Chinese social media and entertainment site Joyy Inc. rejected allegations of fraud by Muddy Waters Research, saying the report it published was full of “misinformation, erroneous statements and misleading conclusions.”
Joyy’s US-traded shares on Wednesday plunged more than 26% — its biggest-ever decline — after Muddy Waters published a 71-page report accusing the company of being a “multibillion-dollar fraud”.
The report came just two days after Baidu Inc. agreed to buy Joyy’s YY live-stream business for $3.6 billion in an all-cash deal.
“The report from Muddy Waters shows a lack of understanding of the business model of China’s live-streaming industry,” Guangzhou-based Joyy said in a statement published on its website on Thursday. Shares in the company recovered on the same day, closing up nearly 17%.
“Joyy’s operating metrics are in line with industry standards and publicized by its industry peers,” it said, adding live-streaming has become an important means of revenue for many companies in the internet sector.
The company also said it is willing to provide overseas and international cash balances and bank deposit statements for third-party auditors to verify the transactions.
The report released by Muddy Waters was titled “YY: You Can’t Make This Stuff Up. Well…Actually You Can” and described issues with Joyy’s reported user metrics, revenues and cash balances, saying the company is “guilty of bot forming, creating fake transactions and having fake users.”
The firm alleged that the platform’s high-earning performers actually take home a fraction of the reported pay, and “purportedly independent channel owners” are in reality largely controlled by YY to facilitate “sham transactions.”
It added that 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.
“YY Live is about 90% fraudulent,” the firm concluded. It added that revenues from YY’s international live-streaming service, Bigo, are 80% fraudulent.
In response to the report’s claims against Bigo, which operates in Southeast Asia, Europe, the Middle East and US, Joyy said Bigo’s revenue had grown to $490 million in the third quarter of 2020 from $181 million in the second quarter of 2019.
“The company strictly followed the due corporate governance process and obtained all necessary approvals when it acquired Bigo,” it said.
Joyy also said it would continue to implement a $300 million share repurchase program to “demonstrate the company’s confidence in the long-term prospects.”
On Tuesday, Joyy reported domestic and international live-streaming revenues of about 6 billion yuan ($914 million) in their Q3 earnings, an increase of 40% compared to the same period last year.
However, it acknowledged that average monthly users fell by 4% compared with a year earlier and the total number of paying customers decreased by 4.7% to 4.1 million from 4.3 million, due to COVID-19.