Huya Earnings: Decline in Sales Offset by Improvement in Profitability

Although no-moat Huya’s HUYA first-quarter earnings were ahead of our and Refinitiv consensus expectations, management sounded cautious about the rest of this year. We have fine-tuned our near-term forecasts but maintain our fair value estimate of $7.70 per share. The bulk of our valuation stems from Huya’s net cash position of $6.20 per share as of the end of the first quarter of 2023. The stock’s closing price of $3.21 on May 16 represents nearly a 50% discount to the company’s net cash position.

China’s reopening did not bring an immediate change to Huya’s business trajectory, as evidenced by the 21% year-over-year revenue decline booked in the first quarter of 2023. Management blamed the decline on users and broadcasters spending more time offline following China’s zero-COVID pivot. Despite the large drop in revenue, operating margin clocked in at negative 2.6%, essentially flat with last year, reflecting the positive results of the firm’s cost initiatives. Thanks to CNY 96 million of interest income, net income stayed in positive territory at CNY 45 million for the first quarter.

Looking into the rest of 2023, we expect Huya’s core livestreaming business to remain under pressure, but profitability should improve compared with last year thanks to a favorable business mix shift and cost-saving initiatives bearing fruit. We still expect Huya to remain loss-making for the full year, but losses should narrow compared with 2022.

We have modestly trimmed our net loss forecast for 2023 to account for better profitability going into the rest of this year. Although uncertainties persist, we think Huya will maintain a stable market share in the game livestreaming industry, especially in the competitive gaming category.