DOYU – Massive Risk with Suspected Online Gambling Business and Industry-Wide Reform

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  • We believe DOYU has been involved with illegal online gambling on their platform. Our research indicates that not only is DOYU hosting these illegal activities, but they are actively encouraging their users to gamble on their platform to boost revenue
  •  Recent policy announcements indicate a more stringent regulatory environment that is cracking down on online gambling, order brushing and faking operat-ing numbers. We believe the full scale of the policy reform will be massive
  • MOMO, another online streaming platform based in China, recently presented terrible financial performance in light of “structural reform”. We believe this is an indicator of what is to come to DOYU
  • DOYU opted to not give revenues guidance for Q4 for the first time since it went public, likely due to the dim quarter following the crackdown of many DOYU streamers due to illegal online gambling. We modeled out Q4 guidance based on streamer performance data and project a decrease on both a YoY and QoQ basis. We believe further deterioration is soon to follow, and the impact will be long lasting
  • We identified additional evidence of order brushing and suspected pornography on DOYU, both of which are subject to more stringent regulatory control in China
  • Recently HUYA and DOYU announced their business combination. However, we believe HUYA is not without problems either. Our research indicates that HUYA might also host illegal online gambling. Regard-less of whether the deal goes through or not, we believe both companies would be trading at much lower valuations
  • Just today Chinese media reported that DOYU’s second most prominent streamer has been arrested by the police due to suspected online gambling. The problems seem to be massive on DOYU’s platform

 

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