Global Gaming And Tencent Partnership Will Fuel Future Success

Key Takeaways

• Diversification into game services, international market expansion, and AI-driven user engagement are fueling sustained revenue growth and lower geographic risk.
  
• Strategic cost optimization and technology investments are driving improved profitability, with potential for structurally higher margins over the long term.
  
• Rising costs, stagnant user growth, and overdependence on key partners threaten margins, user engagement, and financial flexibility, casting uncertainty on HUYA's long-term growth prospects.

Catalysts

Through its subsidiaries, operates game live streaming platforms in the People’s Republic of China.

• The expansion of game-related services-including game distribution, in-game accessory sales, and potentially game publishing-has shown rapid growth (90% YoY in accessory sales) and is poised for further scalability through deepened partnerships with major game developers like Tencent, supporting long-term revenue acceleration and diversification.
  
• Ongoing international user growth, particularly in emerging markets and overseas platforms, is increasing HUYA's global monthly active users and positioning the company to capture the expanding addressable market for gaming-related services, which is likely to drive sustained top-line revenue growth and reduce geographical risk.
  
• Enhanced streaming accessibility and engagement-enabled by investment in advanced features (e.g., 4K, 120 FPS, multiscreen viewing) and exclusive eSports tournament content-continue to attract audiences and boost user involvement, supporting stable user retention and incremental monetization, positively impacting both revenues and net margins.
  
• Integration of AI-powered tools, such as real-time commentary bots and interactive gaming companions, is increasing user stickiness and engagement, while also creating novel service and monetization opportunities, which can support both revenue growth and operating margin improvement.
  
• Operational discipline through optimizing content costs, leveraging proprietary technology, and deepening ecosystem partnerships is supporting sequential improvements in gross margin and profitability, signaling the potential for structurally higher net margins and sustained earnings expansion over the medium-to-long term.

HUYA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming HUYA's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.5% today to 3.2% in 3 years time.
• Analysts expect earnings to reach CN¥228.4 million (and earnings per share of CN¥1.62) by about August 2028, up from CN¥-153.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥270 million in earnings, and the most bearish expecting CN¥66 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.7x on those 2028 earnings, up from -35.2x today. This future PE is greater than the current PE for the US Entertainment industry at 32.1x.
• Analysts expect the number of shares outstanding to decline by 1.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.76%, as per the Simply Wall St company report.

HUYA Future Earnings Per Share Growth

Risks

• The company is facing rising revenue sharing and content acquisition costs, specifically higher broadcaster-related expenses and increased content costs, which could compress gross and net margins and limit long-term earnings growth despite revenue expansion.
  
• Live streaming revenues, which still account for 74% of total revenue, have shown year-over-year decline and only stabilized quarter-over-quarter, indicating that user behavior and industry growth may have plateaued, constraining future top-line growth.
  
• Domestic paying users have remained flat, and the company's paid user base excludes in-game purchasing users and overseas users, signaling potential stagnation in core user engagement and limiting sustainable revenue growth.
  
• Heavy reliance on partnerships with Tencent-both for content and event collaboration-increases HUYA's exposure to key counterparty risk and potential regulatory shifts in China's gaming and streaming sectors, which could impact both revenues and profitability.
  
• The company's recent large cash outflows for special dividends and share repurchases have significantly reduced its cash and short-term/long-term deposit balances, lowering expected interest income and potentially limiting financial flexibility for future investments, which may negatively affect future net income and long-term growth capacity.

Valuation

• The analysts have a consensus price target of $4.286 for HUYA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.61, and the most bearish reporting a price target of just $2.4.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥7.1 billion, earnings will come to CN¥228.4 million, and it would be trading on a PE ratio of 38.7x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $3.3, the analyst price target of $4.29 is 23.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.