchor of the game on the platform, which exceeded expectations during the anchor's limited-time exclusive sale.

In addition to this, Huya is also seeking to combine the above two businesses with “going overseas.” Compared to physical products with high logistics costs, online digital games seem to have the advantage of going overseas. According to Appmagic data, Tencent, NetEase, and Miha Games from China occupied 1st, 2nd, and 4th places respectively in the global mobile game publisher revenue rankings last year. But that doesn't mean it's easy for games to go overseas. According to the “2023 China Game Industry Report”, the overseas revenue of games developed by China last year was US$16.366 billion, down 5.65% from the previous year.

However, for Huya, the overseas live streaming platform Nimo, which it incubated, has become a top live streaming platform in Southeast Asia, Turkey, the Middle East and other countries and regions after nearly two years of rapid development. At the same time, Nimo has also developed a full-ecosystem business including tournament production and operation, game distribution and intermodal transportation, and localized content marketing.

However, for Huya, there are still quite a few challenges and difficulties in operating in Southeast Asia. According to the Zhitong Finance App, in the Southeast Asian market, there are often differences in players' consumption habits and game preferences. To efficiently increase live streaming and game revenue, live streaming platforms must have greater adaptability and flexibility to find the right balance in game distribution, advertising, and other revenue methods. This may require the platform to take root in every country in Southeast Asia to make complicated operating rhythm adjustments or acquire customers according to local preferences, thereby increasing the company's operating costs and dragging down the company's performance.

However, looking at Wall Street, the current results of Huya's revenue structure adjustment are better than expected, so there is nothing wrong with the valuation increase, but this does not mean that Huya's subsequent valuations will always return smoothly; in the end, in fact, we still need to see Huya's subsequent financial statements.