Commentary on Political Economy

Wednesday, 18 November 2020



Joyy Shares Plunge After Research Firm Says It’s a Fraud

  • Stock posts biggest-ever decline on Muddy Waters’s report
  • Baidu agreed to buy Joyy’s YY business for $3.6 billion
Carson Block
Carson Block Photographer: Victor J. Blue/Bloomberg

Shares in Chinese social-media and entertainment site Joyy Inc. tumbled the most ever after a research firm called it a “fraud tech company.”

Muddy Waters Research founder Carson Block said Joyy’s live-streaming service YY is “guilty of bot forming, creating fake transactions and having fake users.” The report, published Wednesday, came just days after Baidu Inc. agreed to buy YY for $3.6 billion.

Joyy’s U.S.-traded shares fell as much as 30% to $70.30 in New York.

Muddy Waters said it had been at work on its report before news of Baidu’s deal to buy YY. The firm said its years long investigation shows YY is “about 90% fraudulent.” The researcher said YY’s supposedly high-earning performers actually take home only a fraction of their reported totals; the supposed independent channel owners are largely controlled by YY to facilitate “sham transactions;” and legions of benefactor fans are almost all bots operating from the company’s internal network. The report said YY’s international live-streaming service, Bigo, “seems barely more real.”

Joyy representatives didn’t immediately respond to Bloomberg requests by phone and email for comment.

Baidu’s purchase of YY was meant to help it catch up in the competitive arena of online entertainment after a late start in live-streaming video, which has taken China by storm. With YY, Baidu gets a hold of a $1.8 billion business with 4 million paying users who splurge on virtual gifts to tip their favorite performers. Muddy Waters is questioning that revenue model.

Will Baidu really try to buy “growth” in the form of an almost completely fake business?” Muddy Waters asked.

— With assistance by Ryan Vlastelica, and Joshua Fineman

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