P1YP1Y2022-12-312026-12-31falseFYtrue0001728190Building A3, E-ParkEach ADS represents one Class A ordinary share.Other revenues mainly include advertising, sub-licensing and online games revenues.As of December 31, 2020 and 2021, the other currencies consist of Hong Kong Dollar, Brazilian Real and Thai Baht.In November 2020, the Company had entered into an agreement for the acquisition of land use rights for its operations and the prepayment was amounted to RMB310,220 as of December 31, 2020. In July 2021, the Company obtained the effective land use certificate and accordingly recognized the prepayment of the land use right as right of use asset.Short-term investments represented the investments issued by commercial banks and financial institution with a variable interest rate indexed to the performance of underlying assets within one year. For the instruments whose fair values are estimated based on quoted prices of similar products provided by banks at the end of each period, the Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Cash equivalents mainly consist of time deposits with original maturities of three months or less and highly liquid investments that are readily convertible to known amounts of cash. The fair values of cash equivalents are determined based on the pervasive interest rates in the market. The Company classifies the valuation techniques that use the pervasive interest rates input as Level 1 of fair value measurements.Equity investments without readily determinable fair values include investment in equity securities of private investee companies over which the Group has neither significant influence nor control through investments in common stock or in-substance common stock. In 2020 and 2021, the Group acquired equity interests in a number of privately-held investee companies at with a total consideration of RMB101,964 and RMB126,958, respectively. The Group elected to apply the measurement alternative to account for these investments (see Note 2(k)).In 2021, the Group made an investment in debt securities (i.e. certain preferred shares) of a privately-held investee company at a cash consideration of RMB157,160 (“Debt Investment”). Given that the preferred stock will become redeemable simply by the the passage of time and the intention of the Group is to hold and consider a future disposal, the investment is accounted for as an available-for-sale debt investment (see Note 2(k)), wherein the investment is carried at fair value with realized or unrealized gains or losses recorded in accumulative other comprehensive income (loss). As of December 31, 2021, the fair value of the Debt Investment is not materially different from the fair value at the acquisition date.Available-for-sale debt investments were investments made by the Group without readily determinable fair values as set out in Note [10], which were categorized as Level 3 in the fair value hierarchy. These investments were valued based on a model utilizing unobservable inputs requiring significant management judgment and estimation. The Company uses a combination of valuation methodologies, including income approaches based on the Company’s best estimate, which is determined by using information including but not limited to the pricing of recent rounds of financing of the investees, future cash flow forecasts, liquidity factors and multiples of a selection of comparable companies. In 2018, the Group invested as one of the limited partners with significant influence in an investment fund (the “Fund”) which owns an equity interest in an online game company, which was accounted for as an equity investment. For the year ended December 31, 2021, the Group disposed of its interest (through sales to two separate parties) in the Fund with a disposal gain of RMB378,679 recognized, of which RMB360,589 was related to the transaction with an entity owned by Tencent. The total cash consideration was RMB554,889, of which RMB529,070 was related to a transaction undertaken with an entity owned by Tencent.In April 2021, the Company entered into a related party transaction with a fellow subsidiary of Tencent to purchase an exclusive license for broadcasting League of Legends matches during the period from 2021 to 2025, with a total consideration of RMB2,013 million.Inter-company service fees for technology support, business support and consulting fees (collectively defined as “VIE service fees”) are charged pursuant to the exclusive business cooperation agreement. As of December 31, 2019, 2020, and 2021, the outstanding balance of amounts due from Group companies were inter-company advances. There were no outstanding balances for VIE service fees charged to the VIEs.For the years ended December 31, 2019, 2020 and 2021, cash paid by the VIEs to the WFOE and other subsidiaries for VIE service fees were RMB929.6 million, RMB7,543.2 million and RMB8,664.1 million.For the years ended December 31, 2019, 2020 and 2021, VIE service fees were charged by WFOE and other subsidiaries to the VIEs amounting to RMB929.6 million, RMB7,543.2 million and RMB8,664.1 million. 0001728190 2019-01-01 2019-12-31 0001728190 2020-01-01 2020-12-31 0001728190 2021-01-01 2021-12-31 0001728190 2021-12-31 0001728190 2020-12-31 0001728190 2018-01-01 2018-12-31 0001728190 2018-12-31 0001728190 2017-01-01 2017-12-31 0001728190 2019-12-31 0001728190 2019-01-01 0001728190 2021-12-31 2021-12-31 0001728190 2020-01-01 2020-01-01 0001728190 us-gaap:CommonClassBMember 2021-12-31 0001728190 us-gaap:CommonClassAMember 2021-12-31 0001728190 currency:CNY 2021-12-31 0001728190 currency:USD 2021-12-31 0001728190 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021.
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from              to              
Commission file number:
001-38482
 
 
HUYA Inc.
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Building A3,
E-Park
280 Hanxi Road
Panyu District, Guangzhou 511446
People’s Republic of China
(Address of principal executive offices)
Rongjie Dong, Chief Executive Officer
E-mail:
ir@huya.com
Building A3,
E-Park
280 Hanxi Road
Panyu District, Guangzhou 511446
People’s Republic of China
Telephone: +86 20 2290-7888
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
symbol(s)
 
Name of each exchange
on which registered
American Depositary Shares, each
 
HUYA
 
New York Stock Exchange
representing one Class A ordinary share,
par value US$0.0001 per share
 
  
 
  
Class A ordinary shares,
par value US$0.0001 per share*
 
  
 
New York Stock Exchange
 
(1)*
Not for trading, but only in connection with the listing on the New York Stock Exchange of our American depositary shares, each representing one Class A ordinary share.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2021, there were 238,070,281 ordinary shares outstanding, being the sum of 86,993,764 Class A ordinary shares (excluding 891,498 Class A ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for issuances upon the exercise or vesting of awards under our share incentive plans) and 151,076,517 Class B ordinary shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 
Large accelerated filer
 
☒
  
Accelerated filer
 
☐
 
Non-accelerated filer
 
☐
           
 
 
  
  
  
 
  
 
Emerging growth company
 
 ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒
  
        International Financial Reporting Standards as issued
  
  
  
  
  
Other  ☐
 
  
        by the International Accounting Standards Board  
  
☐
  
  
  
  
If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐ Item 17    ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐ Yes    ☒  No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐ Yes    ☐  No
 
 
 
TABLE OF CONTENTS
 
  
 
1
 
  
 
2
 
 
  
  
 
3
 
ITEM 1.
 
  
 
3
 
ITEM 2.
 
  
 
3
 
ITEM 3.
 
  
 
3
 
ITEM 4.
 
  
 
66
 
ITEM 4.A.
 
  
 
97
 
ITEM 5.
 
  
 
97
 
ITEM 6.
 
  
 
110
 
ITEM 7.
 
  
 
120
 
ITEM 8.
 
  
 
122
 
ITEM 9.
 
  
 
123
 
ITEM 10.
 
  
 
124
 
ITEM 11.
 
  
 
141
 
ITEM 12.
 
  
 
142
 
 
  
  
 
143
 
ITEM 13.
 
  
 
143
 
ITEM 14.
 
  
 
143
 
ITEM 15.
 
  
 
144
 
ITEM 16.A.
 
  
 
145
 
ITEM 16.B.
 
  
 
145
 
ITEM 16.C.
 
  
 
145
 
ITEM 16.D.
 
  
 
145
 
ITEM 16.E.
 
  
 
146
 
ITEM 16.F.
 
  
 
146
 
ITEM 16.G.
 
  
 
146
 
ITEM 16.H.
 
  
 
146
 
ITEM 16.I.
 
  
 
146
 
 
  
  
 
147
 
ITEM 17.
 
  
 
147
 
ITEM 18.
 
  
 
147
 
ITEM 19.
 
  
 
147
 
 
  
  
 
150
 
 
i
INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this annual report to:
 
  •  
“ADSs” refers to our American depositary shares, each of which represents one Class A ordinary share;
 
  •  
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Hong Kong, Macau and Taiwan;
 
  •  
“Class A ordinary shares” refers to our Class A ordinary shares of par value US$0.0001 per share;
 
  •  
“Class B ordinary shares” refers to our Class B ordinary shares of par value US$0.0001 per share;
 
  •  
“JOYY” refers to JOYY Inc. (Nasdaq: YY), formerly known as YY Inc.;
 
  •  
“the variable interest entity, ” “the PRC variable interest entity,” or “the VIE” refers to Guangzhou Huya Information Technology Co., Ltd., or Guangzhou Huya;
 
  •  
“MAUs”, or “monthly active users” for any period refers to the sum of users who accessed our platform through our mobile apps, our websites, our PC clients, or YY Client, a PC client offered by JOYY (before early January 2021 when we ceased offering content through YY Client), at least once during such relevant period. The calculations of our MAUs may not reflect the actual number of people who accessed our platform, such 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;
 
  •  
“mobile MAUs” for any period refers to the sum of users who accessed our platform through our mobile apps at least once during such relevant period. The calculations of our mobile MAUs may not reflect the actual number of people who accessed our platform, such 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. Average mobile MAUs for any period is calculated by dividing (i) the sum of our mobile MAUs for each month during such relevant period, by (ii) the number of months during such relevant period;
 
  •  
“paying users” for any period refers to the sum of user accounts that purchased various products and services on our platform at least once during such relevant period. A paying user is not necessarily a unique user, however, as a unique user may set up multiple paying user accounts on our platform;
 
  •  
“RMB” and “Renminbi” refer to the legal currency of China;
 
  •  
“shares” or “ordinary shares” refers to our Class A and Class B ordinary shares, par value $0.0001 per share;
 
  •  
“Tencent” refers to Tencent Holdings Limited and its subsidiaries;
 
  •  
“US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; and
 
  •  
“we,” “us,” “our company,” “our” and “Huya” refer to HUYA Inc., a Cayman Islands company, and its subsidiaries, and, in the context of describing our operations and combined and consolidated financial information, also include the VIE and its subsidiaries in the PRC.
We present our financial results in RMB. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. This annual report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at the rate at RMB6.3726 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System in effect as of December 30, 2021.
 
1
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that involve risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
 
  •  
our goals and strategies;
 
  •  
our future business development, financial conditions and results of operations;
 
  •  
the expected growth of the live streaming market in China;
 
  •  
our expectations regarding demand for and market acceptance of our products and services;
 
  •  
our ability to retain and increase the number of users, broadcasters, talent agencies and advertisers, and expand our product and service offerings;
 
  •  
competition in our industry;
 
  •  
general economic and business condition in China and elsewhere;
 
  •  
our ability to monetize the user base;
 
  •  
relevant laws, government policies, regulations, rules and guidelines relating to our industry;
 
  •  
the impact of the
COVID-19
pandemic to our business operations and the economy in China and elsewhere generally; and
 
  •  
assumptions underlying or related to any of the foregoing.
You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect. Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
 
2
PART I.
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with the VIE
HUYA Inc. is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in the VIE. We conduct our operations primarily through our subsidiaries and the VIE in China. PRC laws and regulations restrict and impose conditions on foreign direct investment in companies that engage in internet and other related businesses, including the provision of internet content. Therefore, we operate such business in China through the variable interest entity, Guangzhou Huya Information Technology Co., Ltd., or Guangzhou Huya, which we may refer to as “the VIE” and “the variable interest entity” in this annual report, and rely on contractual arrangements among our PRC subsidiary Guangzhou Huya Technology Co., Ltd., or Huya Technology, the VIE and its nominee shareholders to control the business operations of the VIE. The VIE is consolidated for accounting purposes, but is not an entity in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the VIE accounted for 99.0%, 98.4% and 96.0% of our total net revenues for the fiscal years 2019, 2020 and 2021, respectively. As used in this annual report, “we,” “us,” “our company,” “our” and “Huya” refer to HUYA Inc., a Cayman Islands company, and its subsidiaries, and, in the context of describing our operations and combined and consolidated financial information, also include the VIE and its subsidiaries in the PRC. Investors in our ADSs are not purchasing equity interest in the VIE in China but instead are purchasing equity interest in a Cayman Islands holding company.
A series of contractual agreements, including an equity interest pledge agreement, an exclusive business cooperation agreement, a shareholder voting rights proxy agreement and an exclusive option agreement, have been entered into by and among Huya Technology, the VIE and its shareholders. As a result of the contractual arrangements, we have effective control over and are considered the primary beneficiary of the VIE and its subsidiaries, and we have consolidated the financial results of these companies in our consolidated financial statements. For more details of these contractual arrangements, see “Item 4. Information on the Company—D. Organizational Structure—Contractual Arrangements with Guangzhou Huya.”
However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE and we may incur substantial costs to enforce the terms of the arrangements. In addition, these arrangements have not been tested in PRC courts. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the PRC variable interest entity and its shareholders for the operation of our business, which may not be as effective as direct ownership. If the PRC variable interest entity and its shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to litigation to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation” and “—The shareholders of the VIE may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially and adversely affected.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIE and its shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the VIE is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, or if these laws or regulations or interpretations of existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of our platform and our business operations” and “—Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
 
3
Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. Investors may never directly hold equity interests in the VIE. If the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC laws and regulations, or if these regulations or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC subsidiaries, the VIE, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. The PRC regulatory authorities could disallow the VIE structure, which would likely result in a material adverse change in our operations, and our ADSs may decline significantly in value. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “—D. Risk Factors—Risks Related to Our Corporate Structure.”
Other Risks Related to Our PRC Operations
We face various legal and operational risks and uncertainties associated with being based in or having the majority of our operations in China and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offerings conducted overseas by and foreign investment in China-based issuers, the use of variable interest entities, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, as well as the lack of inspection by the Public Company Accounting Oversight Board, or the PCAOB, on our auditors, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States or other foreign exchange. On December 16, 2021, the PCAOB issued a report to notify the SEC its determinations that it is unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China, and identifies the registered public accounting firms in Mainland China that are subject to such determinations. Our auditor is identified by the PCAOB and is subject to the determination. Under the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter trading market in the U.S. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
 
4
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and the VIE in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries, the VIE and its subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for our business operations in China, including, among others, the Value-added Telecommunications Business Operation License for information services via internet, or ICP License, the Permit for Internet Audio-Video Program Service, a radio and television program production and operating permit, a commercial performance license and an internet culture operation license for music products. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—If we fail to obtain and maintain the licenses and approvals required under the complex regulatory environment for internet-based businesses in China, our business, financial condition and results of operations may be materially and adversely affected.”
In connection with our previous issuance of securities to foreign investors, as of the date of this annual report, we, our PRC subsidiaries and the VIE (i) have not been required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) have not been required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not been asked to obtain or were denied such permissions by any PRC authority. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in
China-based
issuers. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.”
Furthermore, if we are deemed to be a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we must fulfill certain obligations as required under the PRC cybersecurity laws and regulations including, among others, storing personal information and important data collected and produced within the PRC territory during our operations in China, and we may be subject to review when purchasing internet products and services. If we are not able to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, suspension of our
non-compliant
operations, or removal of our apps from the relevant application stores, among other sanctions, which could materially and adversely affect our business and results of operations. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Our Industry—Our business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws relating to privacy and cybersecurity. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.”
Cash Flows through Our Organization
HUYA Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and the VIE in China. As a result, although other means are available for us to obtain financing at the holding company level, HUYA Inc.’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and service fees paid by the VIE. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to HUYA Inc. In addition, our PRC subsidiaries are permitted to pay dividends to HUYA Inc. only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and the VIE are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends and can only be used for specific purposes. For more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”
Under PRC laws and regulations, our PRC subsidiaries and the VIE are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. The VIE cannot pay dividends to us as we do not own any equity interest in the VIE. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by the PRC State Administration of Foreign Exchange, or SAFE. The amounts restricted include the
paid-up
capital and the statutory reserve funds of our PRC subsidiaries and the net assets of the VIE in which we have no legal ownership. For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Our PRC subsidiaries and PRC variable interest entity are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”
Under PRC law, HUYA Inc. and its offshore subsidiaries may provide funding to our PRC subsidiaries only through capital contributions or loans, including advances, and to the VIE only through loans, including advances, subject to satisfaction of applicable government registration and approval requirements. HUYA Inc. and its offshore subsidiaries extended capital contributions of RMB47.6 million, RMB299.8 million and RMB323.1 million (US$50.7 million) in the years ended December 31, 2019, 2020 and 2021 respectively, and advances in the amount of RMB98.5 million and RMB75.4 million (US$11.8 million) as of December 31, 2020 and 2021 respectively, to our PRC subsidiaries.
The VIE may transfer cash to our PRC subsidiaries by paying service fees according to the exclusive business cooperation agreement. Pursuant to this agreement, the VIE agrees to pay our PRC subsidiaries fees for technology support, business support and consulting services, subject to conditions therein. In the years ended December 31, 2019, 2020 and 2021, the VIE paid a total amount of RMB929.6 million, RMB7,532.2 million and RMB8,664.1 million (US$1,359.6 million), respectively, for services provided by our subsidiaries. Due to the control over the VIE, our PRC subsidiaries have the right to determine the service fee to be charged to the VIE under this agreement by considering, among other things, the technical difficulty and the complexity of the services, the time needed for providing such services and the specific content and business value of the services. The term of this agreement is ten years and is automatically renewed provided there is no objection from our PRC subsidiaries. In the future, to the extent there is any fee owed to our PRC subsidiaries under this agreement, the VIE intends to settle it.
 
5
Neither our subsidiaries nor the VIE made cash dividends or other distributions to HUYA Inc., the holding company, or its offshore subsidiaries, in the years ended December 31, 2019, 2020 and 2021. Going forward, our subsidiaries and VIE intend to retain most, if not all, of their available funds and any future earnings.
Other than the cash dividend in connection with the proposed merger with DouYu International Holdings Limited (Nasdaq: DOYU), or DouYu, which was cancelled along with the termination of the proposed merger, HUYA Inc. has not declared or paid any cash dividends, nor does it have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. For PRC and United States federal income tax considerations of an investment in our ADSs and/or ordinary shares, see “Item 10. Additional Information—E. Taxation.”
In the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
Under the current laws of the Cayman Islands, HUYA Inc. is not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in Mainland China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
 
    
Tax calculation
(1)
  
Hypothetical pre-tax earnings
(2)
      100.00 % 
Tax on earnings at statutory rate of 25%
(3)
      (25.00 )% 
    
 
 
  
Net earnings available for distribution
      75.00 % 
Withholding tax at standard rate of 10%
(4)
      (7.50 )% 
    
 
 
  
Net distribution to Parent/Shareholders
      67.50 % 
    
 
 
  
 
Notes:
 
(1)
For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in China.
 
(2)
Under the terms of VIE agreements, our PRC subsidiaries may charge the VIE and the VIE’s subsidiaries for services provided to the VIE and the VIE’s subsidiaries. These service fees shall be recognized as expenses of the VIE and the VIE’s subsidiaries, with a corresponding amount as service income by our PRC subsidiaries and eliminate in consolidation. For income tax purposes, our PRC subsidiaries and the VIE and the VIE’s subsidiaries file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the VIE and the VIE’s subsidiaries and as income by our PRC subsidiaries and are tax neutral.
 
(3)
Certain of our subsidiaries and the VIE qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.
 
(4)
The PRC’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or Foreign Invested Enterprise (“FIE”) to its immediate holding company outside of Mainland China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with Mainland China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIE and the VIE’s subsidiaries will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIE and the VIE’s subsidiaries could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs. This would result in such transfer being non-deductible expenses for the VIE and the VIE’s subsidiaries but still taxable income for the PRC subsidiaries. Such a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management believes that there is only a remote possibility that this scenario would happen.
Selected Consolidated Financial Data
The following selected consolidated statements of comprehensive (loss) income for the years ended December 31, 2019, 2020 and 2021, selected consolidated balance sheet data as of December 31, 2020 and 2021, selected consolidated cash flows data for the years ended December 31, 2019, 2020 and 2021 have been derived from our audited consolidated financial statements included in this annual report beginning on page
F-1.
Our selected consolidated statements of comprehensive (loss) income for the years ended December 31, 2017 and 2018, selected consolidated balance sheet data as of December 31, 2017, 2018 and 2019 and selected consolidated cash flows data for the year ended December 31, 2017 and 2018 have been derived from our audited consolidated financial statements not included in this annual report. Our historical results for any period are not necessarily indicative of results to be expected for any future period. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below.
 
    
For the year ended December 31,
  
    
2017
    
2018
    
2019
    
2020
    
2021
  
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
  
                                      
    
(in thousands, except for share, ADS, per share and per ADS data)
  
Selected Consolidated Statements of Comprehensive (Loss) Income:
                                                 
Net revenues:
                                                 
Live streaming
      2,069,536       4,442,845       7,976,214       10,311,624       10,186,204       1,598,438  
Advertising and others
      115,280       220,595       398,287       602,750       1,165,242       182,852  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total net revenues
      2,184,816       4,663,440       8,374,501       10,914,374       11,351,446       1,781,290  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Cost of revenues
(1)
      (1,929,864 )      (3,933,647 )      (6,892,579 )      (8,646,308 )      (9,751,160 )      (1,530,170 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross profit
      254,952       729,793       1,481,922       2,268,066       1,600,286       251,120  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating expenses:
                                                 
Research and development expenses
(1)
      (170,160 )      (265,152 )      (508,714 )      (734,261 )      (818,882 )      (128,500 ) 
Sales and marketing expenses
(1)
      (87,292 )      (189,207 )      (438,396 )      (558,012 )      (759,507 )      (119,183 ) 
General and administrative expenses
(1)
      (101,995 )      (287,710 )      (352,824 )      (445,006 )      (326,772 )      (51,278 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      (359,447 )      (742,069 )      (1,299,934 )      (1,737,279 )      (1,905,161 )      (298,961 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Other income
      9,629       38,938       79,390       194,169       274,704       43,107  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
6
    
For the year ended December 31,
  
    
2017
    
2018
    
2019
    
2020
    
2021
  
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
  
                                      
    
(in thousands, except for share, ADS, per share and per ADS data)
  
Operating (loss) income
      (94,866 )      26,662       261,378       724,956       (30,171 )      (4,734 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Interest and short-term investments income
      14,049       156,549       304,491       313,366       247,009       38,761  
Fair value loss on derivative liabilities
      —           (2,285,223 )      —           —           —           —      
Gain on fair value change of investment
      —         —         —         2,160       44,161       6,930  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Other
non-operating
expenses
      —         —         —         (10,010 )      —         —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Foreign currency exchange gains (losses), net
      —         51       1,157       2,056       (1,480 )      (232 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
(Loss) income before income tax benefits (expenses)
      (80,817 )      (2,101,961 )      567,026       1,032,528       259,519       40,725  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Income tax benefits (expenses)
      —         50,943       (96,078 )      (176,784 )      (55,227 )      (8,666 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
(Loss) income before share of (loss) income in equity method investments, net of income taxes
      (80,817 )      (2,051,018 )      470,948       855,744       204,292       32,059  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Share of (loss) income in equity method investments, net of income taxes
      (151 )      113,329       (2,775 )      28,414       379,207       59,506  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss) income attributable to HUYA Inc.
      (80,968 )      (1,937,689 )      468,173       884,158       583,499       91,565  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Accretion to Series A redeemable convertible preferred shares
      (19,842 )      (71,628 )      —         —         —         —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Deemed dividend to series A preferred shareholders
      —         (496,995 )      —         —         —         —    
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss) income attributable to ordinary shareholders
      (100,810 )      (2,506,312 )      468,173       884,158       583,499       91,565  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss) income
      (80,968 )      (1,937,689 )      468,173       884,158       583,499       91,565  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Foreign currency translation adjustments, net of nil tax
      308       366,259       157,568       (451,873 )      (148,562 )      (23,313 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive (loss) income attributable to HUYA Inc.
      (80,660 )      (1,571,430 )      625,741       432,285       434,937       68,252  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss) income per ADS
(2)
                                                 
Basic
      (1.01 )      (15.02 )      2.18       3.89       2.45       0.38  
Diluted
      (1.01 )      (15.02 )      2.02       3.71       2.41       0.38  
Weighted average number of ADSs used in calculating net (loss) income per ADS
                                                 
Basic
      100,000,000       166,828,435       214,811,862       227,081,238       238,198,117       238,198,117  
Diluted
      100,000,000       166,828,435       232,024,961       238,631,613       241,790,445       241,790,445  
Net (loss) income per ordinary share
                                                 
Basic
      (1.01 )      (15.02 )      2.18       3.89       2.45       0.38  
Diluted
      (1.01 )      (15.02 )      2.02       3.71       2.41       0.38  
Weighted average number of ordinary shares used in calculating net (loss) income per ordinary share
                                                 
Basic
      100,000,000       166,828,435       214,811,862       227,081,238       238,198,117       238,198,117  
Diluted
      100,000,000       166,828,435       232,024,961       238,631,613       241,790,445       241,790,445  
 
Notes:
 
(1)
Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
 
7
    
For the year ended December 31,
  
    
2017
     
2018
     
2019
     
2020
     
2021
  
    
RMB
     
RMB
     
RMB
     
RMB
     
RMB
     
US$
  
                                           
    
(in thousands)
  
Cost of revenues
      2,877        10,472        31,593        64,942        56,629        8,886  
Research and development expenses
      9,174        30,643        86,296        150,723        135,316        21,234  
Sales and marketing expenses
      791        1,832        5,919        9,879        8,318        1,305  
General and administrative expenses
      27,266        183,748        157,936        182,664        89,442        14,035  
 
(2)
Each ADS represents one Class A ordinary share
The following table presents our selected consolidated balance sheet data as of the dates indicated.
 
    
For the year ended December 31,
  
    
2017
     
2018
     
2019
     
2020
     
2021
  
    
RMB
     
RMB
     
RMB
     
RMB
     
RMB
     
US$
  
                                           
    
(in thousands)
  
Selected Consolidated Balance Sheet Data:
                                                      
Cash and cash equivalents
      442,532        709,019        1,113,193        3,293,573        1,790,784        281,013  
Short-term deposits
      593,241        4,983,825        6,743,445        5,974,790        8,351,945        1,310,602  
Short-term investments
      —          300,162        2,219,531        1,206,539        816,331        128,100  
Total current assets
      1,250,307        6,595,187        10,591,820        11,270,938        11,916,269        1,869,921  
Investments
      10,299        219,827        379,424        467,206        608,617        95,505  
Total assets
      1,300,541        7,106,187        11,366,550        12,410,687        13,254,942        2,079,987  
Total current liabilities
      685,650        1,380,446        2,446,677        2,384,795        2,576,085        404,240  
Total liabilities
      730,674        1,461,180        2,681,700        2,633,909        2,744,741        430,706  
Class A ordinary shares
      1        29        44        55        58        9  
Class B ordinary shares
      66        104        100        100        99        16  
Total shareholders’ equity
      60,199        5,645,007        8,684,850        9,776,778        10,510,201        1,649,281  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
The following table presents our selected cash flows data for the years indicated.
 
    
For the year ended December 31,
  
    
2017
    
2018
    
2019
    
2020
    
2021
  
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
  
                                      
    
(in thousands)
  
Selected Consolidated Cash Flows Data
                                                 
Net cash provided by operating activities
      242,444       717,461       1,945,414       1,239,874       327,453       51,384  
Net cash (used in)/provided by investing activities
      (559,561 )      (4,567,452 )      (3,684,971 )      1,004,780       (1,880,320 )      (295,064 ) 
Net cash provided by financing activities
      774,448       4,126,861       2,133,651       265,294       10,723       1,683  
Net increase (decrease) in cash and cash equivalents and restricted cash
      457,331       276,870       394,094       2,509,948       (1,542,144 )      (241,997 ) 
Cash and cash equivalents and restricted cash at the beginning of the year
      6,187       442,532       709,019       1,114,585       3,458,462       542,708  
Effect of exchange rate changes on cash and cash equivalents and restricted cash
      (20,986 )      (10,383 )      11,472       (166,071 )      (69,864 )      (10,962 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Cash and cash equivalents and restricted cash at the end of the year
      442,532       709,019       1,114,585       3,458,462       1,846,454       289,749  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Financial Information Related to the VIE (and VIE’s Subsidiaries)
The following tables related to the VIE and the VIE’s subsidiaries and other entities present the condensed consolidating schedules of financial position as of the years ended December 31, 2020 and December 31, 2021, and the results of operations and of cash flows for each of the three years ended December 31, 2021.
 
8
Selected Condensed Consolidated Statements of Operation Data
 
    
For the year ended December 31, 2021
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and
VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Third-party revenues
      —         453,967       —         10,897,479       —         11,351,446  
Inter-company revenues
(1)
      —         109,826       8,639,714       —         (8,749,540 )      —    
Total cost and expenses
(2)
      (5,554 )      (796,935 )      (8,813,794 )      (10,789,307 )      8,749,269       (11,656,321 ) 
Share of income of subsidiaries, VIE and VIE’s subsidiaries
(3)
      524,190       324,777       252,963       —         (1,101,930 )      —    
Others, net
      68,919       60,317       239,685       195,202       271       564,394  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Income before income tax
   
 
587,555
 
  
 
151,952
 
  
 
318,568
 
  
 
303,374
 
  
 
(1,101,930
) 
  
 
259,519
 
Income tax (expenses) benefits
      (4,056 )      (7,006 )      6,209       (50,374 )      —         (55,227 ) 
Share of income (loss) from equity method investments
      —         379,244       —         (37 )      —         379,207  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income
   
 
583,499
 
  
 
524,190
 
  
 
324,777
 
  
 
252,963
 
  
 
(1,101,930
) 
  
 
583,499
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
For the year ended December 31, 2020
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Third-party revenues
      —         176,300       —         10,738,074       —         10,914,374  
Inter-company revenues
(1)
      7,795       268,448       7,440,411       —         (7,716,654 )      —    
Total cost and expenses
(2)
      (30,562 )      (590,340 )      (7,001,732 )      (10,477,605 )      7,716,652       (10,383,587 ) 
Share of income of subsidiaries, VIE and VIE’s subsidiaries
(3)
      762,353       855,160       265,729       —         (1,883,242 )      —    
Others, net
      159,091       24,230       235,947       82,469       4       501,741  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Income before income tax
   
 
898,677
 
  
 
733,798
 
  
 
940,355
 
  
 
342,938
 
  
 
(1,883,240
) 
  
 
1,032,528
 
Income tax expenses
      (14,519 )      (676 )      (85,195 )      (76,394 )      —         (176,784 ) 
Share of income (loss) from equity method investments
      —         29,231       —         (817 )      —         28,414  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income
   
 
884,158
 
  
 
762,353
 
  
 
855,160
 
  
 
265,727
 
  
 
(1,883,240
) 
  
 
884,158
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
For the year ended December 31, 2019
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Third-party revenues
      —         81,184       —         8,293,317       —         8,374,501  
Inter-company revenues
(1)
      —         —         929,589       —         (929,589 )      —    
Total cost and expenses
(2)
      (7,045 )      (536,061 )      (624,694 )      (7,954,302 )      929,589       (8,192,513 ) 
Share of income of subsidiaries, VIE and VIE’s subsidiaries
(3)
      251,827       695,835       394,326       —         (1,341,988 )      —    
Others, net
      223,391       11,406       20,754       129,487       —         385,038  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Income before income tax
   
 
468,173
 
  
 
252,364
 
  
 
719,975
 
  
 
468,502
 
  
 
(1,341,988
) 
  
 
567,026
 
Income tax expenses
      —         (537 )      (24,140 )      (71,401 )      —         (96,078 ) 
Share of loss from equity method investments
      —         —         —         (2,775 )      —         (2,775 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income
   
 
468,173
 
  
 
251,827
 
  
 
695,835
 
  
 
394,326
 
  
 
(1,341,988
) 
  
 
468,173
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Selected Condensed Consolidated Balance Sheets Data
The following tables present our selected consolidated balance sheet data as of the dates indicated.
 
9
    
For the year ended December 31, 2021
  
    
HUYA Inc.
     
Other
subsidiaries
     
Primary
beneficiary
of VIE
     
VIE and VIE’s
subsidiaries
     
Eliminating
adjustments
    
Consolidated
Totals
  
                                          
    
(in thousands of RMB)
  
Assets
                                                     
Cash and cash equivalents
      302,673        472,428        541,540        474,143        —         1,790,784  
Restricted cash
      —          —          10,258        45,412        —         55,670  
Short-term deposits
      3,703,677        2,188,268        2,460,000        —          —         8,351,945  
Short-term investments
      —          —          816,331        —          —         816,331  
Accounts receivable, net
      —          23,304        429        64,301        —         88,034  
Prepayments and other current assets
      34,389        21,454        392,362        216,740        —         664,945  
Amounts due from related parties
      67        10,689        8,440        129,364        —         148,560  
Amounts due from Group companies
(4)
      3,409,544        —          28,116        1,379,170        (4,816,830 )      —    
Investments
      —          158,933        —          449,684        —         608,617  
Investment in subsidiaries, VIE and VIE’s subsidiaries
(3)
      3,099,424        3,532,364        1,677,392        —          (8,309,180 )      —    
Intangible assets, net
      —          981        2,951        80,010        —         83,942  
Right of use asset
      —          334,177        59,493        1,701        —         395,371  
Prepayments and other
non-current
assets
      343        1,499        147,822        1,223        —         150,887  
Other assets
      —          6,711        80,110        13,035        —         99,856  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total assets
   
 
10,550,117
 
   
 
6,750,808
 
   
 
6,225,244
 
   
 
2,854,783
 
   
 
(13,126,010
) 
  
 
13,254,942
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Deferred revenue and Advances from customers
      —          15,225        —          563,259        —         578,484  
Amounts due to Group companies
(4)
      36,316        3,501,583        1,278,931        —          (4,816,830 )      —    
Accrued liabilities and other current liabilities
      2,508        98,286        1,244,128        500,530        —         1,845,452  
Amount due to related parties
      —          8,476        106,405        101,247        —         216,128  
Other liabilities
      1,092        27,814        63,416        12,355        —         104,677  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total liabilities
   
 
39,916
 
   
 
3,651,384
 
   
 
2,692,880
 
   
 
1,177,391
 
   
 
(4,816,830
) 
  
 
2,744,741
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total shareholders’ equity
(3)
   
 
10,510,201
 
   
 
3,099,424
 
   
 
3,532,364
 
   
 
1,677,392
 
   
 
(8,309,180
) 
  
 
10,510,201
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
 
    
For the year ended December 31, 2020
  
    
HUYA Inc.
     
Other
subsidiaries
     
Primary
beneficiary
of VIE
     
VIE and VIE’s
subsidiaries
     
Eliminating
adjustments
    
Consolidated
Totals
  
                                          
    
(in thousands of RMB)
  
Assets
                                                     
Cash and cash equivalents
      2,019,585        296,634        662,008        315,346        —         3,293,573  
Restricted cash
      —          —          27,900        136,989        —         164,889  
Short-term deposits
      3,000,308        1,174,482        1,700,000        100,000        —         5,974,790  
Short-term investments
      —          —          1,206,539        —          —         1,206,539  
Accounts receivable, net
      —          23,686        54        47,497        —         71,237  
Prepayments and other current assets
      60,497        37,800        317,901        78,910        —         495,108  
Amounts due from related parties
      67        3,180        2,271        59,284        —         64,802  
Amounts due from Group companies
(4)
      2,488,734        —          931,231        1,472,386        (4,892,351 )      —    
Investments
      —          235,895        —          231,311        —         467,206  
Investment in subsidiaries, VIE and VIE’s subsidiaries
(3)
      2,261,154        2,918,326        1,347,614        —          (6,527,094 )      —    
Intangible assets, net
      —          200        750        61,846        —         62,796  
 
10
    
For the year ended December 31, 2020
  
    
HUYA Inc.
     
Other
subsidiaries
     
Primary
beneficiary
of VIE
     
VIE and VIE’s
subsidiaries
     
Eliminating
adjustments
    
Consolidated
Totals
  
                                          
    
(in thousands of RMB)
  
Right of use asset
      —          1,809        84,783        826        —         87,418  
Prepayments and other
non-current
assets
      501        311,798        61,027        6,135        —         379,461  
Other assets
      —          602        70,271        71,995        —         142,868  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total assets
   
 
9,830,846
 
   
 
5,004,412
 
   
 
6,412,349
 
   
 
2,582,525
 
   
 
(11,419,445
) 
  
 
12,410,687
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Deferred revenue and Advances from customers
      —          12,386        —          651,636        —         664,022  
Amounts due to Group companies
(4)
      36,274        2,615,780        2,240,297        —          (4,892,351 )      —    
Accrued liabilities and other current liabilities
      15,739        98,021        1,101,365        492,164        —         1,707,289  
Amount due to related parties
      —          1,611        62,055        31,791        —         95,457  
Other liabilities
      2,055        15,460        90,306        59,320        —         167,141  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total liabilities
   
 
54,068
 
   
 
2,743,258
 
   
 
3,494,023
 
   
 
1,234,911
 
   
 
(4,892,351
) 
  
 
2,633,909
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
Total shareholders’ equity
(3)
   
 
9,776,778
 
   
 
2,261,154
 
   
 
2,918,326
 
   
 
1,347,614
 
   
 
(6,527,094
) 
  
 
9,776,778
 
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
    
 
 
  
 
11
Selected Condensed Consolidated Cash Flows Data
The following table presents our selected cash flows data for the years indicated.
 
    
For the year ended December 31, 2021
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and
VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Net cash provided by/(used in) operating activities
(5)
   
 
190,341
 
  
 
(416,324
) 
  
 
(622,961
) 
  
 
1,176,397
 
  
 
—  
 
  
 
327,453
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances from Group companies
      (993,969 )      —         (8,858 )      (911,916 )      1,914,743       —    
Other investing activities
      (761,429 )      (529,100 )      (392,530 )      (197,261 )      —         (1,880,320 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash used in investing activities
   
 
(1,755,398
) 
  
 
(529,100
) 
  
 
(401,388
) 
  
 
(1,109,177
) 
  
 
1,914,743
 
  
 
(1,880,320
) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances to Group companies
      —         1,028,503       886,240       —         (1,914,743 )      —  
Other financing activities
      10,723       —         —         —         —         10,723  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by financing activities
   
 
10,723
 
  
 
1,028,503
 
  
 
886,240
 
  
 
—  
 
  
 
(1,914,743
) 
  
 
10,723
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
For the year ended December 31, 2020
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and
VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Net cash provided by/(used in) operating activities
(5)
   
 
278,860
 
  
 
(228,467
) 
  
 
959,277
 
  
 
230,204
 
  
 
—  
 
  
 
1,239,874
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances to Group companies
      (1,511,573 )      (1,856 )      (592,551 )      (1,300,825 )      3,406,805       —    
Other investing activities
      3,058,990       (1,589,677 )      (1,548,167 )      1,083,634       —         1,004,780  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by/(used in) investing activities
   
 
1,547,417
 
  
 
(1,591,533
) 
  
 
(2,140,718
) 
  
 
(217,191
) 
  
 
3,406,805
 
  
 
1,004,780
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances from Group companies
      —         1,573,952       1,832,853       —         (3,406,805 )      —    
Other financing activities
      265,294       —         —         —         —         265,294  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by financing activities
   
 
265,294
 
  
 
1,573,952
 
  
 
1,832,853
 
  
 
—  
 
  
 
(3,406,805
) 
  
 
265,294
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
For the year ended December 31, 2019
  
    
HUYA Inc.
    
Other
subsidiaries
    
Primary
beneficiary
of VIE
    
VIE and
VIE’s
subsidiaries
    
Eliminating
adjustments
    
Consolidated
Totals
  
                                      
    
(in thousands of RMB)
  
Net cash provided by/(used in) operating activities
(5)
   
 
192,085
 
  
 
(435,777
) 
  
 
521,472
 
  
 
1,667,634
 
  
 
—  
 
  
 
1,945,414
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances to Group companies
      (764,951 )      (47,829 )      —         (861,078 )      1,673,858       —    
Other investing activities
      (1,491,966 )      270,360       (1,439,487 )      (1,023,878 )      —         (3,684,971 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash (used in)/provided by investing activities
   
 
(2,256,917
) 
  
 
222,531
 
  
 
(1,439,487
) 
  
 
(1,884,956
) 
  
 
1,673,858
 
  
 
(3,684,971
) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Capital contribution and advances from Group companies
      —         757,878       915,980       —         (1,673,858 )      —    
Other financing activities
      2,135,681       —         (1,511 )      (519 )      —         2,133,651  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash provided by/(used in) financing activities
   
 
2,135,681
 
  
 
757,878
 
  
 
914,469
 
  
 
(519
) 
  
 
(1,673,858
) 
  
 
2,133,651
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
Notes:
 
(1)
It represents the elimination of the inter-company service fees for technology support, business support and consulting fees (collectively defined as “VIE service fees”) that are charged pursuant to the exclusive business cooperation agreement.
 
(2)
For the years ended December 31, 2019, 2020 and 2021, VIE service fees were charged by the primary beneficiary of the VIE and other subsidiaries to the VIE and VIE’s subsidiaries amounting to RMB929.6 million, RMB7,543.2 million and RMB8,664.1 million, respectively. These inter-company charges were eliminated in consolidation.
 
(3)
It represents the elimination of the investments in the VIE, the VIE’s subsidiaries, the primary beneficiary of the VIE and other subsidiaries by HUYA Inc.
 
(4)
It represents the elimination of inter-company balances among HUYA Inc., the VIE and the VIE’s subsidiaries, and other subsidiaries. As of December 31, 2019, 2020, and 2021, the outstanding balance of amounts due from/to Group companies related to inter-company advances. There were no outstanding balances at the balance sheet date related to VIE service fees charged to the VIE and the VIE’s subsidiaries.
 
(5)
For the years ended December 31, 2019, 2020 and 2021, cash paid by the VIE and the VIE’s subsidiaries to the primary beneficiary of the VIE and other subsidiaries for VIE service fees were RMB929.6 million, RMB7,543.2 million and RMB8,664.1 million, respectively.
 
12
B.
Capitalization and Indebtedness
Not Applicable.
 
C.
Reasons for the Offer and Use of Proceeds
Not Applicable.
 
D.
Risk Factors
Summary of Risk Factors
An investment in our ADSs involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully following this summary.
Risks Related to Our Business and Our Industry
 
  •  
If we fail to keep our existing users highly engaged, to acquire new users, or to increase the proportion of paying users, our business, profitability and prospects may be adversely affected;
 
  •  
We may fail to attract and retain talented and popular broadcasters;
 
  •  
We may fail to offer attractive content, in particular popular game content, on our platform;
 
  •  
We are a relatively young company, and we may not be able to sustain our growth, effectively manage our growth or implement our business strategies;
 
  •  
We face competition in several major aspects of our business. If we fail to compete effectively, our business, results of operations and financial condition may be negatively impacted;
 
  •  
Intensified government regulations, rules or guidelines of the internet industry in China could restrict our ability to maintain or increase the level of user traffic to, and user spending on, our platform as well as our ability to tap into other market opportunities, and negatively impact our businesses, results of operations, or financial condition.
 
  •  
If we fail to obtain and maintain the licenses and approvals required under the complex regulatory environment for internet-based businesses in China, our business, financial condition and results of operations may be materially and adversely affected;
 
  •  
We cooperate with various talent agencies to manage and recruit our broadcasters. If we are not able to maintain our relationship with talent agencies, in particular the platinum talent agencies which possess the capacity to produce a large volume of high-quality content and manage a considerable pool of talent, our operations may be materially and adversely affected;
 
  •  
We are subject to risks associated with operating in a rapidly changing industry and a relatively new market;
and
 
13
  •  
Our revenue model for live streaming may not remain effective and we cannot guarantee that our future monetization strategies will be successfully implemented or generate sustainable revenues and profit.
Risks Related to Our Corporate Structure
 
  •  
We are a Cayman Islands holding company with no equity ownership in the VIE and we conduct operations in China primarily through (i) our PRC subsidiaries and (ii) the VIE, with which we have maintained contractual arrangements, and its subsidiaries. Investors in our ADSs thus are not purchasing equity interest in the VIE in China but instead are purchasing equity interest in a Cayman Islands holding company. If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, or if these laws or regulations or interpretations of existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of our platform and our business operations. Our holding company in the Cayman Islands, the VIE, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. The PRC regulatory authorities could disallow the VIE structure, which would likely result in a material adverse change in our operations, and our ADSs may decline significantly in value;
 
  •  
We rely on contractual arrangements with the PRC variable interest entity and its shareholders for the operation of our business, which may not be as effective as direct ownership. If the PRC variable interest entity and its shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to litigation to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation; and
 
  •  
The shareholders of the VIE may have potential conflicts of interest with us, and if any such conflicts of interest are not resolved in our favor, our business may be materially and adversely affected.
Risks Related to Doing Business in China
 
  •  
The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections;
 
  •  
Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or in 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment;
 
  •  
The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs;
 
  •  
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations;
 
  •  
Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and u
s
; and
 
  •  
The approval of the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.
 
14
Risks Related to Our ADSs
 
  •  
The trading price of our ADSs has been volatile and may be volatile regardless of our operating performance;
 
  •  
Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial;
 
  •  
The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs; and
 
  •  
We believe that we were a passive foreign investment company, or PFIC, for United States federal income tax purposes for the taxable year ended December 31, 2021, which could subject United States investors in our ADSs or Class A ordinary shares to significant adverse United States income tax consequences.
Risks Related to Our Business and Our Industry
If we fail to keep our existing users highly engaged, to acquire new users, or to increase the proportion of paying users, our business, profitability and prospects may be adversely affected.
Our success depends on our ability to maintain and grow our user base and keep our users highly engaged. In order to attract, retain and engage users and remain competitive, we must continue to innovate our products and services, implement new technologies and strategies, offer interesting content, improve features of our platform and stimulate interactions in our community.
A decline in our user base may adversely affect the engagement level of our users and vibrancy of our community, which may in turn reduce our monetization opportunities and have a material and adverse effect on our business, financial condition and results of operations. If we are unable to attract and retain users or convert users into paying users, our revenues may decline and our results of operations and financial condition may suffer. In 2021, we experienced a decline in the number of average quarterly paying users on Huya Live, compared with 2020.
We cannot assure you that our platform will remain sufficiently popular with users to offset the costs incurred to operate and expand it. It is vital to our operations that we remain sensitive and responsive to evolving user preferences and offer content that attracts our users. We must also keep providing our users with new features and functions to enable superior content viewing and social experience. We will need to continue to develop and improve our platform and to enhance our brand awareness, which may require us to incur substantial costs and expenses. If such increased costs and expenses do not effectively translate into improved user traffic and engagement, our results of operations may be materially and adversely affected.
We may fail to attract and retain talented and popular broadcasters.
The size and engagement level of our user base as well as the quality of the live streaming content offered on our platform are critical to our success and are closely linked to our broadcasters’ involvement and performance.
Although we have entered into multi-year cooperation agreements that contain exclusivity clauses with some of the popular broadcasters on our platform, if any of these broadcasters decides to breach the agreement or chooses not to continue the cooperation with us once the term of the agreement expires, the popularity of our platform may decline and the number of our users may decrease, which could materially and adversely affect our results of operations and financial condition.
In addition to our most popular broadcasters, we must continue to attract and retain talented and productive broadcasters in order to maintain and increase our content offerings and ensure the sustainable growth of our game live streaming community. We must identify and acquire potential talented broadcasters and provide them with sufficient resources. We cooperate with talent agencies to recruit, manage, train and support our broadcasters. However, we cannot assure you that we can continue to maintain the same level of attractiveness to our broadcasters and talent agencies.
 
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Broadcasters on our platform, including those who have entered into exclusivity agreements with us, may leave us for other platforms which may offer better services and terms than we do. Furthermore, we may lose broadcasters if the talent agencies that manage them are unable to reach or maintain satisfactory cooperation arrangements with such broadcasters. In addition, if talented and popular broadcasters cease to contribute content to our platform, or their live streams fail to attract users, we may experience a decline in user traffic and user engagement, which may have a material and adverse impact on our results of operations and financial conditions.
We may fail to offer attractive content, in particular popular game content, on our platform.
We offer comprehensive live streaming content with a primary focus on games. Our content library is constantly evolving and growing. Game content has been a key genre of our content offerings since our inception. Our ability to maintain an attractive library of game content largely depends on the variety and availability of popular games in China, which may be affected by various factors, including but not limited to, investments by game developers and publishers, game market conditions and regulatory supervision and approval. If there is a decrease in the number of new games launched or approved for launch in China, or if there is a decrease in the number of users on existing popular games, or if we fail to live stream popular games due to various legal or business restrictions, our operations may be negatively impacted and we may face difficulties in continuously supplying attractive game content.
Among the various types of gaming content on our platform,
e-sports
tournaments and game events have surged as an important genre to generate our user traffic. If we fail to obtain the broadcasting rights for popular
e-sports
tournaments and game events, or we fail to attract users through these
e-sports
tournaments and game events, we may experience decreased users, viewership and user engagement, which may materially and adversely affect our results of operations and financial condition.
In addition, in response to our users’ growing interests, we also have expanded our coverage into other entertainment content genres. We actively track viewership growth and community feedback to identify trending content and encourage our broadcasters and talent agencies to create content that caters to users’ constantly changing taste. We also cooperate with broadcasters, talent agencies and other video content creators to offer video content such as gameplay videos,
e-sports
videos, and other videos, to cater for the increasing needs for diversified content of our users. However, if we fail to continue to expand and diversify our content offerings, identify trending and popular genres, or maintain the quality of our content, we may experience decreased viewership and user engagement, which may materially and adversely affect our results of operations and financial conditions.
In addition, we largely rely on our broadcasters and talent agencies to create high-quality and fun live streaming content. We have in place a comprehensive and effective incentive mechanism to encourage broadcasters and talent agencies to supply content that is attractive to our users. Also, talent agencies cooperating with us may guide or influence broadcasters to live streaming content that is well received by our users. However, if we fail to observe the latest trends and timely guide broadcasters and talent agencies accordingly, or fail to attract broadcasters who are capable of creating content based on popular games, or if broadcasters fail to produce content for trending games, our user number may decline and our financial condition and results of operations may be materially and adversely affected.
Moreover, there are currently uncertainties with respect to the interpretation and implementation in practice of the laws and regulations governing online games. Pursuant to the relevant PRC laws and regulations, operators which operate online games without governmental
pre-approval
will be ordered to stop publishing and operating such games. Between April and November 2018, such
pre-approval
of domestic online games was suspended. Such suspension caused significant delays in the introduction of new games to the Chinese market. While the game approval procedure was reinstated in December 2018, the number of approved games has decreased compared to the period before the suspension. Besides, no new game was approved between August 2021 and March 2022, although the game approval process was resumed in April 2022. Additionally, on August 30, 2018, the PRC government issued a notice implementing a plan to protect the eyesight of teenagers, which, among other things, regulates the number of online games and new releases. If game publishers and operators fail to maintain the normal publication and operation of their online games, or if they fail to obtain or make the necessary approvals and filings of their online games, our operations may be negatively impacted, and we may be subject to penalties for live streaming or promoting such games on our platform.
 
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Furthermore, we generate a small portion of our revenues from
sub-licensing
broadcasting rights of certain licensed
e-sports
content to other livestreaming platforms. If we fail to attract or maintain such licensed content that permits
sub-licensing,
attract sufficient
sub-licensees
to purchase such content from us, or reduce the number of
sub-licensees
as part of our future business strategy, our revenues from such
sub-licensing
business will decline.
We are a relatively young company, and we may not be able to sustain our growth, effectively manage our growth or implement our business strategies.
We have a limited operating history, particularly as a stand-alone company. Our Huya platform was launched in 2014 as a business unit of JOYY. Although we have experienced significant growth since our platform was launched, our historical growth rate may not be indicative of our future performance due to our limited operating history and the rapid evolvement of our business environment. We may not be able to achieve similar results or grow at the same rate as we did in the past. As our business and the live streaming service market in China continue to develop, we may adjust our product and service offerings or modify our business model. These adjustments may not achieve expected results and may have a material and adverse impact on our financial conditions and results of operations.
In addition, our growth and expansion have placed, and will continue to place, significant strain on our management and resources. This level of growth may not be sustainable or achievable at all in the future. We believe that our continued growth will depend on many factors, including our ability to develop new sources of revenues, diversify monetization methods, attract and retain users and content creators, increase user engagement, continue developing innovative technologies in response to user demand, increase brand awareness, expand into new market segments, and adjust to the rapidly changing regulatory environment in China. We cannot assure you that we will achieve any of the above, and our failure to do so may materially and adversely affect our business and results of operations.
We face competition in several major aspects of our business. If we fail to compete effectively, our business, results of operations and financial condition may be negatively impacted.
We face competition in several major aspects of our business, particularly from companies that provide game live streaming services and other online entertainment services, including companies that our shareholders operate or invest in and companies that our shareholders may operate or invest in in the future. See “Item 4. Information on the Company—C. Business Overview—Competition.” Some of our competitors may have longer operating histories, significantly larger user bases, more established brand names, broader product or service offerings, significantly greater financial, technical and marketing resources than we do or have long-term strategic relationships with game developers or publishers, and in turn may have an advantage in attracting and retaining users, broadcasters, talent agencies, advertisers and other business partners. Our competitors may also compete with us for content such as games,
e-sports
tournaments and game events; business partners such as broadcasters, talent agencies, and advertisers; skilled personnel such as management, engineers, product and content personnel; and other resources such as user traffic, user time spent online, and investments. Furthermore, if we are involved in disputes with any of our competitors that result in litigations or negative publicity to us, such disputes, regardless of their veracity or outcome, may harm our reputation or brand image and in turn lead to a reduced number of users and advertisers. Any legal proceedings or measures we take in response to such disputes may be expensive, time-consuming and disruptive to our operations and divert our management’s attention.
If we are not able to effectively compete in one or more of our business lines, our business, results of operations may be negatively impacted, for example, our overall user base and level of user engagement may decrease, which could reduce the number of our paying users or make us less attractive to broadcasters, talent agencies, advertisers, and other business partners. If we are not able to effectively compete, our financial condition may be negatively impacted, for example, our revenues may decrease, our costs and expenses may increase, and our profits may decrease. We may also be required to devote additional resources to further increase our brand recognition and promote our products and services, and such additional spending may adversely affect our profitability.
 
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Intensified government regulations, rules or guidelines of the internet industry in China could restrict our ability to maintain or increase the level of user traffic to, and user spending on, our platform as well as our ability to tap into other market opportunities, and negatively impact our businesses, results of operations, or financial condition.
The PRC government has promulgated, in recent years, intensified regulations, rules, or guidelines on various aspects of the internet industry in China. For example, the PRC government adopted more stringent policies to monitor the online games industry due to negative public perception of addiction to online games, including policies for the protection of minors. On April 15, 2007, the PRC government issued a notice requiring all Chinese online game operators to adopt an “anti-fatigue system” in an effort to curb addiction to online games by minors. On October 25, 2019, the National Press and Publication Administration (the National Copyright Administration) issued the Circular of the National Press and Publication Administration on Preventing Minors from Developing Online Game Addictions, which took effect on November 1, 2019. The circular strictly controls the time slot and duration of online game use by minors. From 10:00 PM every day to 8:00 AM the next day, online game enterprises shall not provide game services for minors in any form. The duration of game services provided by online game enterprises for minors shall not exceed a cumulative total of three hours a day on statutory holidays or 1.5 hours on other days. On August 30, 2021, the National Press and Publication Administration issued the Circular of the National Press and Publication Administration on Further Strengthening Regulation to Effectively Prevent Online Gaming Additions among Minors, which came into effect on September 1, 2021, and online game companies shall only provide minors online game services within one hour at prescribed periods, namely between 8:00 PM and 9:00 PM on Fridays, Saturdays, Sundays and public holidays. If these restrictions expand to apply to adult game players in the future, it may lead to a decrease in the number or engagement of game players, which could adversely affect our game live streaming service and have a material effect on our results of operations. Furthermore, as of October 1, 2011, online game players in China are required to register and verify their names and identity card numbers with the National Citizen Identity Information Center, a subordinate public institution of the Ministry of Public Security, before playing game. In August 2018, the PRC government issued the Notice on Strengthen the Management of Live Streaming Service, which required the real-name registration system for users to be put in place by live streaming service providers. According to the Law of the PRC on the Protection of Minors (2020 Revision) which became effective on June 1, 2021 and a draft of proposed strengthened policies on cybersecurity for minors published by the CAC on March 14, 2022, among others, live streaming service providers are not allowed to provide minors under age 16 with online live streaming account registration services, and minors aged 16 or above must obtain the consent from their parents or guardians and verify the identity information before registering live streaming accounts. In addition, according to the Administrative Measures for Business Activities of Online Performances, or the Measures, which took effect on January 1, 2017, online performance shall not use any online game product without content examination and approval number or filing number issued by competent administrative cultural authorities to present or narrate online game skills. Failure to abide by the Measures may result in substantial monetary fines. In cases of serious offense, online platforms may be ordered to cease its business for rectification or even have its Internet Culture Business Permit revoked. Furthermore, on April 12, 2022, the Network Audio-Visual Program Administration Department of National Radio and Television Administration and the Publication Office of the CPC Central Committee jointly issued a Notice on Strengthening the Administration of Live Streaming Games on the Online Audio-Visual Program Platforms. See “Item 4. Information on the Company—C. Business Overview—Government Regulations—Anti-fatigue Compliance System and Real-name Registration System.”
On November 12, 2020, the PRC government promulgated the Notice on Strengthening the Administration of the Online Show Live Streaming and
E-commerce
Live Streaming (“Notice 78”), which sets forth registration requirements for platforms providing online show live streaming or
e-commerce
live streaming to have their information and business operations registered by November 30, 2020. Notice 78 also set forth requirements for certain live streaming businesses with respect to real-name registration, limits on user spending on virtual gifting, restrictions on minors on virtual gifting, live stream review personnel requirements, content tagging requirements, and other requirements. For example, Notice 78 requires live streaming platforms to set a limit to the amount of virtual gifts a user can send per day and per month, as well as the amount that can be gifted at any one time. However, there is currently no clear guidance as to what limits on virtual gifting spending will be imposed by the National Radio and Television Administration pursuant to Notice 78 and it is unclear how and to what degree any such limits would be imposed on different platforms. Furthermore, on February 9, 2021, PRC government issued the Guiding Opinions on Strengthening the Management of Online Live Streaming (“Opinions 3”), which strengthens the positive guidance and management of the online broadcast industry, including standardizing the behavior of virtual gifting and promoting the classification of the live streaming accounts. For example, Opinions 3 requires live streaming platforms to reasonably limit the maximum amount of a single virtual gift and a single virtual gifting per time to remind the users whose daily consumption amount has triggered the corresponding threshold, and to set necessary cooling off period and deferred payment period. We are still in the process of obtaining further guidance from regulatory authorities and evaluating the applicability and effect of the various requirements under Notice 78 and Opinions 3 on our business. Any limits ultimately imposed on user spending on virtual gifting or on virtual gifting value that broadcaster may receive may negatively impact our revenues derived from virtual gifting and our results of operations. Any further rulemaking under Notice 78, Opinions 3 or other intensified regulation with respect to live streaming may increase our compliance burden in the live streaming business, and may have an adverse impact on our business and results of operations. On March 25, 2022, the PRC government issued the Notice on Further Rectifying Online Streaming Activities and Promoting the Healthy Development of the Industry, which enhances the live streaming accounts registration management, strengthens tax collection and punishes tax evasions and frauds in connection with live streaming.
 
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In addition, as the internet industry in China is still at a relatively early stage of development, new laws and regulations, rules or guidelines may be adopted from time to time to address new issues that come to the authorities’ attention. Some new laws, regulations, rules, or guidelines have or may in the future put additional restrictions on our users, broadcasters, content, product or service offerings, and may negatively impact our businesses, results of operations, or financial condition. For example, we are subject to a variety of regulatory restrictions concerning the age limit for broadcasters, as well as restrictions on our products’ features. The existing and future regulations rules and guidelines that could affect us are beyond our control, and their potential impact on us is difficult to predict. We may incur substantial financial, operational and managerial costs in response to and in anticipation to the relevant regulatory and policy risks, and we may not be able to effectively predict, estimate or manage those risks in a timely and cost-efficient manner. Furthermore, we may not timely obtain or maintain all the required licenses or approvals or to satisfy all the requirements posed by the authorities in the future. We also cannot assure you that we will be able to obtain the required licenses or approvals or to satisfy all the requirements posed by the authorities if we plan to expand into other internet businesses. If we fail to timely obtain or maintain any of the required licenses or approvals, we may be subject to various penalties, which may disrupt our business operations or derail our business strategy, and materially and adversely affect our business, financial condition and results of operations. See “—If we fail to obtain and maintain the licenses and approvals required under the complex regulatory environment for internet-based businesses in China, our business, financial condition and results of operations may be materially and adversely affected,” “Item 4. Information on the Company—C. Business Overview—Government Regulations—Internet Information Services,” “Item 4. Information on the Company—C. Business Overview—Government Regulations—Internet Publication and Cultural Products,” “Item 4. Information on the Company—C. Business Overview—Government Regulations—Online Music and Entertainment” and “Item 4. Information on the Company—C. Business Overview—Government Regulations—Online Transmission of Audio-Visual Programs.”
If we fail to obtain and maintain the licenses and approvals required under the complex regulatory environment for internet-based businesses in China, our business, financial condition and results of operations may be materially and adversely affected.
The internet industry in China is highly regulated. See “Item 4. Information on the Company—C. Business Overview—Government Regulations—Internet Information Services,” “Item 4. Information on the Company—C. Business Overview—Government Regulations—Internet Publication and Cultural Products,” “Item 4. Information on the Company—C. Business Overview—Government Regulations—Online Music and Entertainment” and “Item 4. Information on the Company—C. Business Overview—Government Regulations—Online Transmission of Audio-Visual Programs.” For example, an internet information service provider shall obtain an operating license, or the ICP License, from the PRC Ministry of Industry and Information Technology, or MIIT, or its local counterparts before engaging in any commercial internet information services. The PRC variable interest entity, Guangzhou Huya Information Technology Co., Ltd., or Guangzhou Huya, has obtained a valid ICP License for provision of internet information services, a radio and television program production and operating permit, a commercial performance license and an internet culture operation license for music products.
Under the PRC Administrative Provisions for the Internet Audio-Video Program Service, or the Audio-Visual Provisions, providers of internet audio-visual program services are required to obtain a license for online transmission of audio-visual programs, or the Audio-Visual License, issued by the PRC National Radio and Television Administration, or the NRTA, or complete certain registration procedures with the NRTA. In August 2018, the National Office of Anti-Pornography and Illegal Publication, or the NOAPIP, the MIIT, the Ministry of Public Security, the Ministry of Culture and Tourism, the National Radio and Television Administration and the Cyberspace Administration of China, jointly issued the Notice on Strengthen the Management of Live Streaming Service, which requires internet live streaming providers involving internet audio-visual program live streaming services to obtain the Audio-Visual License and complete certain registration procedures with the local public security authority.
 
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According to a notice issued by the Administration of Press, Publication, Radio, Film and Television of the Guangdong Province on September 26, 2016, or Guangdong Province Letter, only live streaming services covering (i) major political, military, economics, social, cultural, sports activities or reality event streaming or (ii) activities such as general social cultural activities or sports events are required to apply for an Audio-Visual License. The Guangdong Province Letter further stated that live streaming platforms offering online shows, online games and online drama performances are not required to obtain an Audio-Visual License. We are advised by our PRC legal counsel, Commerce & Finance Law Offices, that Audio-Visual License is not required for our live streaming business.
Currently, we allow broadcasters to upload their recorded video clips to our platform. We also selectively record and edit live streaming gameplays of certain popular broadcasters and turn them into video clip highlights. Streaming those videos on our platform may be regarded as providing internet audio-video program service. Although we currently hold an Audio-Visual License, this may not be sufficient to meet regulatory requirements given the uncertainties with the interpretation and implementation of existing and future laws and regulations. If our practice of offering video clips is deemed as violating the Audio-Visual Provisions, our ability to expand our business scope may be limited and we may be subject to fines or other regulatory actions by relevant regulators. Moreover,