Chinese platform JOYY denies accusations of fraud by Muddy Waters

Chinese social media platform JOYY Inc on Thursday denied accusations of fraud by U.S. short-seller Muddy Waters Research, the same firm that accused Luckin Coffee of questionable accounting.

Muddy Waters on Wednesday accused JOYY of being fraudulent in user metrics, revenue and cash balances. The livestreaming pioneer's shares dropped 26 percent from $98.07 to $73.66 after the short-seller published a 71-page report outlining these accusations.

In response, JOYY said the report showed Muddy Water's "lack of a basic understanding of the livestreaming industry in China." The company clarified the operating metrics disclosed by JOYY are "commonly used and publicized by its industry peers," and it was confident in its cash balance and flow. The refutation bounced its shares 17 percent back to $86.11.

Muddy Waters' report came two days after Chinese search engine giant Baidu Inc. announced it was buying JOYY's local video-based streaming service YY Live for about $3.6 billion in cash.

"We conclude that YY Live is ~90 percent fraudulent. YY's international livestreaming business, Bigo, seems barely more real," said Muddy Waters in the report, noting that the Baidu deal announcement came just as it was preparing to reveal its year-long investigation on JOYY's practices.

Bot forming, fake users and transactions are the main accusations in the report.

Screenshot of a page of Muddy Water's report accusing JOYY's fraudulence.

However, JOYY said the short-seller's report "contains numerous errors, unsubstantiated statements, and misleading conclusions and interpretations regarding information" relating to the social media platform.

Reached by CGTN on Thursday, Baidu said it had no immediate comment.

On average, JOYY has 92 million monthly active users globally on its livestreaming platform, according to its third-quarter earnings report. Among those, 41.3 million are from YY Live.

China's booming livestreaming e-commerce has also caught regulators' eyes. Last week, the government said it planned to issue a new law to regulate marketing and advertising in the industry. According to the proposed law, livestreaming operators and marketers shall not falsify data traffic such as followers, views, likes and transactions while engaging in livestreaming marketing and content services.

JOYY is the latest Chinese firm targeted by Muddy Waters. The last was Starbucks' Chinese competitor Luckin Coffee which in January was accused of having "played tricks" in financial and operating numbers.

(Cover image: The app of YY Live on a phone. /VCG)