MW is Short Joyy Inc. (YY US)
While trawling the sewers of the world’s capital markets over the past 10 years, irony has never been in short supply. And yet, nothing could prepare us for the surreality of Baidu announcing its intention to buy YY Live from JOYY, which happened just as we were preparing to reveal that our year-long
investigation shows YY Live is about 90% fraudulent.
It was clear to us from early on that YY Live was almost entirely fake. YY Live is an ecosystem of mirages. Its supposedly high-earning performers in reality take home only a fraction of their reported totals. The purportedly independent channel owners are largely controlled by YY in order to facilitate continuous sham transactions. The legions of benefactor fans are almost entirely bots operating from YY’s internal network (~50% of YY Live gift volume), bots operating from external bot farms, and performers roundtripping gifts to themselves. We conclude that YY Live is ~90% fraudulent. YY’s international livestreaming business, Bigo, seems barely more real.
So, the question is: What will Baidu do? It’s no secret that Baidu is struggling to grow. But will Baidu really try to buy “growth” in the form of an almost completely fake business? And for $3.6 billion cash, or seven percent of its market cap?! We have been arguing for the past 10 years that the rot in “China Inc.” is far greater than most investors either understand or admit. Many have called us overly cynical. Baidu / YY Live will be THE test of whether China Inc. is really just a few bad apples; or, whether the
incessant cheating, lying, and indifference to U.S. law permeate the highest echelons of China’s public companies.
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