Submitted by Staff Reporter on Wed, 06/06/2018 - 1:47 pm

China's YY also got the right to buy a majority share in the startup.

Southeast Asia’s mobile entertainment scene just got a huge boost as YY, China’s largest video-streaming app by revenue, is leading a US$272 million series D round in Bigo, the Singapore-based company that operates livestreaming app Bigo Live.

David Li, the founder and acting CEO of YY, is also joining the round, using his personal funds.

While Bigo first launched in Southeast Asia, it has gone beyond the region by setting up 20 local offices in total. Bigo Live is a top 10 app in the “social/networking” category on iOS, not just in Southeast Asian countries, but also in Saudi Arabia, Pakistan, and New Zealand.

With the latest investment, YY has become its largest shareholder. In addition, the Chinese company has obtained the right to purchase a majority share in the startup, which can be exercised a year after the close of the series D round.

YY’s connection to Bigo extended all the way to its founding days. Launched in March 2016, the Bigo Live app quickly grew viral. However, it gained a reputation for sexually suggestive content as streamers pushed the envelope in order to earn virtual gifts from viewers, which can be cashed out. Bigo then began purging such content with the help of artificial intelligence.

Valued at US$400 million after its series C round, Bigo has expanded beyond livestreaming to add more apps. These include Cube TV, a mobile gaming-focused streaming service, and Like, an app for editing and sharing short videos. Since then, Bigo’s registered users almost tripled in just over a year, from 70 million to 200 million today.

But YY was involved in Bigo long before its official launch. Back in 2014, it already owned a 27.8 percent stake in the company. Bigo’s CEO is none other than David Li himself. In addition, Hu Jianqiang, the co-founder and CTO of Bigo, was a YY employee.

Cyber-surveillance Bigo appears to be making a big bet on AI. It has launched a research center for the technology in Singapore and plans to staff it with 100 AI experts and engineers. Having road tested the tech on its own platform, Bigo is partnering with governments to use its monitoring tools for cyber surveillance. Indonesian ministry Kominfo has already signed on to this initiative.

With the additional support from YY, which made US$1.6 billion in revenue last year, Bigo is expected to put even more pressure on its rivals.

Its funding announcement comes hot on the heels of rival M17’s initial public offering. M17 is aiming to raise around US$115 million.

As a private company backed by a profitable parent, Bigo has a funding advantage over the unprofitable M17, which will face pressure to make money once it lists. In a battle for market share, which often requires spending on marketing and subsidies, a company that has its finances scrutinized by the public could be at a disadvantage.

M17’s live streaming app had 33.3 million registered users as of March 31 this year, which is a fraction of YY’s figure. YY also appears to be outpacing M17 in user growth, although that may be the result of outsized marketing spending.

Will YY reach a growth ceiling? YY’s worldwide expansion through Bigo might make sense in light of the perception that livestreaming in China may have plateaued. Overall livestreaming viewership has been declining in the country since December 2016, reported South China Morning Post citing iResearch.

Nonetheless, YY’s financial results for 1Q18 attempted to paint a rosy picture. Its revenue, monthly active users (MAU), and monthly paying users all increased.

However, the warning signs are there too. While the company is still profitable, its margins tightened as YY is paying its artists more in a bid to retain them. Sales and marketing costs expanded too.

Also, its growth in paying users is smaller than the growth in MAUs in terms of percentages, signaling that it may get harder to entice viewers to pay artists virtual gifts – of which YY gets a cut.

We’ve reached out to YY, Bigo, and M17 for comment.

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