Core points:

• Reducing the internal friction of tiger tooth betta is the first priority.

• HUYA Inc. and DouYu International Holdings Limited jointly occupy 80% of the market, and Kuaishou Technology and Bilibili Inc. have advantages in terms of the number of users and resources. Judging from the current situation, non-Tencent players do not have much room for survival.

• Tencent is happy to see it succeed, but from the point of view of DouYu International Holdings Limited and HUYA Inc., are they willing to be merged? The two sides have a lot of homogenization business, two sets of teams, two sets of personnel, who leaves who is out? DouYu International Holdings Limited HUYA Inc. is not difficult to integrate at the capital level, but business integration and organizational integration do have considerable challenges.

The long-rumored tiger tooth betta merged and finally landed on the boots.

DouYu International Holdings Limited announced that the company's board of directors had received a preliminary non-binding proposal issued by Tencent on August 10, 2020, suggesting that DouYu International Holdings Limited and HUYA Inc. conclude a share exchange merger agreement. At the same time, JOYY Inc Group also announced that it had reached a final share transfer agreement with Tencent's wholly-owned subsidiary, and the company would transfer 30 million ordinary shares of HUYA Inc., with a total value of US $810 million, to Tencent.

At this stage, the development of China's game live broadcast industry has been monopolized by HUYA Inc. and DouYu International Holdings Limited, but the homogenization of DouYu International Holdings Limited and HUYA Inc. is becoming more and more serious. Chen Shaojie, founder of DouYu International Holdings Limited, also said bluntly that "the difference between the two is very small." because everyone is doing live games. At the same time, the war situation is anxious, and the head anchors spend a lot of money, so Tencent, the largest shareholder of the duo, naturally will not stand idly by the "internal friction" of the two.

Today, the merger of HUYA Inc. and DouYu International Holdings Limited not only represents the birth of a giant with more than 300 million users and a total market capitalization of 10 billion US dollars, but also means that Tencent, the "upstream" who has a firm grasp of game copyright resources, will unify the "downstream" field of game live broadcasting.

But a merger is not the end.

How deep is the moat of the frontrunners' first-mover advantage? Kuaishou Technology and Bilibili Inc. have made efforts in the field of live games, both in Tencent's "a big game of chess", for the industry, "merger and monopoly winner takes all", "more than one super has its own strengths", which is better or worse? Can the double insurance of "HUYA Inc. + DouYu International Holdings Limited" really create an absolute monopoly like an iron wall in the live game track?

After the news of the merger was disclosed, the pre-market shares of the two companies began to rise in a straight line. However, DouYu International Holdings Limited and HUYA Inc. both dived and fell. By the close, HUYA Inc. was down 9.83% at US $24.04, and DouYu International Holdings Limited was down 8.51% at US $13.97-which, to a certain extent, reflected some attitude of the market.

Is the war settled?

In 2018, Tencent's penguins e-sports, DouYu International Holdings Limited and HUYA Inc. dug game anchors from each other and once boarded Weibo Corp's hot search.

Tencent chose to merge HUYA Inc. and DouYu International Holdings Limited, the biggest advantage is to reduce the internal friction between the two, at the same time Tencent can also arrange for penguin e-sports, a "competitive" product, and the new giant after the merger to form a better coordination.

In addition to HUYA Inc. and DouYu International Holdings Limited, there are also new players Kuaishou Technology and Bilibili Inc. on the live game track. But in fact, Kuaishou Technology and Bilibili Inc., who seem to be foreign competitors, are actually part of Tencent's game live broadcast.

From 2017 to 2019, Kuaishou Technology received a total of four financing from Tencent. In the most recent round, Tencent contributed 2 billion yuan, with a post-investment shareholding of nearly 20%. He is Kuaishou Technology's largest institutional shareholder.

Since the financing round C in 2015, Tencent has been among Bilibili Inc. 's shareholders and has continued to invest in several rounds of financing since then. According to an announcement issued by Bilibili Inc. in April, Tencent held 13.3 per cent of the shares, an increase of 1.4 per cent over the previous year, making it the second largest shareholder after Bilibili Inc. CEO Chen Rui, with 4 per cent of the voting rights.

From this point of view, the main contestants in the future game live broadcast industry are all players controlled by Tencent, the role of Tiger Tooth betta is "Yi Chao", while Kuaishou Technology and Bilibili Inc. firmly occupy the "how strong" position.

Specifically, Kuaishou Technology's advantage lies in the flow. At the Kuaishou Technology ACG photosynthetic creators' conference held in Wuhan on December 5 last year, the person in charge of Kuaishou Technology's game live broadcast announced that by the end of November of that year, the number of daily active users of Kuaishou Technology's game live broadcast had reached 51 million, an increase of 16 million from the 35 million first announced in June.

Compared with DouYu International Holdings Limited and HUYA Inc. of around 150 million MAU, Kuaishou Technology, who successfully reached 300 million in DAU after K3, still has an advantage in traffic. Although Kuaishou Technology is not as good as the pioneers DouYu International Holdings Limited and HUYA Inc. in the atmosphere and user accumulation of game live broadcasting, for a business like live broadcasting, which focuses on the realization of traffic, traffic is enough to become the core reason for shaking the moat of the platform. especially for mid-waist anchors.

Bilibili Inc., who is actively engaged in ecological construction and forward charging, has also been actively laying out in the field of game live broadcasting.

Bilibili Inc. has invested a lot of money in the live broadcast business in the past two years, not only buying the exclusive broadcasting rights of the LOL Finals for three years, but also building barriers to live streaming by e-sports through copyright. Last year, he also signed a contract to introduce head anchors, such as Feng Timo, the former "first Sister DouYu International Holdings Limited". This year, he signed his own animation head anchor Lex, which means playing board.

Prior to this, there was indeed an obvious gap between Bilibili Inc. and several other companies, so this year, we explicitly increased investment in this area, including the introduction of game MCN goose culture former CEO Wang Yuyang and COO Wang Zhikai to join Bilibili Inc. as the head of the live broadcasting division, and it is hoped that their experience and resources in the field of game live broadcasting will be used to speed up the development.

Although the construction of all aspects of the products are not yet in place, after the conscious tilt of operational resources, the growth trend of live broadcasting in Bilibili Inc. 's overall revenue is already very obvious-- in Bilibili Inc. 's revenue of Q1 in 2020, value-added services, including live broadcasting, increased by 172% year-on-year, accounting for 34.3% of Bilibili Inc. 's overall revenue, up from 21.2% in the same period last year. In the earnings call, Bilibili Inc. Chairman and CEO Chen Rui also said that he was optimistic about Bilibili Inc. 's live broadcast business and was expected to double its growth in the next two or three years.

In the layout of Kuaishou Technology and Bilibili Inc., the revenue of the game direction is a very important move, and Bilibili Inc. once relied on FGO to support the revenue of the entire platform, so it is bound to continue to raise bets for live games that are very important to the game.

HUYA Inc. and DouYu International Holdings Limited jointly occupy 80% of the market, and Kuaishou Technology and Bilibili Inc. have advantages in terms of the number of users and resources. To be sure, judging from the current situation, non-Tencent players are unlikely to have much room for survival.

And from Tencent's point of view, it is naturally happy to see more platforms being cast to add to the field of live games. Because the game live broadcast industry has been very stable in the hands, even if there are multiple platforms to join, layout and action, its role can only promote the market share and development potential of the entire industry.

As DouYu International Holdings Limited CEO Chen Shaojie once said at DouYu International Holdings Limited's earnings call, the addition of platforms such as Bilibili Inc. and Kuaishou Technology has brought more traffic and user attention to the game live broadcast, promoted the ceiling of the entire game live broadcast industry, and is beneficial to the development of the whole industry.

The game live broadcast industry is indeed continuing to develop at a high speed. According to the Forecast Research Institute, the game live broadcast industry will maintain a rapid growth rate of more than 13% from 2018 to 2022, and the size of the game live broadcast market will reach about 30 billion yuan by 2022.

From the former thousand-broadcast war to the later "Tiger fight", in this 10-billion-dollar arena, Tencent always put an end to the story of bloody struggle. Although there is the possibility of a "spoiler" in the future, Tencent has already decided on the fundamentals.

Is DouYu International Holdings Limited and HUYA Inc. reconciled?

As the leader of the merger, Tencent is naturally happy to see it succeed. It is not only to reduce "internal friction", but also likely to reverse the situation of relying on old games to drive the traffic of the game live platform, and instead let the game live platform bring traffic and downloads to new games. To make the ecosystem cycle.

But from the point of view of DouYu International Holdings Limited and HUYA Inc., are they willing to be merged? The two sides have a lot of homogenization business, two sets of teams, two sets of personnel, who leaves who is out? Douyu Huya's capital integration is not difficult, but business integration and organizational integration do have considerable challenges.

It can be seen from the financial performance report that the two are in a state of going hand in hand.

According to the first-quarter reports disclosed by the two companies, due to the increase in the duration of the epidemic at home, revenue in the first quarter showed a trend of rapid growth:

HUYA Inc. 's operating income in the first quarter was 2.41 billion yuan, an increase of 47.8% over the same period last year, but decreased slightly, down 2% from the previous quarter.

Although DouYu International Holdings Limited is still slightly inferior to HUYA Inc. in terms of income scale, with revenue of 2.28 billion yuan in the first quarter, the income growth rate is 53% over the same period last year, which is higher than HUYA Inc. 's income growth rate.

On the other hand, it can also be seen that after two quarters of widening trend, the income gap between DouYu International Holdings Limited and HUYA Inc. narrowed again to about 130 million yuan in this quarter, and the income gap is basically the same as in the first two quarters of last year.

In terms of the size of users, the two companies showed a very tight situation this quarter.

For a long time in the past, DouYu International Holdings Limited had an obvious advantage over HUYA Inc. in the number of monthly active users (MAU), with a gap of more than 10 million, but in this quarter, DouYu International Holdings Limited's MAU showed a downward trend both year-on-year and month-on-month. DouYu International Holdings Limited's MAU in the first quarter was only 158 million, a net decrease of 1.1 million and 7.7 million respectively compared with the same period last year and the previous quarter.

Among them, there is a factor that the MAU of PC decreases under the influence of the epidemic. DouYu International Holdings Limited CEO Chen Shaojie said at the earnings call that Internet cafes were closed, resulting in users being unable to watch live streaming in Internet cafes, so it had a negative impact on the number of users on the PC side.

HUYA Inc. 's MAU, on the other hand, is still rising steadily, reaching 151 million in the quarter, up 22.2 per cent from a year earlier and 0.7 per cent from a month earlier. At the same time, it is worth noting that although the MAU of DouYu International Holdings Limited is still higher than that of HUYA Inc. this quarter, the gap has narrowed to less than 10 million, only 6.8 million.

In terms of the number of paying users and the depth of user operations, the overall trend of the two companies is the same as before. DouYu International Holdings Limited has more paying users, but the single user payment (ARPPU) is relatively low, while HUYA Inc. is the opposite.

In the first quarter, affected by the epidemic, the number of households paid by the two companies showed an upward trend:

HUYA Inc. paid 6.1 million households in this quarter, a net increase of 1 million over the previous quarter.

The increase in the number of paying users of DouYu International Holdings Limited is smaller than that of HUYA Inc., but it still increases by 300000 to 7.6 million compared with the previous quarter.

In terms of payment depth, although the ARPPU value of HUYA Inc. is still higher than that of DouYu International Holdings Limited, it shows a downward trend compared with itself. HUYA Inc. 's ARPPU for the quarter was 372.9 yuan, a net decrease of 87 yuan compared with the previous quarter. The ARPPU value of DouYu International Holdings Limited maintained a steady increase this quarter, reaching 278 yuan, which greatly narrowed the gap with HUYA Inc..

On the earnings side, although the earnings of the two companies are on a growing trend this quarter, it is worth noting that the profit growth rates of the two companies are very different. HUYA Inc. showed a slowing trend in terms of profit, while DouYu International Holdings Limited showed a strong growth trend.

After a series of cost control measures such as increasing bandwidth efficiency, DouYu International Holdings Limited surpassed HUYA Inc. in gross profit for the first time in this quarter, reaching 486 million yuan this quarter, 11 million higher than his competitors. DouYu International Holdings Limited's gross profit margin also reached an all-time high of 21.3%, an increase of 3.1 percentage points over the previous quarter and 1.6 percentage points higher than HUYA Inc..

DouYu International Holdings Limited also surpassed HUYA Inc. in net profit for the first time. In the current quarter, DouYu International Holdings Limited's net profit attributable to shareholders under non-general criteria (Non-GAAP) was 303 million yuan, higher than HUYA Inc. 's 263 million yuan, and the company's net profit margin also reached 13.3%, higher than HUYA Inc. 's 10.9%.

In terms of growth, DouYu International Holdings Limited's net profit margin in the quarter increased by 10.9% compared with the same period last year, while HUYA Inc. increased by 2.9% in the same period.

DouYu International Holdings Limited overturned HUYA Inc. in profit this quarter, on the one hand, due to excellent cost control, but also reflected a certain advantage in operating expenses. In this quarter, DouYu International Holdings Limited's total operating expenses were 285 million yuan, 68 million yuan less than HUYA Inc..

At present, HUYA Inc. has a market capitalization of US $5.277 billion and DouYu International Holdings Limited US $4.435 billion, which is not a big gap between the two. It is conceivable that the gongs and drums are loud at the time of the merger, and I am afraid that after the merger, the shuffle will first be carried out internally.