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Earnings preview: Huya to benefit from content strength, user base in Q2

China-based e-sports platform Huya (NYSE: HUYA) will be releasing its second-quarter 2019 earnings report Tuesday after the market’s close. Market watchers, on average, see second-quarter profit rising 60% to $0.08 per share. The positive outlook reflects an estimated 71% growth in revenues to $256.1 million.

Encouraged by the impressive first-quarter performance, the management had forecast annual revenue growth of about 70% for the June quarter.

Huya's key operating performance in 2018

The current uptick in the average per user is expected to continue in the to-be-reported quarter amid rapid conversion of active users into paying users, supported by the company’s revised mobile strategy and content diversification. Going forward, Huya is poised to stay ahead of peers supported mainly by the strength of its content. The number of monthly active users was around 123 million at the end of the March quarter.

Brand Power

The Huya brand is being widely recognized in the Chinese advertising market, which together with the stable demand from gaming advertisers points to stable growth for the advertising segment. The backing of internet giant Tencent is Huya’s biggest strength, which has helped the company in its ongoing geographical expansion.

However, to what extent these positive factors would translate into profit in the second quarter will depend on how effectively the company manages costs. It is worth noting that revenue-sharing fees and content cost more than doubled in the first three months of the year.

Also see: Walt Disney Q3 earnings call insights

The growing user base and the initiatives to improve the quality of streaming content could result in higher bandwidth costs. Also, with the global player base for e-sports projected to double in the next two years, competition is bound to intensify in the future.

Esports adoption

The steady adoption of esports across all the key markets, with China witnessing explosive growth, bodes well for the company as far as long-term growth is concerned. Experts believe that the e-sports sector is still at a nascent stage.

Q1 Performance

In the first quarter, earnings surged 50% annually to $0.09 per share as revenues more than doubled to $243.1 million. The growth was driven by a strong performance by the streaming and advertising segments. The bottom-line matched the Street view, while revenue beat.

Related: HUYA Q1 2019 Earnings Conference Call Transcript

The performance of Huya shares has been mixed since they debuted on the New York Stock Exchange last year. The stock has gained 27% since the beginning of the year.

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