Huya’s Weaker 2023 Outlook Doesn’t Change Our View

Despite posting fourth-quarter earnings better than our expectations, Huya’s HUYA guidance for 2023 is slightly softer than our forecasts. We have fine-tuned our near-term forecasts but maintain a fair value estimate of $7.70 per share. The bulk of our valuation stems from Huya’s net cash position of $6.50 per share as of the end of 2022. The stock’s closing price of $3.32 on March 21 represents a nearly 50% discount to the company’s net cash position.

In the fourth quarter of 2022, Huya recorded a revenue decline of 25% compared with the previous year. The decrease in revenue was primarily due to lower user spending, a drop in the number of broadcasters (due to COVID-19 infections), and a regulatory crackdown on livestreaming. Gross margin was negative 13.5% for the fourth quarter due to increased costs for esports content. Adjusted net loss was CNY 440 million for the fourth quarter of 2022, compared with CNY 242 million for the fourth quarter of 2021.

Looking into 2023, Huya expects its core livestreaming business to record a high-single-digit percentage decline, but the gross margin will improve slightly due to a favorable business mix shift. The business will most likely remain loss-making this year, but losses should significantly narrow compared with 2022.

Although uncertainties relate to near-term financial performance, we think Huya will maintain a stable market share in the livestreaming games industry, especially in games designed with a high level of difficulty. Recently, we also started to see some competitive exits in the market. For example, Bilibili is exiting esports content sublicensing. This can lead to lower content acquisition costs for leading players like Huya because fewer firms will bid for the same content. Although competition will still exist, we think industry players will behave more rationally in future.