Prospectus Summary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under “Risk Factors,” before deciding whether to invest in our ADSs. This prospectus contains information from a report dated January 31, 2018, as supplemented, that was commissioned by us and prepared by Frost & Sullivan, an independent market research firm, to provide information on the games and live streaming industries and our market position in China. We refer to this report as the Frost & Sullivan Report.Our Mission
We aspire to become the most popular technology-enabled entertainment community for young generations in China.
Our Business
We are the No.1 game live streaming platform in China. We have the largest and most active game live streaming community in terms of average MAUs, and average daily time spent on mobile app per mobile active user in the fourth quarter of 2016 and 2017, and the largest number of active broadcasters in 2016 and 2017, according to the Frost & Sullivan Report. As the pioneer and market leader, we are well positioned to expand further in the rapidly growing game live streaming market in China. We cooperate with e-sports event organizers, as well as major game developers and publishers, and have developed e-sports live streaming as the most popular content genre on our platform. As of December 31, 2016 and 2017, our live streaming content covered over 2,100 and 2,600 different games, respectively, including mobile, PC and console games. Building on our success in game live streaming, we have also extended our content to other entertainment genres, such as talent shows, anime and outdoor activities.
We have created an engaged, interactive and immersive community for game enthusiasts of China’s young generation. Our rich and high-quality game live streaming content is a magnet for users who share common interests to connect and share their passion on our platform. Our users interact with one another with the support of our platform’s wide array of innovative and appealing social functions, such as bullet chatting, real-time commenting and gifting. Such real-time interactions on our platform cultivate a strong sense of belonging, which effectively increase our user stickiness and time spent. In the fourth quarter of 2017, our community had over 38.8 million average mobile MAUs, an increase of 47.6% from the same period of 2016.
Our open platform also functions as a marketplace for broadcasters and talent agencies to congregate and closely collaborate with us. We have set up effective operating standards and comprehensive incentive mechanisms to encourage healthy competition, good performance and regulatory compliance. The monetization opportunities for broadcasters and talent agencies are linked to their performance, which motivates them to supply high-quality content to our platform. We believe our role as an efficient and transparent marketplace fueled our continuous growth and success.
Our content is highly dynamic. Beyond the real-time nature of live streaming where each broadcaster improvises in each live streaming session, our community interactions generate another form of content. The variety of real-time interactions between viewers and broadcasters or among viewers creates viewer-generated content, which in turn becomes part of the overall entertainment and social experience offered on our platform. Such content enhances the sense of involvement and makes it more fun to watch live streaming.
Our technology platform is designed for reliability, scalability and flexibility. Leveraging our strong technological capabilities in the fields of big data and artificial intelligence, or AI, live streaming, and infrastructure, we deliver superior user experience and conduct operation in a highly efficient manner.
We monetize our user base mainly through value-added services, or VAS, and advertising services. Revenues from VAS are primarily generated from the sales of virtual items that our users purchase on our platform. We share revenues generated on our platform with broadcasters and talent agencies. Revenues from advertising services are generated from advertisements placed on our platform.
We have experienced rapid growth since our inception. Our revenues increased from RMB796.9 million in 2016 to RMB2,184.8 million (US$335.8 million) in 2017. We had net losses of RMB625.6 million and RMB81.0 million (US$12.4 million) in 2016 and 2017, respectively.
Our Industry
Live streaming platforms focused on common interests have become increasingly popular in the past few years. Game live streaming platforms have created close communities for game enthusiasts to share their common interests. Interest-focused live streaming platforms provide a more conducive environment for closer social interactions, stronger sense of belonging, and higher engagements among users.
China had the world’s largest games market in terms of revenues and gamers in 2017, according to the Frost & Sullivan Report. China had 646 million gamers in 2017, and is expected to have 917 million gamers in 2022. E-sports has become a mainstream entertainment option that has attracted growing attention on social media in China. China’s e-sports market had the largest gamer base in the world with approximately 229 million gamers in 2017, representing a compound annual growth rate, or CAGR of 24.6% since 2015 and is expected to reach 537 million gamers by 2022, according to the Frost & Sullivan Report.
China has the largest active user base of live streaming services in the world, according to the Frost & Sullivan Report. The average MAUs was 279 million in 2017 and is expected to grow at a CAGR of 13.1% to 518 million by 2022. The total revenues of China’s live streaming market grew from US$1.0 billion in 2015 to US$5.5 billion in 2017 and are expected to further grow to US$16.5 billion by 2022 at a CAGR of 24.6%. The total revenues of game live streaming market in China experienced significant growth in the past, from US$121 million in 2015 to US$1.2 billion in 2017 and are projected to reach US$4.9 billion in 2022 at a CAGR of 33.6%. China has 180 million average game live streaming MAUs in 2017, and such number is expected to increase to 349 million in 2022 at a CAGR of 14.1%.
Competitive Strengths
We believe the following competitive strengths contribute to our success and differentiate us from our competitors:
Our Strategies
We intend to achieve our mission by pursing the following strategies:
Our Challenges
Our ability to achieve our goal and execute our strategies is subject to risks and uncertainties, including those relating to our ability to:
In addition, we face risks and uncertainties related to our corporate structure and regulatory environment in China, including:
Please see “Risk Factors” and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.
Corporate History and Structure
Our Huya platform was launched in 2014, as a game live streaming business unit of our parent company, YY. In August 2016, Guangzhou Huya Information Technology Co., Ltd., or Guangzhou Huya, our variable interest entity was established. YY controlled Guangzhou Huya through a set of contractual arrangements. As of December 31, 2016, YY completed the transfer of all assets, including trademarks, domain names, business contracts and tangible assets relating to our business to Guangzhou Huya, or our carve-out from YY.
YY incorporated Huya Limited in Hong Kong in January 2017 and HUYA Inc. in the Cayman Islands in March 2017 as our holding companies. In April 2017, Huya Limited became a wholly-owned subsidiary of HUYA Inc. In June 2017, Huya Limited established Guangzhou Huya Technology Co., Ltd., or Huya Technology, our wholly owned subsidiary in China. In July 2017, we gained control and became the sole beneficiary of Guangzhou Huya through a series of contractual arrangements between Huya Technology, Guangzhou Huya and Guangzhou Huya’s shareholders. In May and July 2017, Guangzhou Huya incorporated Guangzhou Yaoguo Information Technology Co. Ltd., or Guangzhou Yaoguo, and Guangzhou Dachafan Entertainment Co. Ltd., or Guangzhou Dachafan, respectively, in China. As such, we formed our current offshore and onshore corporate structure.
We are a holding company and we currently conduct our business in China through Huya Technology and our variable interest entity, Guangzhou Huya, and its subsidiaries. See “Risk Factors—Risks Related to Our Corporate Structure.” Guangzhou Huya holds an Internet Content Provision License and other permits that are necessary for operating our business in China.
The following diagram summarizes our corporate structure chart, including our subsidiaries, our variable interest entity and its subsidiaries, as of the date of this prospectus.
The following diagram sets forth the shareholding structure of our company immediately after this offering, without giving effect to voting power changes.
Our Relationship with Our Major Shareholders
Our Relationship with YY
Our business benefits from our collaboration with YY Inc., or YY, our controlling shareholder. YY is a leading live streaming social media platform that enables users to interact with each other in real time, and has been listed on NASDAQ Global Market since 2012. YY is our controlling shareholder, and will continue to control us after the completion of this offering. We benefit from YY’s experience in live streaming industry as well as technology know-how. We have established our own technology infrastructure, management and business functions separately from YY and we intend to continue to operate independently after we become a public company. On March 8, 2018, YY and us, through our respective PRC affiliated entities, entered into a business cooperation agreement, which sets up standards for our future cooperation in the areas including payment settlement, IT system licensing and broadcaster resources. On the same date, YY and us, through our respective PRC affiliated entities, also entered into a four-year non-compete agreement.
Our Relationship with Tencent
On February 5, 2018, Tencent Holdings Limited, or Tencent, and us, through our respective PRC affiliated entities, entered into a business cooperation agreement, which became effective on March 8, 2018. Pursuant to this business cooperation agreement, the parties agreed to establish strategic cooperation in various aspects regarding game live streaming business and game related business. This agreement has a term of three years, which is renewable under certain conditions.
Further to the business cooperation agreement, we entered into a share subscription agreement with Linen Investment Limited, a wholly-owned subsidiary of Tencent, on March 8, 2018. Pursuant to the agreement, on the same date, we issued a total of 64,488,235 of series B-2 preferred shares to Linen Investment Limited at a price of approximately US$7.16 per series B-2 preferred share, representing 34.6% of our total shares on an as-converted basis as of the closing of the transaction. Pursuant to our amended and restated shareholders’ agreement, Tencent has a right, exercisable between March 8, 2020 and March 8, 2021, to purchase additional shares at the then fair market price to reach 50.1% of the voting power in us.
Supported by Tencent’s strong capabilities in game development, distribution and operation, we believe the investment from, and our cooperation with, Tencent will reinforce and solidify our position as a market leader in the game live streaming industry in China.
Corporate Information
Our principal executive offices are located at Building B-1, North Block of Wanda Plaza, No. 79 Wanbo 2nd Road, Panyu District, Guangzhou, the People’s Republic of China. Our telephone number at this address is +86 (20) 8212 0800. Our registered office in the Cayman Islands is located at the offices of .
Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.huya.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 801 2nd Avenue, Suite 403, New York, NY 10017.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenues for the last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous three year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Conventions that Apply to this Prospectus
Unless otherwise indicated or the context otherwise requires in this prospectus:
accessed our platform during the relevant period. The calculations of our active users may not reflect the actual number of people using Huya, as it is possible that some people may use more than one device, or some people may share one device, or some people may access our platform through multiple channels;
Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.
Our reporting currency is the Renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at RMB6.5063 to US$1.00, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board on December 29, 2017. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts or prohibits the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of transactions. On March 30, 2018, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board was RMB6.2726 to US$1.00.
The Offering
The depositary will hold Class A ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Class A ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our Class A ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement. You may surrender your ADSs to the depositary in exchange for Class A ordinary shares. The depositary will charge you fees for any exchange. We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.
We plan to use the net proceeds of this offering primarily to expand and enhance our product and service offerings and strengthen our technologies, and use the balance of the proceeds for working capital and other general corporate purpose. Additionally, we may use a portion of the net proceeds to acquire businesses, products, services or technologies. See “Use of Proceeds” for more information. [We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.]Depositary
Summary Consolidated Financial Data
The following summary consolidated financial data for the years ended December 31, 2016 and 2017 and as of December 31, 2016 and 2017 are derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Summary Consolidated Financial Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Note:
The following table presents our summary consolidated balance sheet data as of December 31, 2016 and 2017.
Notes:
The following table presents our summary consolidated cash flow data for the year ended December 31, 2016 and 2017.