Huya Tries to Cash In On Its Hot Stock

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Chinese dot-coms have been regaining their popularity among investors lately, and several of them have been taking advantage of their buoyant stocks to push through secondary and convertible note offerings. Huya (NYSE: HUYA) is the latest Chinese growth stock to go this route.

The streaming video game platform operator -- think the Twitch of China -- announced on Monday that it's proposing to sell 13.6 million of its shares. Pre-IPO investors will be offering another 4.8 million shares. Underwriters have the option of selling another 2.76 shares in the offering. At current prices we're talking about Huya raising more than $340 million from the new shares being issued. The proceeds are being earmarked for its content ecosystem, expanding content genres and quality with its esports partners, overseas expansion, and generally beefing up its technologies, products, and services.

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Playing a new game

There's a lot of octane in Huya's tank. Revenue more than doubled last year, up 113% for all of 2018 and still a hearty 103% in its latest quarter. The same gaming and esports phenomenon that's spawning YouTube celebrities and birthing competitive leagues centered around specific titles is alive and well in China.

The world's most populous nation is proving to be an even more fertile ground to cash in on the industry profitably, since it's not just about pushing ads and selling premium subscriptions for the leading platforms. Virtual gifting -- where folks are able to in effect tip their favorite users -- has become a gold mine for the top platforms in everything from live karaoke broadcasts to online dating.

Huya grew its audience by 35% in 2018 to hit 116.6 million monthly active users, but revenue is growing nearly three times faster as its monetization opportunities expand. Huya finally broke through with a small operating profit last year, and this year it is widely expected to build on its bottom-line potential. Analysts see Huya earning $0.48 a share this year, skyrocketing to $0.82 a share in 2020.

It's true that Huya doesn't need the money. Last year's IPO helped load up the tank, and Huya began 2019 with $892 million in cash and no long-term debt. However, with the stock already up 68% this year after correcting sharply late last year, it's easy to see why it's striking while the iron is hot. Huya may not be as risky as a game publisher behind a single hot game -- it's a bet on the entire industry -- but it's also toiling away in a country that has tightened gaming regulations from time to time. These offerings may send an unflattering message as to where these companies think their stocks are headed in the near term, but the dynamic growth opportunities are still there.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.