JOYY: Suspected Multibillion-Dollar Fraud of a Live Streaming Business

A renowned "short selling activist," Muddy Waters Capital LLC (Muddy Waters) claimed that 90% of YY Live's live streaming revenue was fake. YY Live was one of the live streaming platforms JOYY Inc. (JOYY, NASDAQ: YY) operated. The vast majority of JOYY's revenue came from live streaming, in particular, the YY Live platform. Revenue was in the form of virtual gifts that paying users (PUs) sent to performers (channels). Muddy Waters used various methods to substantiate that most PUs were fake paying users (FUs) under direct control of JOYY itself. Rather than substantiating Muddy Waters's work, students will grapple with questions about how to assess the reasonableness of the 90% fraud estimate from financial and statistical points of view. They will answer the question of how to choose an appropriate reporting period or year for adjustments. Across the balance sheet, profit and loss, and cash flow statement, which financial items should be adjusted and how? Based on the adjusted financial statements, how would various profitability ratios, insolvency ratios, liquidity ratios, P/E, and price-to-book ratio (P/B), and so on be affected?