Boyaa Interactive hitches a ride on bitcoin

In a climate where most companies are suffering from China’s economic slowdown, Boyaa’s crypto bets helped it deliver a glowing report for the first nine months of this year

Key Takeaways:

• Boyaa Interactive’s profit rose 150% in the first three quarters of this year, even as its revenue rose by a far slower 8%
• Despite a slowdown in its main business operating online versions of traditional board and card games, the company made substantial sums on its cryptocurrency investments

By Lau Chi Hang

Making highly speculative bets doesn’t usually end well for any serious company with a long-term business plan. But Boyaa Interactive International Ltd. (0434.HK) is showing that may not be the case, at least not this year, after a big speculative bet it made last year yielded big profits, boosting its stock in an otherwise anemic market.

The operator of online versions of traditional board and card games reported last month its revenue rose 8.1% year-on-year to 318 million yuan ($43.89 million) in the first three quarters of this year – not bad in a sluggish economy but also hardly impressive. Despite that, however, its profit surged 149% to 212 million yuan. Such blowout profit growth, even in the face of a slowing economy and intense competition, has made the company a sudden investor darling.

Boyaa was founded in 2004 and went public in Hong Kong in 2013, combining Chinese fondness for traditional games with online effects and convenience. Piggybacking on the success of its games like Texas Hold ’Em, Landlords and Sichuan Mahjong, the stock surged from HK$5.35 per share to nearly HK$15.16 in the early years after its listing. But the euphoria was followed by a downward spiral that saw the stock languish below HK$1 for an extended period after that.

New stock surge

The stock started to get a new lease on life in March this year, rising above HK$1 to leave the crowded realm of penny stocks behind. It surged from there and has now soared ninefold in the last year.

The company owes its revival to its own gaming, namely a big bet on bitcoin, which has surged in value over the past year. Donald Trump’s election as the next U.S. president sent bitcoin galloping even higher, driven by his positive comments about cryptocurrency. In November alone, the price jumped from $70,000 to close to $100,000.

The company’s lucrative sleight of hand dates back to November last year when it bet $100 million on cryptocurrencies. It invested another $100 million this March, making big bets on bitcoin and ethereum.

The company’s bitcoin stash now stands at 3,183 coins, with an average cost of around $57,724 per unit. That may not sound like much, but El Salvador, the Central American country that made bitcoin a legal tender in 2021, has only 5,935 bitcoins. Put differently, Boyaa’s market value is now around $450 million, but its bitcoin holdings are more than half the amount held by an entire nation that recognizes the currency as legal tender.

Its big gains have whetted Boyaa’s appetite, leading it to announce plans to expand its bitcoin reserves as part of its corporate strategy. The company said it was optimistic about bitcoin and would buy more, not ruling out financing such purchases with funds raised from issuing more of its stock.

While generally impressed with Boyaa’s big gains, investors aren’t without concerns about the company’s outlook. After all, it remains to be seen if Boyaa may end up being a case of simply winning the battle but losing the war.

Volatile business

No matter how you look at it, investing in cryptocurrencies is a highly speculative business model and the performance of your investment is almost completely dependent on rising and falling prices. With considerable resources tied up in such assets, drastic swings for the cryptocurrency market will translate directly to Boyaa’s financial statements.

Its latest results offer a glimpse at what may lie ahead. The company’s revenue in the third quarter rose 4.8% year-on-year to 105 million yuan. But it logged a loss of 72.05 million yuan for the period, reversing a 29.55 million yuan profit a year earlier, due to falling values of its crypto holdings. Such swings underscore the volatility and risk investors who place bets with the company will have to shoulder.

Big declines in bitcoin prices will also affect the company’s cash flow. Its comfortable stash of 740 million yuan in cash at the end of 2023 facilitated its big moves into cryptocurrency this year. But that cushion was down to just 67 million yuan at the end of September. While it can always convert some of its crypto holdings to raise cash, a big enough drop in bitcoin prices could force it to stomach losses on such sales.

Selling out long-term investors

The company might be winning the popularity contest now, but could face difficulties holding on to investors who initially bought its stock as an online gaming play but now find themselves with a cryptocurrency trader instead. After all, investors interested in bitcoin can buy and sell the currency directly themselves without needing to invest in a separate company.

At the same time, the company’s stated main business in online games also requires substantial costs to maintain. Investing massively in cryptocurrencies will siphon off funds from its core business, potentially mortgaging its future for a shot at gains in the present.

That raises the question of whether Boyaa’s big bet on cryptocurrency signals the company’s souring on the outlook for its core gaming business. After all, that sector is rife with competition from companies both large and small, not to mention heavy regulation, making it harder to reap good returns.

The reality is that Boyaa’s core business is stagnating or even in decline. By the end of the third quarter, its paying players and daily active users totaled 201,000 and 1.17 million, respectively, down 4.7% and 0.8% from the same period last year. Its average revenue per paying user of Texas Hold ‘Em was 4,882 yuan, down 7.8% year-on-year. Against such a gloomy backdrop, this recent turn to cryptocurrencies might look a stroke of genius. But it adds huge uncertainties to the company’s future due to its reliance on cryptocurrency prices.

All that said, it’s probably no exaggeration to say that from now on Boyaa’s fate will hinge on this little thing called bitcoin.  

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