YY's Earnings, Sales Beat As Q2 Music Sales Triple

Investor's Business Daily

Chinese online social platform YY late Wednesday reported Q2 earnings and sales that beat analyst estimates, with online music and entertainment revenue tripling as that unit's growth accelerated.

The company's revenue forecast for the current quarter also beat expectations.

But YY (YY)'s number of paying game users slipped 5% from Q1 and its display ad revenue — which is less than 5% of total revenue — declined 5%.

YY stock was down 1% in after-hours trading Wednesday, after the company released results.

The China social site reported Q2 revenue soared 103% to $135.6 million, up from $66.7 million in the year-earlier quarter. In Chinese yuan, revenue rose 106%.

The company also reported earnings per share minus items of 70 cents, double the 35 cents in the year-earlier quarter.

Analysts polled by Thompson Reuters had expected Q2 revenue of $121.9 million and EPS ex items of 59 cents.

For the current quarter, YY forecast revenue growth of 90% to 92% from Q3 2013, or $149.1 million to $150.7 million at the June 30 exchange rate. Analysts had forecast $132.6 million.

YY, whose executives were slated to hold a conference call with analysts later Wednesday, didn't give EPS guidance. Analysts expect 63 cents, up 34%.

The company's music and entertainment segment drove Q2's results. "Our online music and entertainment business once again exceeded our expectations," YY CEO David Li in the company's earnings release.

In addition, Li said the company "witnessed the ascension of our online dating business" during Q2, "with revenue surging by 299.2% quarter-over-quarter" to $4.7 million.

The company's year-over-year EPS growth rose by triple digits for the sixth consecutive quarter.

YY also has posted 11 consecutive quarters of sales growth, as its music business expands. The site is popular in China for music streaming and group karaoke.

Revenue from the online music and entertainment segment hit $83.2 million, helped by a 78% increase in paying users to 1.1 million from 635,000 in Q2 2013. The average revenue per paying user rose 70% to $73.82. The growth comes despite YY facing tough competition in China from companies such as Changba, says T.H. Capital analyst Tian Hou.

Revenue from online games rose only 9.5% from Q2 from the year-earlier quarter, down from 10% growth in Q1. And the number of paying users fell to 438,000 from 461,000 in Q1 and from 440,000 in Q2 2013.

The company, like others, is trying to adapt as the gaming market shifts to mobile users from PC users, said Pacific Crest analyst Cheng Cheng in a research report in May.

Online ad revenue in Q2 fell 4.6% from the year-earlier quarter to $6.5 million.

Founded as an online gaming portal in China in 2005, YY has diversified into entertainment, education and other areas. The company reported 100 million monthly users in Q2, up 4.7% from Q1.

YY stock, which broke out of a cup-with-handle base at 78.83 last month, rose 4.3% in Wednesday's regular session to 82.75.

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