Muddy Waters accuses YY and Bigo of faking most of their revenues

Guangzhou-headquartered Joyy is the parent firm of China-focused livestreaming service YY Live. “It was clear to us from early on that YY Live was almost entirely fake,” Muddy Waters Research said in a 71-page report, following a year-long investigation.

It said that the YY is “guilty of bot farming, creating fake transactions, and having fake users.”

In reality, YY’s “supposedly high-earning performers” take home only a fraction of their reported totals, and the “purportedly independent channel owners” are largely controlled by the platform. The report added that the legions of benefactor fans are almost entirely bots operating from YY’s internal network and external bot farms, as well as performers round-tripping gifts to themselves.

“We conclude that YY Live is around 90% fraudulent. YY’s international livestreaming business, Bigo, seems barely more real,” Muddy Waters noted.

“Bigo’s Singapore parent changed auditors three times in its first four years. Bigo also received three consecutive going concern opinions from its auditor in 2016 to 2018. Bigo made a major restatement of its 2017 financials in August of 2019, months after the acquisition by YY was complete. These fact patterns support our conclusion that Bigo is also substantially fraudulent,” the report noted.

Joyy responded to these allegations via a statement. “Muddy Waters’s report is full of ignorance about the live-streaming industry and the live-streaming ecosystem. The report contains a large number of errors with unclear logic, confusing data, and hasty generalizations,” the company said.

Singapore-based analyst Ke Yan of DZT Research, told Bloomberg that the strategies discussed in the Muddy Waters report are aimed at boosting YY’s popularity among users instead of inflating revenue.

Chen Da, executive director of Anlan Capital, offered Bloomberg a similar view. “You can’t really apply the research methods used to collect fraudulent evidence against real-economy or manufacturing firms to internet firms.” He added that their “business model does pay off and there is real cash flow brought in after the fakes ‘get the ball rolling’.”

The Muddy Waters report comes shortly after Chinese search giant Baidu agreed to acquire YY Live in a US$3.6 billion deal.