Tencent-backed Game Streaming Site DouYu Reports Solid Earnings in Q2 Under Potential Merger with Huya

Chinese game-centric live streaming platform DouYu International (Nasdaq: DOYU), Monday reported a 33.9% year-on-year increase in total net revenues in the second quarter of 2020, beating the company’s previous estimate of revenue growth in the high-end range of 26% and 28.7%.

The Wuhan-based company reported total net revenue of 2.51 billion yuan ($354.4 million) compared to 1.87 billion yuan in the same period of 2019, with revenues from livestreaming business accounting for more than 92% of the total. This percentage was due to the company’s “optimization of its platform’s interactive features and continuous refinement of its event models”, both of which stimulated users to pay, the company said in its financial results on Monday.

DouYu has sustained its momentum in the second quarter of 2020. Gross profit rose by 73.7% to 522.9 million yuan ($73.9 million), while the quarterly average paying user count increased by 13.4% to 7.6 million.

“We continued to deliver solid financial results in the second quarter of 2020 as we increased investment in those initiatives with growth potential and higher operating efficiency,” Hao Cao, vice president of DouYu said. “This investment strategy enabled us to sustain the growth trajectory of our revenues, bolster our ROI, and steadily improve the profitability of our platform.”

The company expects its total net revenues to be in the range of 2.64 million yuan to 2.68 million yuan in the third quarter of 2020, representing year-over-year growth between 42.1% and 44.2%.

“Looking ahead, we plan to continue exploring our platform’s monetization capabilities while also enhancing our operating efficiency to generate sustainable shareholder value over the long term,” said Cao.

SEE ALSO: Tencent to Merge Douyu and Huya to Compete with Bilibili and Kuaishou

As one of the country’s most popular video game streaming platforms with more than 165 million monthly active users (MAUs) by June 2020, DouYu is reported to be merged by its shareholder Tencent Holdings with another livestreaming platform Huya. Last week, Bloomberg reported that China’s biggest video game and social media company Tencent is planning a consolidation of two Twitch-like platforms before the end of this year. The company is also the largest shareholder of DouYu, holding approximately 38.0% of the total issued and outstanding share capital.

Tencent Monday proposed that DouYu and Huya consider a strategic stock-for-stock merger. Tencent is looking to convert all DouYu shares into Huya Class A ordinary share, making Huya the surviving entity of the merger.

In a separate share transfer agreement, Tencent agreed to pay Joyy, a part-owner of Huya, a total of $810 million in exchange for 30 million shares. Tencent will purchase from Huya CEO Dong Rongjie 1 million shares. Upon the transaction, the biggest game publisher will hold 51% of Huya’s share capital and 70.4% of its voting power, according to the announcement on Monday.

Douyu’s chairman and CEO, Shaojie Chen said in the earnings conference call on Monday evening, that the Board has just received the letter and “no decision has been made of any kind with respect to the proposed transaction”.

“Tencent’s proposal shows that it has taken game livestreaming at an important strategic position,” Chen said. “We are exploring with Tencent on possible cooperation. If implemented, it will greatly promote the growth of our mobile traffic.”