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Higher Investments on Platform to Hurt YY's Q2 Earnings

Zacks Equity Research

YY, Inc. YY is set to report second-quarter 2019 results on Aug 13.

The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, delivering average positive surprise of 3.5%.

In the last reported quarter, YY reported adjusted earnings of $1.38 per American depositary shares (ADS), which missed the Zacks Consensus Estimate by 7 cents.

Net revenues increased by 47.1% year over year to RMB 4.78 billion ($705.3 million).

For second-quarter 2019, YY expects revenues between RMB 6 billion and RMB 6.2 billion, indicating year-over-year growth of 59-64.3%.

The Zacks Consensus Estimate for revenues is currently pegged at $881.5 million, which implies growth of 54.6% from the figure reported in the year-ago quarter.

YY Inc. Price and EPS Surprise

 

YY Inc. Price and EPS Surprise

YY Inc. price-eps-surprise | YY Inc. Quote

Further, the consensus mark for second-quarter earnings has been steady at 88 cents over the past seven days.

Let’s see how things are shaping up prior to this announcement.

Key Factors to Consider

YY’s focus on live streaming services monetization is expected to drive the top line. The company’s ability to use AI to curate content based on user preferences is expected to improve user engagement on the platform. This is likely to boost monetization opportunities for the company in the second quarter.

Moreover, expanding user base is a key catalyst. At the end of first-quarter 2019, global video and live streaming average mobile Monthly Active Users (MAUs) reached more than 400 million. The fact that more than 75% of MAUs were from outside of China reflects YY’s popularity in the international markets.

Notably, the Bigo acquisition (completed in March) contributed handsomely to this growth. We expect the momentum to continue in the to-be-reported quarter.

Nevertheless, YY’s increasing investments in content and technology to gain a competitive edge may prove to be a drag on margins in the second quarter. Moreover, continuing loss at Bigo is expected to hurt the company’s profitability.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

YY has a Zacks Rank #5 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

lululemon athletica LULU has an Earnings ESP of +0.97% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International CACI has an Earnings ESP of +4.02% and a Zacks Rank #2.

Ciena Corporation CIEN has an Earnings ESP of +17.33% and a Zacks Rank #2.

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