Huya Inc., a livestream gaming company, has reported significant revenue declines in the third quarter. However, the company is hopeful that its diversification plan, announced in August, will improve its situation. Despite the decline, investors have responded positively to the company's financial results, with the stock rallying over 20% in the last six trading days. This has brought Huya's market value close to $1 billion, nearing "unicorn" status.
Huya's journey has not been without challenges. Earlier this year, China's market regulator vetoed Huya's planned merger with rival DouYu International, which was engineered by their common major stakeholder Tencent. Additionally, the livestreaming industry in China has faced new government restrictions aimed at curbing excessive gaming by minors. Furthermore, Huya's CEO left the company in August for personal reasons, leading to the appointment of two acting co-CEOs.
Despite these setbacks, Huya's revenue has been steadily contracting since the end of 2020. In the third quarter, the company reported a 30% year-on-year revenue decline. To stabilize its situation and return to growth, Huya announced a plan to diversify into less-controversial game-related services. Currently, the company generates over 90% of its revenue from its core livestream gaming services. The diversification plan aims to complement and enhance its livestreaming business through partnerships with game studios and the development of new services.
While it may take time to see the results of Huya's strategic shift, investors are optimistic about the company's future. However, Huya's revenue decline in the third quarter was driven by a drop in its core livestreaming business and a significant decrease in advertising revenue. The company's expenses also dropped, but not at the same rate as its revenue decline, resulting in a contraction of its profit.
Huya expects its expenses to spike in the fourth quarter due to large gaming events, which could lead to a loss for the quarter. Analysts anticipate a fourth-quarter loss but see the company returning to profitability next year. Despite these expectations, Huya's stock price reflects high market expectations, with a forward price-to-earnings ratio of 64. Failure to meet these expectations could put pressure on the company's stock and its chances of re-entering the "unicorn club."