Chinese video game live streaming platform Huya (NYSE:HUYA) is an excellent representation of just how popular e-sports have become. Yet, with some Chinese stocks trending downwards in the back half of March, not everyone’s convinced that HUYA stock is still worth owning.
Is this a problem or an opportunity? The answer depends on whether you believe that Huya can leverage its foothold in the e-sports, Chinese digitization, and live-streaming domains into enhanced user growth and strong revenues.
There’s little doubt that the market for platforms in which people can watch and interact with live-streamed content opened up during the Covid-19 pandemic.
But is Huya the right company in which to invest your hard-earned money? That’s the billion-dollar question, so let’s dive into it now, starting with a brief analysis of the stock’s price history.
HUYA Stock at a Glance
First off, let me point out that HUYA stock has a trailing 12-month price-to-earnings ratio of 37.24. So, that should debunk the idea that all technology and media stocks are super-expensive nowadays.
That P/E ratio was undoubtedly higher on Feb. 12, after a major run-up in the stock price. On that day, the stock touched a 52-week high of $36.33.
However, the share price didn’t stay at that level. At midday on March 30, the stock is trading around $19.75. This might pique the interest of Wall Street’s bargain hunters.
The stock came down to the $20 area in December of last year. It’s possible that the $20 or so level is an ideal buy zone for this particular stock.
An Expanding Market
Huya is an important player in the Chinese e-sports live-streaming market. In fact, Huya bills itself as the “No.1 game live streaming platform in China.”
In defense of this claim, Huya reports that the company has the biggest game live-streaming community in terms of average monthly active users.
The skeptics might counter this with concerns about game censorship in China. And it is true, as analytic firm Research and Markets points out, that China’s regulatory bodies “often ban the licenses of video games that are deemed inappropriate for the cultural development of young gamers.”
Yet, Research and Markets also reports that this niche market is expanding despite regulatory concerns.
Believe it or not, China’s digital gaming market is currently forecasted to grow at a compound annual growth rate (CAGR) of 15.4% between 2018 and 2023. By 2023, that market is projected to generate revenues of $83.79 billion.
There’s a strong overlap between the gaming and e-sports communities, which Huya and its stakeholders should benefit from.
Besides, the e-sports market itself is poised for significant growth. Specifically, it’s expected to expand at a CAGR of around 20% between 2019 and 2025.
A Strong Quarter and Year
The next question is whether Huya has been able to capitalize on the expansion of the gaming and e-sports markets.
Judging by the company’s most recently reported fiscal data, the answer is undoubtedly yes.
For the fourth quarter of 2020, Huya clearly augmented its industry footprint:
- Total net revenues increased by 21.2% year-over-year (YoY)
- Net income “attributable to HUYA Inc.” grew by a whopping 58.6% YoY
- Non-GAAP net income “attributable to HUYA Inc.” expanded by 26.5% YoY
- Average monthly active users of Huya Live improved by 18.8% YoY
- Average mobile monthly active users of Huya Live grew 29.1% YoY
- Total number of paying users of Huya Live rose 17.6% YoY
Evidently the fourth quarter wasn’t just a fluke, as Huya’s full-year 2020 total net revenues were up 30.3% YoY. Moreover, Huya’s full-year 2020 net increased massively by 88.9% YoY.
The Takeaway
Only time will tell whether the upward trajectory in China’s gaming and e-sports industries will persist.
At the very least, however, we can say that the data appears highly encouraging — and HUYA stock’s price dip could be your signal to take a position.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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