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Why Shares of YY Climbed 19.2% in March

Keith Noonan, The Motley Fool

What happened

YY (NASDAQ: YY) stock gained 19.2 % in March, according to data from S&P Global Market Intelligence. The social media company released earnings early in the month, delivering a sales beat and encouraging guidance that helped send its share price higher. 

YY Chart

YY data by YCharts.

YY reported fourth-quarter earnings on March 4, and while the market seemed unsure of what to make of the results at first, the stock went on to big gains in the month after the initial post-earnings volatility. The company's spun-off video game streaming subsidiary Huya also reported earnings on the same day and delivered strong results that included a 113% year-over-year sales increase.

A pair of hands using a mobile phone.

Image source: Getty Images.

So what

After posting a huge run in 2017, YY stock struggled in 2018 due to slowing sales and earnings growth and a challenging climate for Chinese tech stocks because of trade tensions, slowing economic growth, and moves from the country's online content regulation agencies. However, YY stock appears to be regaining ground as investors have started warming up to the Chinese tech sector again, and the company's recent earnings report arrived with some promising indicators.

The company's business generates most of its revenue by collecting a portion of donations that viewers make to live-streamers on its platform, and its paying user base grew roughly 37% to reach 8.9 million members. Investors won't find many low-risk investments in China's streaming and social media industries, but YY's stock could prove to be undervalued if the company can sustain its cultural cachet and continue expanding its paying user base.

Now what

YY is guiding for sales to increase between 23.4% and 28% year over year in the first quarter, which would have revenue for the period coming in at roughly $650 million based on the midpoint of the company's target. Shares trade at about 13.5 times this year's expected earnings. 

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.