Hall of Shame

Communication Services


Year: 2020

JOYY Inc., formerly YY Inc. (YY), is a social platform that engages users in real-time online group activities through voice, video and text on personal computers and mobile devices. The Company's segments include YY IVAS and others, Huya broadcasting, and 100 Education. YY enables users to create and organize groups of varying sizes to discover and participate in a range of online activities, including music shows, online games, dating shows, live game broadcasting and e-learning. YY offers users an entertainment experience through its social community. It owns the domain names of YY.com, Duowan.com, 100.com, Huya.com, Edu24ol.com and Zhiniu8.com. The Company's YY platform, including YY.com, is jointly operated by personnel from Guangzhou Huaduo and Zhuhai Duowan. Its product, YY Client, enables users to engage in live interactions online. Its Web-based YY enables users to conduct real-time interactions through Web browsers without requiring any downloads or installations.

The Company listed, as YY Inc, in November 2012 on the NASDAQ raising US$94.19M. An additional share offering in August 2017 raised another US$462.88M.

January 15, 2019 GMT Research published a report to its subscribers; "THE OVERSEAS CHINESE: Top 30 US-listed Chinese companies". The report's purpose was to analyse the 30 largest US-listed Chinese companies and evaluate the risk. In its review of YY, GMT rated it as a high accounting risk. Concluding its review it noted "Live streaming platform YY appears to have a relatively straightforward set of financials given that it expenses most costs (as opposed to capitalising and then applying subjective amortisation policies). Unfortunately, the company runs its balance sheet in a similar fashion to past frauds in that copious free cash inflows pile up as cash and short-term investments; meanwhile, it also raises seemingly unnecessary external capital. Unusually, YY retains a large quantity of cash within the VIE. If service agreements are not working, the transfer of cash to the WFOE through other means could create a large tax liability which YY has failed to account for. The other alternative is that the cash is not there."

December 30, 2019, The Company changed its corporate name from “YY Inc.” to “JOYY Inc.”.

November 18, 2020 Muddy Waters Research (MW) published a report on JOYY Inc.;"YY You Can’t Make This Stuff Up, Well Actually You Can". It was short on JOYY Inc. because it concluded that JOYY was a multibillion-dollar fraud. MW came to this conclusion based on uncovering the following during its research:

  • Approximately 84% of JOYY’s reported consolidated revenue appeared to be fraudulent. Even a more company-favourable / conservative assumptions yielded consolidated fraudulent revenue of approximately 73%.
  • MW noted three primary methods through which it believed YY committed fraud:
    • Paying User (“PU”) bots from YY’s own servers – in our data sample, gifts associated with YY’s own servers, disguised as PUs, constituted roughly half of the total value of all gifts sent.
    • Performers whose gifts are recycled into the system through alter ego PU accounts. MW thought that the top performers, who purportedly earn tens of millions of RMB per year, were in fact often on fixed salaries paying them no more than 2.5M RMB per year (~US$350,000).
    • Channel owners, which managed performers, were part of the scheme. The large channel owners were primarily owned by former YY employees who were clearly “in on” the scam. PRC credit bureau report financial statements for the five largest channel owners show combined 2018 revenue of only ~15% of what YY claimed.
  • MW also concluded that YY Live, Bigo, and YY’s online dating business were substantially fraudulent. With regard to revenue MW believed that 90% of Live Streaming, 80% of Online Dating and 80% of Bigo's revenues were fraudulent.  MW pointed out that Bigo made a major restatement of its 2017 financials in August of 2019, months after the acquisition by YY was complete.
  • YY claimed that it purchased Bigo from Chairman David Li. MW believed that this was a lie that enabled Chairman Li to take at least US$156.1 million of real money from YY shareholders and for YY to fraudulently report remeasurement gains in its profits. In reality, YY founded Bigo – not Chairman Li.
  • MW's research showed that Gift Revenue to Top performers was mostly fraudulent with fake gifts, re-cycled gifts or gifts coming from JOYY's own servers.

MW was surprised by Baidu announcing its intention to buy YY Live from JOYY, which happened just as it was preparing to reveal that it's year-long investigation showing YY Live was about 90% fraudulent.  So, to MW the question was: What would Baidu do? It was no secret that Baidu was struggling to grow. But would 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?!

November 19, 2020 JOYY issued a press release "JOYY Refutes Muddy Waters’ Report". It said that Muddy Waters’ report shows its lack of a basic understanding of the live streaming industry in China. It added that to conclusively refute the report’s false allegation regarding the authenticity of JOYY’s profit figures, the Company was open to cash verification and diligence to be conducted by competent third-party advisers.

November 19, 2020 Muddy Waters quickly responded to JOYY’s rebuttal. It issued a seven-question explainer of its allegations, including detailed instructions for how to review its research.

November 26, 2020 GMT Research issued a report to its subscribers "JOYY (YY US): A broken VIE more likely than fraud". GMT believed that although JOYY’s financials had fraud-like traits, there were problems with JOYY’s Variable Interest Entity (VIE). To GMT, JOYY appeared unable to remit profits from its VIE to its onshore holding company. It concluded that management would have to come clean on its VIE issues before GMT would be tempted to invest.

GMT Research: THE OVERSEAS CHINESE: Top 30 US-listed Chinese companies, 15 Jan 2019
Muddy Waters: YY You Can’t Make This Stuff Up,  Well Actually You Can, 18 Nov 2020
JOYY Inc: Refutes Muddy Waters’ Report, 19 Nov 2020
Muddy Waters: YY Bot Identification FAQ, 19 Nov 2020
Bloomberg: China’s JOYY Rises 17% After Contesting Muddy Waters Report, 20 Nov 2020
GMT Research: JOYY (YY US): A broken VIE more likely than fraud, 26 Nov 2020
JOYY Inc.: Annual Report YE-Dec.2019
YY Inc.: Annual Report YE-Dec.2018