HUYA Inc. Reports Third Quarter 2020 Unaudited Financial Results

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HUYA Inc. (“Huya” or the “Company”) (NYSE: HUYA), a leading game live streaming platform in China, today announced its unaudited financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Highlights

  • Total net revenues for the third quarter of 2020 increased by 24.3% to RMB2,814.8 million (US$414.6 million), from RMB2,265.1 million for the same period of 2019.
  • Net income attributable to HUYA Inc. was RMB253.0 million (US$37.3 million) for the third quarter of 2020, representing an increase of 105.3% from RMB123.2 million for the same period of 2019.
  • Non-GAAP net income attributable to HUYA Inc.[1] was RMB361.2 million (US$53.2 million) for the third quarter of 2020, representing an increase of 75.0% from RMB206.4 million for the same period of 2019.
  • Average mobile MAUs[2] of Huya Live in the third quarter of 2020 reached 74.2 million, representing an increase of 16.3% from 63.8 million in the third quarter of 2019.
  • Average MAUs[3]of Huya Live in the third quarter of 2020 reached 172.9 million, representing an increase of 18.3% from 146.1 million in the third quarter of 2019.
  • Total number of paying users[4]of Huya Live in the third quarter of 2020 reached 6.0 million, representing an increase of 13.2% from 5.3 million in the third quarter of 2019.
1] “Non-GAAP net income attributable to HUYA Inc.” is defined as net income attributable to HUYA Inc. before share-based compensation expenses, gain on fair value change of investments, and income tax effects on non-GAAP adjustments. For more information, refer to “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and Non-GAAP Results” at the end of this press release.
[2] Refers to average monthly active users on our mobile apps. Average mobile MAUs for any period is calculated by dividing (i) the sum of active users on our mobile apps for each month during such relevant period, by (ii) the number of months during such relevant period.
[3] Refers to average monthly active users on our platform. Average MAUs for any period is calculated by dividing (i) the sum of active users on our platform for each month during such relevant period, by (ii) the number of months during such relevant period.
[4] Refers to the sum of user accounts that purchased various products and services on our platform at least once during such relevant period.

“Despite a relatively shorter summer vacation period due to the impact of COVID-19 in China, we were still able to increase our user base by offering enriched content and enhanced experience, as well as through our deepened collaboration with Tencent,” said Mr. Rongjie Dong, Chief Executive Officer of Huya. “In the third quarter of 2020, average MAUs of Huya Live reached 172.9 million. The continued user growth momentum sets a solid foundation for the strengthening of user engagement and incremental monetization opportunities.”

“We are also excited about the opportunities that lie ahead of us with the potential merger with DouYu. We believe the potential combination will allow us to build on our complementary strengths, achieve significant synergies, and create more value for our users, our business partners and our shareholders,” concluded Mr. Dong.

Ms. Catherine Liu, Chief Financial Officer of Huya, commented, “While driving significant user growth, we have also been able to achieve improving financial results in the third quarter of 2020. Our total net revenues and gross profit increased year-over-year by 24.3% and 52.7%, respectively. Our operating margin increased to 7.9% in the third quarter of 2020, substantially improved from 2.8% in the third quarter of 2019, while our non-GAAP operating margin increased to 11.8%, compared to 6.5% in the third quarter of 2019. With such strong operating leverage, we have confidence that we can execute on the many opportunities ahead of us.”

Third Quarter 2020 Financial Results

Total net revenues for the third quarter of 2020 increased by 24.3% to RMB2,814.8 million (US$414.6 million), from RMB2,265.1 million for the same period of 2019.

Live streaming revenues increased by 23.2% to RMB2,657.2 million (US$391.4 million) for the third quarter of 2020, from RMB2,156.1 million for the same period of 2019, primarily due to the increase in the number of paying users and the average spending per paying user on Huya Live. The increase in the number of paying users was primarily driven by the Company’s overall user growth. The increase in the average spending per paying user was primarily driven by the enrichment and enhancement of content, products and services.

Advertising and other revenues increased by 44.6% to RMB157.6 million (US$23.2 million) for the third quarter of 2020, from RMB109.0 million for the same period of 2019, primarily driven by the increasing and diversifying advertiser base, mainly attributable to strengthened recognition of Huya’s brand name in China’s online advertising market.

Cost of revenues increased by 18.0% to RMB2,194.3 million (US$323.2 million) for the third quarter of 2020 from RMB1,858.8 million for the same period of 2019, primarily attributable to the increase in revenue sharing fees and content costs, and personnel-related costs.

Revenue sharing fees and content costs increased by 21.1% to RMB1,826.7 million (US$269.0 million) for the third quarter of 2020 from RMB1,508.9 million for the same period of 2019, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues, and increased spending in content creators, e-sports and self-produced content. The year-over-year increase was partially offset by benefits from economies of scale.

Bandwidth costs decreased by 1.4% to RMB207.6 million (US$30.6 million) for the third quarter of 2020 from RMB210.5 million for the same period of 2019, primarily due to improved management in bandwidth costs and continued technology enhancement efforts.

Gross profit increased by 52.7% to RMB620.6 million (US$91.4 million) for the third quarter of 2020 from RMB406.3 million for the same period of 2019. Gross margin increased to 22.0% for the third quarter of 2020 from 17.9% for the same period of 2019.

Research and development expenses increased by 35.4% to RMB182.7 million (US$26.9 million) for the third quarter of 2020 from RMB135.0 million for the same period of 2019, mainly attributable to increased personnel-related expenses.

Sales and marketing expenses increased by 17.6% to RMB143.8 million (US$21.2 million) for the third quarter of 2020 from RMB122.3 million for the same period of 2019. The increase was primarily attributable to the increased marketing expenses in the summer to promote the Company’s content, products, services and brand name, as well as increased personnel-related expenses. 

General and administrative expenses increased by 23.3% to RMB118.7 million (US$17.5 million) for the third quarter of 2020 from RMB96.3 million for the same period of 2019, mainly due to the increased professional fees associated with the Company’s ongoing merger process with DouYu International Holdings Limited (“DouYu”) (NASDAQ: DOYU).

Operating income increased by 249.0% to RMB222.9 million (US$32.8 million) for the third quarter of 2020 from RMB63.9 million for the same period of 2019. Operating margin increased to 7.9% for the third quarter of 2020 from 2.8% for the same period of 2019.

Non-GAAP operating income, which excludes share-based compensation expenses, increased by 125.2% to RMB331.1 million (US$48.8 million) for the third quarter of 2020 from RMB147.0 million for the same period of 2019. Non-GAAP operating margin increased to 11.8% for the third quarter of 2020 from 6.5% for the same period of 2019.

Income tax expenses increased by 81.7% to RMB50.7 million (US$7.5 million) for the third quarter of 2020 from RMB27.9 million for the same period of 2019.

Net income attributable to HUYA Inc. for the third quarter of 2020 increased by 105.3% to RMB253.0 million (US$37.3 million), from RMB123.2 million for the same period of 2019.

Non-GAAP net income attributable to HUYA Inc. for the third quarter of 2020, which excludes share-based compensation expenses, increased by 75.0% to RMB361.2 million (US$53.2 million), from RMB206.4 million for the same period of 2019.

Diluted net income per American depositary share (“ADS”) was RMB1.05 (US$0.15) for the third quarter of 2020, compared with RMB0.52 for the same period of 2019. Each ADS represents one Class A ordinary share of the Company.

Non-GAAP diluted net income per ADS was RMB1.50 (US$0.22) for the third quarter of 2020, compared with RMB0.87 for the same period of 2019.

Balance Sheets and Cash Flow

As of September 30, 2020, the Company had cash and cash equivalents, short-term deposits and short-term investments of RMB10,798.3 million (US$1,590.4 million), compared with RMB10,745.1 million as of June 30, 2020. The increase was primarily due to net cash provided by operating activities of RMB133.8 million (US$19.7 million) for the third quarter of 2020.

Recent Updates

On October 12, 2020, the Company and DouYu jointly announced that they had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tiger Company Ltd., a direct wholly owned subsidiary of Huya, and, solely for the limited purposes set forth therein, Nectarine Investment Limited (“Tencent”), a wholly owned subsidiary of Tencent Holdings Limited. Pursuant to the Merger Agreement, Huya will acquire all the outstanding shares of DouYu, including ordinary shares represented by ADSs, through a stock-for-stock merger (the “Merger”). At the effective time of the Merger, each ordinary share of DouYu will be cancelled in exchange for the right to receive 7.30 Class A ordinary shares of Huya, and each DouYu ADS will be cancelled in exchange for the right to receive 0.73 Huya ADS. If the Merger is completed, the shareholders of Huya and DouYu immediately prior to the Merger, respectively, will each hold approximately 50% shares of the combined company on a fully diluted basis.

Concurrently with the execution of the Merger Agreement, DouYu and Tencent entered into a Reassignment Agreement, pursuant to which Tencent will assign its interests in the game live streaming business operated by the Tencent group under the “Penguin e-Sports” brand (the “Penguin Business”) to DouYu and deepen its business cooperation with DouYu in order to integrate the Penguin Business with the business of the combined Huya and DouYu upon the Merger, for a total consideration of US$500 million.

The Merger, which is currently expected to close during the first half of 2021, is subject to customary closing conditions. There can be no assurance that the Merger will be completed during the first half of 2021 or at all.

Huya also announced that its board of directors approved a cash dividend in an aggregate amount of US$200 million to be paid on or around the date of the closing of the Merger to the holders of ordinary shares of Huya, including the holders of Huya ADSs, as of the close of business on certain record date after the date when the required DouYu shareholder approval is obtained and prior to the closing of the Merger. Such record date and payment date will be designated by Huya’s authorized officer and will be announced in due course.

In connection with the proposed merger transaction pursuant to the terms of the Merger Agreement, Huya has filed with the SEC a registration statement on Form F-4 that includes a proxy statement of DouYu that also constitutes a prospectus of Huya relating to ordinary shares and ADSs of Huya to be offered as merger consideration in the Merger. Huya and DouYu urge investors and security holders to read the proxy statement/prospectus and any other relevant documents filed with the SEC carefully and in their entirety, because they will contain important information about Huya, DouYu, the Penguin Business and the Merger. Investors and security holders may obtain the registration statement and proxy statement/prospectus and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov.

On November 11, 2020, the Company obtained the usage right to a piece of land with an area of approximately 29,258 square meters in Foshan City, Guangdong Province, through a public auction. The Company’s winning bid price was approximately RMB310 million. The Company intends to develop office space on the land in order to accommodate future work force expansion and reduce long term operating costs and expenses.

Conference Call

The Company’s management will host an earnings conference call at 7:00 a.m. U.S. Eastern Time on November 11, 2020 (8:00 p.m. Beijing/Hong Kong time on November 11, 2020).

For participants who wish to join the call, please complete online registration using the link provided below at least 20 minutes prior to the scheduled call start time. Upon registration, participants will receive the conference call access information, including dial-in numbers, Direct Event passcode, a unique registrant ID and an e-mail with detailed instructions to join the conference call.

Participant Online Registration: http://apac.directeventreg.com/registration/event/6564986

Once complete the registration, please dial-in at least 10 minutes before the scheduled start time of the earnings call and enter the Direct Event passcode and registrant ID as instructed to connect to the call.

Additionally, a live and archived webcast of the conference call will be available on the Company’s investor relations website at http://ir.huya.com.

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