Tencent plots merger of China live-streaming platforms

According to a release, this would be a stock-for-stock transaction, whereby Huya would acquire all outstanding ordinary shares in Douyu, while Douyu would receive newly issued shares in Huya. It would result in a company worth more than $10 billion; Huya and Douyu’s current market capitalizations are respectively $5.6 billion and $4.7 billion.

The plan is to remove internal competition issues and address rising newcomers in the live-streaming space such as Bilibili and Kuaishou, the latter of which received a $350 million round led by Tencent in 2017. According iResearch, Huya and Douyu had 40.25% and 35% market share, respectively, in 2019.

Tencent holds a 38% stake in Douyu, while Sequoia Capital China and Sequoia Capital Global Growth hold a combined 9.3%, according to an April filing.  Sequoia invested RMB107 million ($15 million) in Douyu in 2014, a year after the business was founded. The VC firm continuously re-upped in following rounds, taking a 9.1% stake as of the company’s IPO last year.

Earlier this week, Tencent agreed to pay video platform operator Joyy $810 million for 30 million Huya shares while purchasing an additional 1 million shares from Huya CEO Rongjie Dong. The two transfers are expected to be finalized in September, giving Tencent a 51% holding in Huya and 70.4% in terms of voting power, according to a filing. In April, Tencent purchased 16.5 million Huya shares from social networking platform YY for $263 million, achieving voting power of 50.1%.

Huya, which spun out from YY in 2014, also counts Ping An Insurance, Gaorong Capital, Engage Capital, and Morningside Ventures as investors. It listed in 2018.

Huya recorded revenue of RMB 8.4 billion in 2019, up from RMB4.6 billion in 2018. Profit was RMB468 million for 2019 versus a RMB1.9 billion loss in 2018.

Douyu recorded revenue of RMB7.2 billion in 2019, doubling the RMB3.6 million generated in of 2018. Profit for the year came to RMB33 million, compared to a loss of RMB876 million in 2018.

Douyu marked a 33.9% year-over-year increase in revenue during the second quarter of 2020 at RMB2.5 billion. Net income in the second quarter of 2020 was RMB319.3 million, compared with RMB23.2 million in the same period of 2019, implying a net margin of 12.7%, compared with 1.2% in the same period of 2019.

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