Evaluating China’s regulatory halt on the HUYA-DOYU merger

Update11 days ago
The planned merger of Huya and Douyu -- China’s leading game live-streaming platforms, owning a combined 80%+ of industry active users -- came to a halt this week. China’s State Administration for Market Regulation concluded that HUYA-DOYU merger would strengthen Tencent’s 40% share in the online gaming industry and could have the effect of “excluding or restricting competition.”
Tencent, a holding in Titan’s Offshore portfolio, currently owns the majority share of HUYA and DOYU. Post-merger, Tencent would have owned the combined entity, helping the company to prioritize the distribution of their games on these live-streaming platforms.
Regulators’ decision to nix the deal marks the first major rejection of a merger between two of China’s internet companies. The decision arrives alongside a wave of increased Chinese government scrutiny over tech giants, with DIDI and BABA both navigating regulatory interventions.
Although increased regulation across China’s internet landscape remains a risk, we continue to believe in our original five-year thesis for Tencent. The company remains an excellent business to own, given its dominant WeChat network, outstanding unit economics, founder-led management team, and massive runway for growth across its mobile advertising, cloud services, and gaming segments.
Taking a step back, although the rejection of the HUYA-DOYU merger may slightly impact Tencent’s margins in the future, as the company may have to spend more on content distribution on a net-basis, Tencent remains the dominant player across the gaming industry through its ownership of tentpole publishers, its leadership in esports content and events, and its investments across live streaming platforms (e.g., HUYA, DOYU, BILI, Kuaishou, Trovo).
In the grand scheme of things, Tencent’s core businesses remain largely unchanged, and we will continue to hold our position in the name.

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