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Estimating The Intrinsic Value Of YY Inc (NASDAQ:YY)

I am going to run you through how I calculated the intrinsic value of YY Inc (NASDAQ:YY) using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after May 2018 then I highly recommend you check out the latest calculation for YY here.

What’s the value?

I’ve used the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin, I use the analyst consensus estimates of YY’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 11.86%. This resulted in a present value of 5-year cash flow of CN¥15.51B. Keen to understand how I calculated this value? Read our detailed analysis here.

NasdaqGS:YY Future Profit May 31st 18
NasdaqGS:YY Future Profit May 31st 18

Above is a visual representation of how YY’s top and bottom lines are expected to move going forward, which should give you an idea of YY’s outlook. Secondly, I calculate the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes CN¥30.55B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is CN¥46.05B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $113.53, which, compared to the current share price of $115.42, we find that YY is fair value, maybe slightly overvalued at the time of writing.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company.

For YY, there are three essential aspects you should look at:

  1. Financial Health: Does YY have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does YY’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of YY? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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