“Will the merger produce more synergy?
Two years of rumors really sit solid, once a protracted struggle for supremacy, and finally to a family.
Tiger teeth fighting fish hand in hand
On the evening news of Beijing time on August 10, douyu (NASDAQ: Doyu) announced that it had received a preliminary non binding proposal from Tencent on the strategic merger of Betta and tiger tooth (NYSE: Huya). Meanwhile, the happy times (NASDAQ: YY) announced that it would issue 30000000 shares of Huya class B common shares, with a total value of $810 million in cash.
As of Monday, August 10, the market value of Betta was $4.85 billion and that of Huya was $5.85 billion. After the disclosure of the merger news, the two companies’ pre market share prices began to rise in a straight line.
In other words, a new content company with a market value of more than 10 billion US dollars and a live game platform with more than 300 million live users will be created. Tencent, as a dealer, will further consolidate its dominant position in the game track after the marriage.
Tencent has buried this long line for a long time. As early as 2016, Tencent led the investment in round B of Betta financing. Subsequently, Tencent, which adheres to the principle of double insurance, invested $461.6 million in tiger teeth on March 8, 2018, and continued to increase the size of fish fighting with $630 million on the same day.
Tencent said that I want all of the first and second places on the live track of the game.
In April this year, Tencent bought more shares of Huya from huanju group again, increasing its voting rights in Huya to 50.1%; meanwhile, Tencent holds 38% of the shares in douyu, making it the largest shareholder of douyu. Since then, the fate of the two “big brothers” in the live game industry has been firmly grasped by Tencent.
For Tencent, promoting the merger of the two sides is always better than looking at the fight between the left and right, one side swallowing the other side to gain more.
Tencent needs to fight inside and outside
In May this year, tiger teeth and Betta released their first quarter financial reports one after another. At the same time, the payment level of Huya is decreasing, and the growth rate of revenue is relatively slow. The total revenue realized in the first quarter decreased by 2.2% month on month. This is the first time that Huya’s live broadcasting revenue has declined month on month.
On the other hand, the data of net profit, Mau (monthly living user) and paying user of Betta have reached the best in history, but the average Mau continues to decline. This means that the willingness of users to pay for Betta has increased, but the growth of users is facing a bottleneck.
Since both of its top two generals have their own worries, Tencent, the eldest parent, has to go out in person and tighten its control over strategic investment companies.
In the past, the official website, Post Bar Forum, app store and wechat were used as publicity channels for Tencent games. Due to the limited source of users and low accuracy, the communication effect was proved to be average. In contrast, game live broadcasting is more generative for players. Game KOL can quickly gather a group of fans in a short time, promote game innovation, enhance player activity, and then drive the ability to pay for conversion, and ultimately lengthen the life cycle of a game.
Tencent, which holds a large number of head games IP and E-sports events, has spent more than one billion US dollars to take a strong stake in tiger teeth and Betta. Naturally, it is to seize the propaganda position of this advantage and drain its own e-sports industry through live games.
After the merger, the most significant positive is that the flow rose again and the user stickiness was strengthened. As far as Tencent is concerned, only by unifying operations and integrating the downstream link of the live broadcast platform can it better connect with the R & D and distribution of the upstream end and open up the overall layout of the entire industrial chain.
More importantly, they can strengthen the competition barriers and defend the common enemies.
Looking at the outside world, as the most striking two wolf in the live broadcast market in 2019, Kwai Fu and B station are accelerating the mess. At this year’s Chinajoy2020 global competition conference, Tang Yuyu, vice president of Kwai game, has revealed that the number of live users has been over 220 million by the end of May this year, and 300 million of users in the short live video games have been Kwai Yue. This is close to the sum of Betta and tiger’s teeth.
From the short video content that users love to Kwai live broadcast, relying on this efficient path, the fast hand sucks away many users and income of the live broadcast platform. The Kwai Fu with the advantage of flow is easy to extend around the competition, and then create a new game content ecosystem.
On the other hand, station B is also making continuous bets on the e-sports industry, not only attracting relevant teams, but also winning the exclusive live broadcasting right of China in the global finals of the League of heroes by 800 million yuan. In addition, more than 44 billion videos of E-sports content have been played on our website, and there are a large number of native game up as resource reserve B station, with amazing potential.
And the bytes of the huge flow cell backed by the loud voice are also released in the tiktok game, which is excellent in the casual game business. Tencent understands that no matter which side it is, it is full of uncontrollable factors. The addition of new players makes it more difficult for the already saturated user pool to grow, and the future competition will only be more intense.
This integration, Tencent is undoubtedly to maximize the benefits of live game, reduce the internal friction of fighting fish and tiger’s teeth, and leave no room for other opponents to reverse the super game.
The road ahead of the merger is uncertain
Huya and douyu have been stuck together for many years. One is good at live show and the other is better at the host matrix of games. Although there are differences in strategy, the performance of the two has not widened the gap. If the financial reports of the two companies are put together, it is most intuitive to feel.
From the business point of view, the two revenue components are basically the same, including live broadcast, advertising and other. Specifically, the revenue of Q1 live broadcasting business in Huya in 2020 is 2.275 billion yuan, with a year-on-year growth of 46.5%; while the revenue of direct broadcast business of Betta Q1 is 2.113 billion yuan, with a year-on-year growth of 56.0%, and the revenue of both sides in the live broadcasting business accounts for more than 90% of the total revenue. In terms of revenue growth and net profit, the gap between the two is gradually narrowing.
Betta and tiger tooth have their own advantages in income structure and user attributes, but on the whole, they are basically in a state of equal strength in terms of scale, market value and revenue. Under such a high degree of homogenization, it is not significant for the two giants to continue to compete, which will only increase internal friction. Turning to consolidation is a better deal.
However, after the merger, there will inevitably be a situation in which one party dominates and the other party gradually fades out. So, who will be the boss among the betta, tiger teeth, and even the “son” Penguin competition? How to distribute the interest pattern? At present, there is no more information disclosure including the management of the new company, which will become the focus of the market in the future.
Under the pressure of Betta competition, tiger tooth is trying to improve various data, including program type, revenue and monthly live users, in order to have a greater voice after the merger.
As an opponent of equal size, merging does not mean peace and tranquility. Referring to the previous didi and kuaidi, meituan and Dianping, Ctrip and qunari, today’s merger and integration is no longer a big fish eating a small fish. After the strong and strong join hands, both sides have a stronger stance in the selection of core team, personnel arrangement, organizational adjustment or separation, product differentiation and positioning. No matter who becomes the leader of the new platform, another platform will usher in a batch of blood changes.
Moreover, after the marriage, although the relationship between them as rivals no longer exists, the long-term pressure on the revenue and user growth of the two listed companies has not disappeared.
Although Huya and douyu have become a bigger company together, it is not easy to break in. After the merger, it is still a long way to go to realize resource integration, balance the anchor linkage between platforms, share the game copyright, and find more new profit growth points.