[This Week's Controversy] Will AfreecaTV Fill the Void Left by Twitch?

Competition with YouTube and Naver After Twitch Withdrawal
Boost in Star Balloon Revenue as Many 'Yeocam' Streamers Transfer

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South Korea's leading one-person media platform AfreecaTV hit the upper price limit on the 6th. This was thanks to the announcement by its competitor, the global streaming company Twitch, that it would withdraw from the Korean market. As a result, AfreecaTV ranked third in weekly search rankings on the financial information provider FnGuide, attracting significant attention from the securities industry.

The market widely analyzes that Twitch's withdrawal will benefit AfreecaTV, given that AfreecaTV had a solid presence in the domestic market, almost dividing the market with Twitch in the past. Consequently, securities firms are collectively raising AfreecaTV's target stock price. However, since Naver has launched a new streaming service and YouTube is rapidly targeting the one-person media market, opinions suggest that it remains to be seen how much market share AfreecaTV can secure.

‘Star Balloon’ Revenue Shows Steady Growth... Solid Financial Structure

AfreecaTV operates the representative one-person multimedia platform ‘AfreecaTV’ in Korea. Its revenue composition is 77% from the platform, 21.2% from advertising and content production, and 1.8% from others. The largest portion, platform revenue, comes from star balloons and subscriptions that viewers can gift to BJs (Broadcasting Jockeys), who are one-person broadcasters. Functional items that enhance user convenience, such as ad skip and quick view for live entry, are also included in platform revenue. Recently, a BJ drew attention by generating over 40 billion KRW in star balloon sales this year alone. Platform revenue continues to grow steadily, supported by the increasing usage of one-person media among people in their 20s to 40s.

AfreecaTV actively supports BJs, its main revenue source, by strengthening their content and community activities and establishing an appropriate revenue-sharing system. It is also focusing on platform enhancement and expansion by updating the trending short-form video service and establishing ‘Afreeca Colosseum,’ an e-sports specialized cable TV channel.

Advertising accounts for about 20% of AfreecaTV's revenue. It consists of platform ads in traditional display formats and content-type ads leveraging AfreecaTV's live streaming characteristics. Since 2021, AfreecaTV has promoted platform ad growth by introducing real-time auctions for customized ad products through the AAM (AfreecaTV Ad Manager) solution. Additionally, it has expanded its business by acquiring advertising agencies and digital marketing agencies.

AfreecaTV's performance has been steadily increasing. As of the end of the third quarter this year, AfreecaTV's cumulative consolidated sales reached 247.3 billion KRW, up 5.2% from 235.1 billion KRW in the same period last year. Sales have increased annually from 196.6 billion KRW in 2020 to 272.3 billion KRW in 2021 and 315 billion KRW last year. The sales consensus (market average forecast) for this year is 343.1 billion KRW, expected to grow about 9% year-on-year.

Donghwan Oh, a researcher at Samsung Securities, said, “According to data from PungToday, a star balloon aggregation site, the sales of the top 1,000 AfreecaTV BJs in October grew 63% year-on-year, and star balloon sales are expected to continue growing in the fourth quarter, with platform revenue projected to increase by 26%. Advertising revenue is also expected to grow due to increased campaign ads related to G-Star, with overall operating profit in the fourth quarter forecasted to rise 57% year-on-year.”

Based on steady performance, AfreecaTV maintains a stable financial structure. As of the end of the third quarter, AfreecaTV's consolidated total assets were 540.9 billion KRW, total liabilities were 261.5 billion KRW, resulting in a debt ratio of 93.6%. However, most of the liabilities are from charged star balloons, so the actual total borrowings amount to 17.5 billion KRW. With cash equivalents around 322.1 billion KRW, the company is effectively operating with no debt.

With ample cash reserves, AfreecaTV is expanding overseas, though it has yet to achieve meaningful results. Starting with establishing a Japanese subsidiary in 2013, AfreecaTV has set up subsidiaries in the U.S., Thailand, Taiwan, and Hong Kong. As of the end of last year, it recorded sales of 1.2 billion KRW in the U.S., 900 million KRW in Thailand, and 400 million KRW in Japan. Taiwan and Hong Kong posted losses.

What Will Twitch Users Choose?..."Benefit if Female Streamers Are Absorbed"

AfreecaTV attracted market attention due to Twitch's withdrawal from Korea. Twitch is the world's number one global internet streaming service operated by Amazon. It holds more than half of the global game streaming market share. The global game streaming market size is expected to grow from about 15 trillion KRW this year to 24 trillion KRW by 2028. According to Stream Hatchet, a streaming data analysis firm, Twitch accounted for 53% of global game streaming viewers in the third quarter this year. YouTube follows with 40%, while Facebook, AfreecaTV, Kick, and others share the remaining 7%.

Twitch started its service in Korea in July 2017, splitting the domestic market that AfreecaTV had dominated. According to mobile data analysis firm Mobile Index, as of November, the monthly active users (MAU) of domestic mobile apps were about 1.19 million for Twitch and 1.2 million for AfreecaTV. Despite its success, Twitch announced on its official blog on the 6th that it would cease operations in Korea from February 27, 2024, citing increased costs due to domestic telecom network usage fees and resulting losses.

The securities industry anticipates a windfall for AfreecaTV. From a streamer's perspective, moving to a platform with an already large ecosystem is a rational choice for revenue generation. AfreecaTV is reportedly making various efforts to support Twitch-origin streamers in settling in, expanding features, and bridging cultural differences.

However, a risk factor is that Korea's leading IT company Naver is expected to attract Twitch demand with its game streaming service ‘CHZZK’ (tentative name). Naver plans to start an open beta test (OBT) for game streamers on the 19th and officially launch the service next year. CHZZK will offer a user interface (UI) suitable for game broadcasting, community and sponsorship functions, and support for video-on-demand (VOD) replays.

Researcher Hoyoon Jung of Korea Investment & Securities said, “If this had been five to six years ago, AfreecaTV would have fully benefited from Twitch's withdrawal, but now YouTube usage is increasing, and Naver could be a variable. Among Twitch viewers, there is an exclusive atmosphere toward AfreecaTV for unknown reasons, so depending on Naver's efforts, there is a possibility that Twitch streamers and users may move collectively.”

Nevertheless, there is analysis that if AfreecaTV leverages its strength in the female BJ cam broadcast category to effectively absorb Twitch's female streamers, performance growth could occur. According to Daol Investment & Securities, the female cam category contributes about 50% of AfreecaTV's star balloon and other revenues. On weekend evenings, there are about 350 female cam broadcasts. Among 1,892 Twitch streamers in Korea with an average of over 50 viewers in the last 30 days, about 232 are in the female cam category. If only about 50% of them move to AfreecaTV, a performance benefit of about 12% compared to the existing level is expected.

Researcher Hajung Kim of Daol Investment & Securities explained, “Most of Twitch's traffic in Korea is expected to move to CHZZK. However, if high-performing female cam streamers move to AfreecaTV, meaningful performance growth can be expected.”