$虎牙(HUYA)$
Huya Q2 Earnings: Still Bullish
https://seekingalpha.com/article/4198798-huya-q2-earnings-still-bullish
Aug. 14, 2018 7:00 AM ET|3 comments | About: Huya Broadcasting (HUYA), Includes: TCEHY, YY
Event-driven, long/short equity, long-term horizon, special situations
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Summary
Second quarter revenue was up a whopping 125%.
Q3's revenue guidance was slightly under the consensus, but I'm not worried.
The company will likely operate at close to breakeven for the next few quarters as it ramps up investments.
Advertising slowed significantly, I am still optimistic about its **re growth given Huya's mainstream appeal however.
Overall, I am still very bullish about the company's **re prospects.
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As expected, Huya (HUYA) had a blockbuster quarter. Revenue was up 125% year over year to 1.04 billion RMB and management expected another doubling of revenue in the third quarter. While the stock closed after hours trading down 8%, I believe that the company’s fundamentals have not been impaired and I expect the company to create value over the long-run.
Growth Continues
In addition to astounding revenue growth, the company also reported great user metrics. Mobile MAUs grew 24.7% year over year to 42.7 million from 34.2 million and paying users conversion is also trending well, with paying users up 40.7% year over year to 3.4 million from 2.4 million. Using paying users to calculate ARPU, quarterly ARPU increased 59% from 192 RMB to 305 RMB. This level of monetization is not unprecedented as Huya still lags behind YY (YY) as I explained in my earnings preview article.
Was this quarter a fluke? Numerous analysts asked on the call if World Cup benefited the company during the quarter, which would imply that the high revenue growth has a lot of air. The management stated that they saw very limited financial impact. While it’s up to you to believe them or not, I don’t see any reason why World Cup would meaningfully impact a streaming platform that is largely focused on gaming.
Growth is great, but it’s even better when the company is able to double revenue without incurring massive losses. The company is running at near breakeven with operating loss coming in at just 17.3 million RMB this quarter. The management is in no rush to turn a decent profit as there are many investment opportunities that will enhance long-term value. For example, the management believes that it can become the leader in Southeast Asia withNIMO TV and help from Tencent (OTCPK:TCEHY).
Source: riotgames.com
Negative Reaction Not Concerning
Huya is clearly growing as a growth stock should; however, some investors didn’t like the quarter as evidenced by the 8% after hours drop. The guidance is the most obvious reason, as the range of 1,190-1,220 million RMB is slightly below the 1,220 million RMB consensus. The lower end of the revenue guidance would imply a 2.5% miss. I fail to see why investors should fuss over at worst a 2.5% negative surprise, especially when Huya’s management no doubt inherited YY management’s tendency to be conservative (YY beat the high end of its own guidance by 73 million RMB this quarter). Regardless of what other investors think, Huya’s growth is not contingent on the stock price as it does not need additional capital, thus a decline in the stock will have no impact on the company’s **re growth.
Rather than focusing on the great-but-not-good-enough guidance, I believe investors should focus on the advertising story, as ad revenue growth slowed from 212% in Q1 to 138%. While it’s still impressive, I obviously would have rather preferred to see more momentum. However, I believe that it’s too early to say that advertising growth will slow down meaningfully again in the **re (e.g. say to below 40% next year, which is where iQIYI landed last quarter) as I still see a lot of ad potential for Huya as the Esport industry grows. We also have to realize that the company can’t triple its ad revenue every quarter simply due to size. If the company can maintain the linear growth of 27 million RMB that is achieved this quarter, then that implies a growth rate of 58% for Q2 2019, which is acceptable in my opinion.
Conclusion
I believe that Q2 was a great quarter and the fact the company is guiding for another double in Q3 shows me that there is still plenty of room for growth. In my earnings preview article I stated that revenue could double from here again in the short-term based on YY’s level of monetization, and I see no reason to retract that statement based on Q2 results. Over the long-term, Huya may even exceed YY in terms of revenue given its focus on a much more mainstream industry (i.e. gaming as opposed to live online entertainment).
Overall, I believe that if an investor was invested in the company prior to Q2 earnings, nothing from this re
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