Esports Platforms Huya, Douyu To Merge: What Investors Should Know

Two large Chinese video game streaming companies agreed to a merger Monday. 

What Happened: Huya Inc HUYA and DouYu International DOYU announced a merger agreement Monday. The deal comes after pressure from Tencent Holdings Ltd TCEHY for the companies to merge.

Huya will acquire all outstanding Douyu shares, including American depository shares. Each Douyu ADS will receive .730 Huya ADSs representing one Huya Class A share.

Joyy Inc YY, a large shareholder in Huya, provided written consent for the merger deal.

Huya will pay $200 million in cash dividends to shareholders around the closing date of the merger.

If the merger is completed, each company will hold around 50% of the combined entity. The deal is expected to close in the first half of 2021.

Why It’s Important: Tencent has pushed for a merger of the two companies for months. Tencent had stakes in both companies and will own 67.5% voting power in the new combined company.

Tencent bought stakes in Huya from Joyy and Huya CEO Doug Rongjie.

Tencent said it will assign its interest in Penguin e-Sports — a streaming rival to the two merging companies — to Douyu prior to the merger.

Large User Base: In the second quarter, Huya reported a 34% increase in revenue to $381.8 million. The company had 75.6 million mobile monthly active users, good for growth of 35% year-over-year.

The company had total MAUs of 168.5 million for year-over-year growth of 17.1%. Huya reported paying users of 6.2 million, year-over-yar growth of 26.5%.

Douyu reported revenue growth of 33.9% to $354.4 million in the second quarter. The company reported 58.4 million mobile MAUs and year-over-year growth of 15.4%. Total MAUs in the second quarter were 165.3 million. Paying users grew 13.4% year-over-year to 7.6 million.

Together, the two companies will have a large user base and constitute a major player in the livestreaming market, which has grown rapidly in China.

The companies compete with Bilibili BILI, which reported 172 million MAUs in the second quarter. Bilibili had 12.9 million paying users.

While Huya and Douyu compete mainly in gaming streaming, Bilibili appeals to a wider range of audience with other topics.

All three companies ultimately compete for time spent on the platform, and the merger could give Tencent’s streaming efforts a major push. Tencent is a small shareholder in Bilibili as well. 

What’s Next: Together, the two streamers could have a combined audience of 300 million MAUs depending on how much overlap there is between the platforms' users.

HUYA, DOYU Price Action: Huya shares were down 9.25% at $23.40 at last check Monday, while Douyu shares were trading 13.54% higher at $15.90.