A "Fraud tech company."
That's how Muddy Waters Muddy Waters Research founder Carson Block described Joyy, Inc. (Nasdaq: YY), the popular Chinese social media and entertainment company. The company, is guilty of “guilty of bot forming, creating fake transactions and having fake users." according to the damning report published aftermarket Wednesday.
Regardless of the veracity of the accusations levied in the report, the timing could not be worse for shareholders, coming a day after the stock bounced up 13% Tuesday on a combination of impressive earnings and the announcement that Chinese search giant Baidu (Nasdaq: BIDU) would acquire its streaming business for $3.6 billion.
Revenue in the third quarter came in at 6.3 billion yuan ($925.9 million), ahead of the consensus estimate of $899.2 million. Impressive figures now called into question by Muddy Waters' indictment.
Joyy is "about 90% fraudulent" the share-slaying report continued. Muddy Waters says "Sham transactions" by what are not really independent channel owners at all, but entities controlled by Joyy. As for the fans of Joyy, those are mostly bots operating from inside the company's network. The report concluded by asking rhetorically whether or not Baidu would continue with the acquisition.
The answer to that is as of now, unknown. As is the truth of Muddy Waters' claims from what they say is a years' long investigation. One thing is certain, however: Shortsellers and put option players just are overwhelmed this evening with joy.
Joyy's ADRs fell as much as 30% to $70.30 in New York.