Baidu takeover target YY Live caught up in ‘fraud’ allegations

Social media group Joyy has been accused of a “multibillion-dollar fraud” just days after Google-clone Baidu announced a US$3.6 billion deal for its Chinese live streaming business YY Live.

The Nasdaq-listed company has denied the allegations that its numbers are “fake.”

In a statement, Joyy reiterated that domestic and international live streaming revenue for the third quarter came in at 6 billion yuan ($914 million) compared to the same period last year. That was an increase of 40% with live streaming accounting for more than 95% of its revenue.

“Live streaming has become a key revenue engine for companies in the internet sector, including a number of public companies listed in the [United States] and Hong Kong,” the Chinese tech company said.

So when did the accusations of fraud surface?

On Wednesday after a report by Muddy Waters Research alleged that its year-long investigation showed that “YY Live is about 90% fraudulent.”

Created waves

Obviously, this created more than a few waves. “Like other live streaming platforms in China, YY Live makes money from users who buy virtual gifts for performers. Performers can then cash those virtual gifts in for real money,” The Financial Times reported.

“Muddy Waters alleges that many of those paying users are actually computer bots that can be linked to Joyy’s internet servers,” the FT added.

Carson Block, the Muddy Waters founder, opened up this financial Pandora’s box when he said on the video platform Zeroes TV that “almost everything in terms of revenue, profits and paying users is fake.”

What did Joyy and JJ Live have to say about that?

Basically, after denying the claims, it accused Muddy Waters of failing to understand its business model.

“[The] report shows its lack of a basic understanding of the live streaming industry in China,” Joyy said in a statement.

“The Muddy Waters 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 sweeping generalizations,” YY added in the Chinese media.

Will this affect the Baidu deal?

So far, the Chinese search engine and AI giant has yet to comment on the situation after revealing its bid for YY Live earlier this week.

Technological prowess

Baidu has a sprawling online and research operations and is part of the BAT grouping of Alibaba and Tencent, the juggernauts of Beijing’s technological prowess.

“This transaction will catapult Baidu into a leading platform for live streaming and diversify our revenue source,” Robin Li, the co-founder, and chief executive of the group, said in a statement.

“YY Live stands to benefit from Baidu’s large traffic and thriving mobile ecosystem, while Baidu will receive immediate operational experience and knowhow for large-scale video-based social media,” he added.