HUYA Inc

Huya's revenue grew 11% year on year in the second quarter of 2026, driven by a 54% increase in game-related revenue, while net profit was around break-even. The firm doubled its buyback authorization to USD 100 million.

Why it matters: The mix shift toward game services is delivering the margin uplift we have been modeling. However, Huya's long-term earnings power appears capped: game services are exposed to hit-driven title risk, while livestreaming's decline could accelerate. Goose Goose Duck, the key driver of first-half revenue growth, has slipped down the mobile grossing charts since July. The hit-driven nature of game publishing prevents us from underwriting a higher long-term growth rate for the segment. Livestreaming, which accounts for around 60% of revenue, is being reset as Huya renegotiates revenue-sharing terms with streamers. Lower take-home pay could drive talent to Douyin, accelerating the segment's decline.

The bottom line: We cut our fair value estimate for no-moat Huya by 36% to USD 3.60 due to streamer defection risk, rising platform competition, and industry-wide structural decline. Shares remain undervalued, but near-term upside drivers are limited. We cut our revenue assumptions by an average of 10% and net profit forecasts by 60% for 2026-30. Following the downgrade, we expect annual net profit of around CNY 100 million over the next five years. Net cash accounts for around 60% of our valuation. Assuming Huya executes half of its USD 100 million buyback authorization this year and pays at least USD 30 million in dividends, shareholder yield would reach 14% based on the current market cap, reinforcing our undervalued call.

A Huya-Douyu merger remains plausible, and Chinese regulators' recent approval of Tencent Music's acquisition of Ximalaya may signal a more accommodative stance toward industry consolidation. A combination could unlock cost synergies across overlapping content, streamer contracts, and infrastructure.

Our fair value estimate is $3.6 per share, of which $2.0 per share is supported by net cash on the balance sheet. The remaining intrinsic value is derived from the present value of free cash flow to the firm, based on our assumption of 1% revenue CAGR over the next five years and operating margins expanding from negative territory to roughly 2% .

We expect top-line growth to be driven by game-related services, where Huya publishes and distributes games and sells in-game items for popular titles from publishers such as Tencent. While this segment posted strong growth from 2024 through 2026, we expect the pace to gradually decelerate toward the broader Chinese gaming industry's growth rate as the base scales. This will be partly offset by continued weakness in the legacy live streaming business, where we model continued decline in revenue over the forecast period. Users are migrating away from vertical platforms like Huya toward general-purpose live streaming platforms, and we see little reason to expect a reversal. Blending the two trends, we arrive at a 1% revenue CAGR over the next five years.

Profitability has been the central challenge for Huya, which has now posted five consecutive years of operating losses since 2021. We expect operating margins to finally turn positive in 2026 and continue ramping over the following years, driven by two factors: First, the mix shift toward game services is structurally margin-accretive, since this business carries meaningfully higher profitability than live streaming and avoids the heavy revenue-sharing burden tied to streamer payouts. Second, on the live streaming side, management is shifting toward extracting more rent while investing less. Renegotiating revenue-share terms with lower-tier streamers should provide an additional tailwind to margins, even as livestreaming revenue declines.

Together, these dynamics should allow Huya to generate an average of roughly CNY 70 million in operating profit per year over the next five years—a modest but meaningful turnaround from the current loss-making baseline.

We assign Huya a no-moat rating. The company has generated negative EBI every year since 2021, suggesting that the business is unable to generate excess returns over the weighted average cost of capital, or WACC. We attribute this mainly to Huya losing livestreaming users to other video platforms in China. While the shift toward game-related services is gaining momentum, Huya serves as a distributor and does not own any gaming intellectual property, or IP.

On the livestreaming side, Huya holds some advantages in top esports game content through exclusive multiyear livestreaming deals with tournaments like the League of Legends Pro League. While Huya could exclusively stream those events on its own platform, it typically sublicenses rights to selected competitors in exchange for streaming rights to their exclusive events. This arrangement has created a somewhat level playing field for esports content among sector peers. Exclusive agreements are often for two to five years with no renewal option, so we do not believe these exclusive deals provide a long-term competitive advantage to Huya.

Beyond content, Huya's platform also doesn't exhibit strong network effects, as livestreaming viewers tend to develop high loyalty to individual streamers, not to platforms. Huya has no mechanism to retain top streamers. Several of Huya's top streamers have moved to competing platforms over the past three years, taking portions of their audience with them. The difficulty of cultivating replacement talent means each defection carries a cost to user counts and revenue.

In the game distribution business, Huya's relationship with Tencent brings benefits. Access to distribute Tencent mobile game titles and sell in-game items during livestreams is not available to competitors on the same terms. If Huya's game distribution business continues to scale, the Tencent relationship could theoretically evolve into a moat based on intangible assets. However, we do not view this as a moat currently because Tencent retains full control over the terms and can redirect distribution to its own channels like Video Accounts. Until Huya demonstrates that the arrangement generates strong return on invested capital, or ROICs, and that Tencent has reasons to keep Huya as a preferred distribution partner long-term rather than internalizing the channel, we maintain the no-moat rating.

Beyond the Tencent relationship, the recent success of Goose Goose Duck proves Huya can sign deals independently, but it doesn't create a moat. This is because the success may not be replicable with subsequent titles, and the economics depend on negotiated terms for each deal. Huya also does not own the gaming IPs. Game developers can take their games to other distributors or publish directly through their own channels. Furthermore, if Huya's livestreaming audience continues declining, its value proposition weakens, and developers have less reason to let Huya publish or share as much revenue with it.

Tencent's parentage gives Huya a structural advantage that competitors cannot easily replicate, effectively serving as a floor to its long-term fundamentals.

Escalating compliance costs on regulating livestreaming content make it hard for new entrants to take shares from Huya.

The Huya-Douyu merger may still be on the table, particularly given that Chinese regulators recently approved Tencent Music's acquisition of Ximalaya.

Tencent could direct Huya into low-margin strategic activities that benefit Tencent's gaming ecosystem at the expense of Huya's P&L.

There has been a cultural shift in China against ostentatious tipping behavior, and this structural change weighs on Huya's long-term revenue growth.

Game livestreaming shouldn't be treated as a niche category; it should roll up into the broader livestreaming or video streaming market. This means Huya's core business still has a long way to go.