VC-backed game live-streaming platform files for US IPO

China is the world’s largest games market by revenue and number of gamers - although this is a source of concern of the government, which has imposed an industry crackdown in the past year, including a freeze on approvals for new games, in an attempt to curb addiction.

The country also ranks first for game-centric live streaming, whereby viewers go to platforms to watch game-play and e-sports competitions and also chat online to other viewers. Revenue has grown nearly 15-fold in the past three years reaching RMB13.2 billion ($1.9 billion) in 2018. It is projected to surpass RMB39 billion by 2013. The number of monthly active users (MAUs) is already nearly five times that of the US.

Douyu claims to be the country’s leading game-centric streaming platform with 253.6 million registered users at the end of last year. It had an average of 153.5 million MAUs during the fourth quarter of 2018, with each user spending 54 minutes on the platform each day. Average monthly MAUs across all game-centric streaming platforms in China for 2018 was 255 million.

The company attracts viewers through a stable of six million registered streamers, including 5,200 top performers who are signed to exclusive contracts. A total of 29.8 million hours of content was generated during the fourth quarter, with approximately 600 streamers attracting more than one million viewers. Douyu has also pushed into e-sports content and now organizes its own competitions. It had 95.8 million average monthly e-sports MAUs in the fourth quarter.

Revenue increased from RMB1.89 billion in 2017 to RMB3.65 billion in 2018, with 86.1% of that coming from live streaming and the rest from advertising. Live streaming revenue is primarily derived from virtual gifts that users give to one another. Over the same period, Douyu’s net loss increased from RMB612.9 million to RMB876.3 million. Content costs, revenue sharing, and bandwidth expenditure are the main drags on the bottom line.

Tencent is the largest shareholder with a 40.1% stake, while Sequoia has 9.8%, according to the company’s prospectus. Sequoia invested RMB107 million in Douyu in 2014, a year after the business was founded. The VC firm then made a RMB50 million loan to Douyu the following year, which converted into equity in the Series B round in early 2016. That round saw Tencent, Sequoia and other investors commit RMB481.5 million.

A further RMB1.5 billion was raised through Series C and D rounds in 2016 and 2017, respectively. Tencent took part in the Series C and then contributed $630.7 million more in March 2018. Two months later, Sequoia – now operating through its global growth fund – invested $197.4 million. The 2018 investments were preceded by an offshore restructuring intended to facilitate a US listing. The size and pricing of the offering have yet to be decided.

Douyu will not be the first Chinese game broadcasting business to go public in the US. Last year, Huya, which spun-out from social networking platform YY, raised $180 million on the New York Stock Exchange. It is currently trading at close to a 90% premium to its IPO price. Tencent is also a substantial investor in Huya.

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• Topics
• Greater China
• Technology
• IPO
• China
• Sequoia Capital
• Tencent
• IPO
• TMT