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Earnings Preview: Huya expected to report solid Q1 results amidst Douyu’s US listing

Huya’s (HUYA) shares have jumped 36% this year helped by the strong fourth quarter results. The live streaming platform’s stock has recovered sharply from last December where it touched $14.44, hitting a new 52-week low level.

Investors would be expecting the momentum to continue into the first quarter when it reports its first quarter results tomorrow after the bell.

Last month, Huya’s rival Douyu filed its IPO in the US planning to raise $500 million. It’s interesting to note that Tencent has invested in both the companies. With both the firms now listed in the bourses, how Tencent plans to take it forward will be watched keenly by analysts.

Huya's stock gains after impressive Q4 2018 results

In the fourth quarter, revenue more than doubled to $218.9 million while adjusted earnings per share came in at $0.11. For the first quarter, analysts are expecting adjusted earnings of 9 cents per share on revenue of $225.7 million. Huya guided Q1 revenues to be between $219.6 million to $225.4 million.

Huya get lion’s share of revenues from the live streaming front where users purchase virtual gifts from its platform. Last quarter, live streaming revenues came in at $209.7 million compared to $100.6 million in the prior year.

The jump in revenues was aided by surge in paying subscribers and increased spending per user. Advertising revenues grew 30.7% last due to increased demand from advertisers. Monthly active users (MAUs) rose 34.5% reaching 116.6 million.

Apart from the headline numbers, Huya’s key metrics like MAUs and number of paying users are worth to keep a tab on when the company reports its Q1 results.

Analysts are expecting the Chinese streaming giant to report solid results across the board. However, one need to keep a tab in the rising expenses as the streaming firm continues to invest more and broaden its reach in the Chinese market.

Strong Gaming Market

China’s gaming market is the largest in the world and is expected to grow at 10.5% annually in the next five years. According to market research firm iResearch, Chinese gaming market is expected to touch $41 billion in 2019.

The research firm also added that China has the most number of gamers (683 million) last year and is expected to growth strongly to 878 million by 2023. Out of the total gamers, more than half of them are esports gamers and revenue contribution from esports domain in China has grown 37.5% in the last three years.

Based on the large market base with growing gamer base, Huya is expected to benefit from these favourable factors, which would help to bring in sustainable revenues and profitability in the near future. When it comes to tailwinds, Huya, Douyu and its peers growth could be impacted by increased regulation.

Last September, Twitch (owned by Amazon) was blocked in China by the regulators due to censorship issues. Any abrupt decisions by the regulators on the gaming industry would have a ripple effect on Huya, Douyu and Bilibili.

Huya’s stock was up 5% today in the afternoon session as investors are preparing for another solid results from the “China’s Twitch”.

Listen to on-demand earnings calls and hear how management responds to analysts’ questions

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