Is Baidu’s New Livestream Investment Really Fraudulent?

    YY Live, the livestreaming platform Baidu plans to buy for $3.6 billion, has been deemed fraudulent in a Muddy Waters Research report.
    YY Live, the company Baidu announced it will pay $3.6 billion for, has been deemed fraudulent in a report from short seller firm Muddy Waters Research. Photo: Balenciaga
      Published   in Technology

    What happened

    : Baidu announced a $3.6 billion deal to buy Joyy’s Chinese livestreaming platform, YY Live, giving one of China’s biggest tech company an inroad to the country’s biggest trend of 2020. Now, only days later, a published report from short-seller firm Muddy Waters Research has attacked the credibility of YY Live, calling it almost completely fake business and “a multibillion-dollar fraud.” In a 71-page report, the founder of Muddy Waters, Carson Block, claimed the company is “90-percent fraudulent” and that it uses fake bots for interactions. Following these accusations, shares of parent company Joyy have plummeted by 26 percent.

    The Jing Take

    : Chinese companies listed on the Nasdaq have increasingly come under fire, particularly by the US. They are especially easy prey for these kinds of attacks, as those companies have historically been slow to respond to allegations — allowing the die to be firmly cast. This time, however, Joyy has hit back quickly, telling local media that the report was ignorant about livestreaming and contained “hasty generalizations” (yet it did not directly answer any criticism). The potential of the sector in China is often difficult to comprehend. It has been booming for years, but under COVID-19, has exploded and is currently valued at $66 billion.

    Though Muddy Waters Research spent a year on its report, analysts at investment firms don't usually have personal experience of the nuances of Chinese company’s interface or products. Moreover, internet firms the world over are known to be rife with fake fans and followers — not just in China. Muddy Waters Research has built its reputation on tackling fraud, especially within Chinese firms. China’s Luckin’ Coffee was delisted after Muddy Waters Research accurately alleged it was fraudulent. However, the company is not always correct, and short-sellers make money when share prices go down. This case will be all or nothing, but who will be proved right?

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

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