HUYA: Strategic Transformation And Special Dividend Provide Downside Protection, Upside Potential

Business Overview - HUYA Inc is a leading game live-streaming platform in mainland China, operating in a duopoly market with DouYu (DOYU) [2] - The company has an overseas operation through Nimo TV, though it is much smaller compared to its domestic business [2] - HUYA's mobile MAUs reached 83.5 million in Q2 2024, up from 82.6 million in Q1 2024 and 82.9 million in Q2 2023, outperforming DOYU's declining MAUs [2] Strategic Transformation - HUYA is undergoing a strategic transformation to expand game-related services and advertising revenue while reducing reliance on live-streaming [1] - The transformation is driven by regulatory pressure and Tencent's decision to allow ByteDance's Douyin to livestream Tencent games, posing a significant threat to HUYA and DOYU [3] - HUYA is diversifying into game distribution, in-game item sales, and game advertising as part of its transformation [3] Transformation Progress - HUYA's game-related services and advertising revenue grew 152.7% in Q2 2024, accounting for nearly 20% of total revenue [4] - The growth is driven by coverage of evergreen games, promotion of DnF Mobile, in-game item sales for popular titles, and innovative game advertising through interactive variety shows [4] - Management expects double-digit growth in game-related services and advertising revenue in Q3 2024 compared to Q2 [4] Financial Highlights - HUYA declared a special dividend of $1.08 per share, representing a 23$43.3 million share repurchase program as part of a $100 million program announced in August 2023 [5] - As of June 30, 2024, HUYA had cash and equivalents of RMB 8.2 billion ($1.14 billion), sufficient to cover the $300 million total cash outlay for dividends and share repurchases [5] Market Performance - HUYA's stock price rose 14$1.1 billion is below its cash level of $1.14 billion, providing downside protection [6] Conclusion - HUYA's business transformation is showing early success, with significant growth in game-related services and advertising revenue [7] - The company's aggressive capital allocation, including special dividends and share repurchases, supports a conservative price target of$5.84 per share, 22% above the current market price [7]