What happened
Doyu International (DOYU -3.75%) shareholders beat the market in early trading on Thursday, with shares rising 16% by 11 a.m. The S&P 500 was up roughly 1.5% in that time.
Shares surged on news that the Chinese video game streaming platform may be exiting the public markets.
Image source: Getty Images.
So what
Tencent Holdings (TCEHY -0.94%), which owns roughly 37% of DoYu's stock, is planning to take the company private in a deal sometime this year, according to Reuters. The video game giant would presumably pay a premium to the price that the tech stock was trading at before the buyout news became public. That factor is the main reason driving up shares of DoYu, which focuses on streaming video game content in China.
Now what
There's no indication yet about the exact timing of the deal or the price that Tencent will agree to pay to take DoYu private. Any proposed deal would likely face a few regulatory hurdles, too. DoYu's attempt to merge with a peer streaming network was blocked by Chinese regulators in late 2020, after all.
Those factors imply that Thursday's stock price rally might easily reverse itself as more details emerge of DoYu's plans to go private. That's why it makes more sense for investors to focus on the company's growth fundamentals when considering whether to buy the stock.
Revenue fell in the most recent quarter, for example, and the company is still unprofitable. DoYu hasn't yet found a clear path toward sustainably improving those core metrics, and so stock returns might remain meager. Look for a key operating update from DoYu in its Q4 announcement sometime around mid-March.
