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YY Earnings Surpass Estimates in Q3, Revenues Increase

Zacks Equity Research

YY Inc. YY delivered third-quarter 2019 non-GAAP earnings of 90 cents per American depositary shares (ADS) that beat the Zacks Consensus Estimate by 20%.

Moreover, revenues of $962.9 million surpassed the consensus mark by 1.4%

In domestic currency, non-GAAP earnings per ADS declined 46.8% year over year to RMB6.4, while revenues jumped 67.8% to RMB6.88 billion.

Top-Line Details

The top-line growth can primarily be attributed to strong live streaming revenues, which increased 66.2% year over year to RMB6.47 billion and accounted for 94% of revenues in the reported quarter. User growth in both HUYA and Bigo segments drove live streaming revenues.

Notably, other revenues increased 98.3% to RMB408.3 million, primarily driven by robust growth in advertising revenues from HUYA and Bigo.

The stellar performance of YY Live and HUYA Live also contributed to the impressive top-line growth. YY and HUYA Live contributed 45% and 33%,    respectively, to total live streaming revenues in the third quarter. Further, year-over-year growth at YY Live and HUYA Live was 9.1% and 77.4%, respectively.

YY Inc. Price, Consensus and EPS Surprise


YY Inc. Price, Consensus and EPS Surprise
YY Inc. Price, Consensus and EPS Surprise

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


Additionally, average mobile monthly active users (MAUs) of global live streaming services increased 26.5% year over year to 157.8 million in the quarter, wherein YY contributed 39.9 million, up 3%. HUYA contributed 63.8 million, up 29.1% year over year. Also, BIGO LIVE contributed 21.9 million, up 9.7% year over year, and HAGO added 32.3 million in the reported quarter, up 92.4% year over year.

Further, imo had 212 million average mobile MAUs in the reported quarter. Notably, Likee, YY’s short-form video platform, hit a milestone of 100 million average mobile MAUs in the third quarter.

Moreover, the total number of YY’s paying users increased 14.4% to 4.3 million year over year. Total number of paying users of HUYA increased 28.5% year over year to 5.3 million.

Operating Details

Total cost of revenues increased 76.2% year over year to RMB4.71 billion in the reported quarter.

Cost of revenues for YY Live and HUYA increased 8.7% and 71.7% year over year to RMB1.73 billion and RMB1.86 billion, respectively. This was due to rise in revenue sharing fees and content costs.

Moreover, bandwidth costs in the reported quarter were RMB496.8 million compared with RMB249.5 million a year ago. The increase was due to expansion in the overseas user base following the Bigo consolidation.

Gross profit climbed 52.1% from the year-ago quarter to RMB2.16 billion. However, gross margin contracted to 31.5% in the third quarter. In addition to higher revenue-sharing fees and content costs, the contraction was also led by low gross margin of HUYA and Bigo.

Operating expenses totaled RMB2.16 billion, up from RMB864.7 in the year-ago quarter due to increased investment in sales & marketing (S&M) initiatives in overseas markets.    

Research & development (R&D), S&M and general & administrative (G&A) expenses rose 114.3%, 213.9%, and 97.8% year over year, respectively.

As a percentage of revenues, R&D expanded 210 bps while G&A expenses expanded 90 bps year over year. However, S&M expenses, as a percentage of revenues, increased to 16% from 8% in the year-ago quarter.

Non-GAAP operating income declined 21% year over year to RMB611.4 million. As a percentage of revenues, non-GAAP operating margin fell to 8.9% from 14.9% in the year-ago quarter primarily due to the Bigo consolidation.

Balance Sheet & Cash Flow

As of Sep 30, 2019, YY had cash and cash equivalents (includes restricted cash and cash equivalents, short-term deposits, restricted short-term deposits and short-term investments) of RMB25.33 billion ($3.54 billion) compared with RMB25.11 billion as of Jun 30.

Net cash from operating activities amounted to RMB702.1 million compared with RMB1.13 billion in the previous quarter.

Q4 Guidance

YY expects net revenues between RMB7.32 and RMB7.52 billion, indicating year-over-year growth of 57.7-62.0%.

Zacks Rank & Stocks to Consider

YY currently has a Zacks Rank #3 (Hold).

Alteryx AYX, Cirrus Logic CRUS and Marchex MCHX are a few better-ranked stocks in the broader computer and technology sector. All three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While the long-term earnings growth rate for Alteryx is pegged at 39.9%, both Cirrus Logic and Marchex’s earnings are expected to grow 15%.

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