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YY Reports Fourth Quarter and Full Year 2018 Unaudited Financial Results

GUANGZHOU, China, March 05, 2019 (GLOBE NEWSWIRE) -- YY Inc. (YY) (“YY” or the “Company”), a leading live streaming social media platform in China, today announced its unaudited financial results for the fourth quarter and full year of 2018.

Fourth Quarter 2018 Highlights

  • Net revenues increased by 28.0% to RMB4,640.9 million (US$675.0 million) from RMB3,626.5 million in the corresponding period of 2017.
  • Net income attributable to YY was RMB684.0 million (US$99.5 million), compared to RMB740.4 million in the corresponding period of 2017.
  • Non-GAAP net income attributable to YY1 was RMB836.2 million (US$121.6 million), compared to RMB932.1 million in the corresponding period of 2017.

Full Year 2018 Highlights

  • Net revenues increased by 36.0% to RMB15,763.6 million (US$2,292.7 million) from RMB11,594.8 million in 2017.
  • Net income attributable to YY was RMB1,642.0 million (US$238.8 million), compared to RMB2,493.2 million in 2017.
  • Non-GAAP net income attributable to YY increased by 18.4% to RMB3,196.4 million (US$464.9 million) from RMB2,699.4 million in 2017.

Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY, stated, “We are delighted to conclude 2018 with solid fourth quarter performances from both YY Live and Huya. Our strong growth momentum was driven by the healthy expansion of our loyal and highly-engaged live streaming community, evidenced by the number of mobile live streaming monthly active users increasing by 18.1% to 90.4 million and the number of live streaming paying users increasing by 36.6% to 8.9 million year-over-year in the fourth quarter of 2018. In addition, our initial foray into the global market has generated encouraging results in 2018. HAGO, a casual-game-oriented social networking platform that is currently available in 33 countries and regions worldwide with 20.9 million monthly active users in the fourth quarter of 2018. In addition, Hago consistently topped the charts as the most popular application on both App Store and Google Play in its primary markets, namely Indonesia and Vietnam in the fourth quarter of 2018. As we continue to enrich and diversify our live streaming content, we have also consistently upgraded our AI algorithms to more accurately match content to our users. Building on the successful growth of our domestic ecosystem, we will continue to execute our globalization strategy as a potential driver for our long-term growth going forward.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We once again recorded solid financial results in the fourth quarter of 2018. Our total net revenues increased by 28.0% year-over-year to RMB4,640.9 million, exceeding the high end of our previous guidance range. The increase in net revenues was driven by the strong growth of our live streaming revenues, which increased by 30.4% year-over-year to RMB4,391.4 million. We continue to invest in content enrichment, technology enhancements, and global expansion. We are confident that our strategies to upgrade our content offerings and AI technologies, buttressed by our increasing global footprint, will continue to yield sustainable growth and increase our market share in the global live streaming industry.”

Fourth Quarter 2018 Financial Results

NET REVENUES
Net revenues increased by 28.0% to RMB4,640.9 million (US$675.0 million) in the fourth quarter of 2018 from RMB3,626.5 million in the corresponding period of 2017, primarily driven by an increase in live streaming revenues. Live streaming revenues increased by 30.4% to RMB4,391.4 million (US$638.7 million) in the fourth quarter of 2018 from RMB3,368.5 million in the corresponding period of 2017.

Other revenues2 decreased by 3.3% to RMB249.5 million (US$36.3 million) in the fourth quarter of 2018 from RMB258.0 million in the corresponding period of 2017.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 37.2% to RMB3,013.1 million (US$438.2 million) in the fourth quarter of 2018 from RMB2,196.6 million in the corresponding period of 2017, primarily attributable to an increase in revenue-sharing fees and content costs to RMB2,556.5 million (US$371.8 million) in the fourth quarter of 2018 from RMB1,828.0 million in the corresponding period of 2017. The increase in revenue-sharing fees and content costs paid to performers, guilds and content providers was in line with the increase in live streaming revenues for both YY Live and Huya segments, respectively. In addition, bandwidth costs increased to RMB246.5 million (US$35.9 million) in the fourth quarter of 2018 from RMB181.2 million in the corresponding period of 2017, primarily reflecting continued user base expansion and live streaming quality improvements.

Gross profit increased by 13.8% to RMB1,627.9 million (US$236.8 million) in the fourth quarter of 2018 from RMB1,429.9 million in the corresponding period of 2017. Gross margin was 35.1% in the fourth quarter of 2018, compared to 39.4% in the corresponding period of 2017, primarily due to the increase in revenue-sharing fees and content costs. The decrease in gross margin was attributable to the impact caused by the relatively low gross margin of the Huya segment as its contribution to net revenues increased significantly year-over-year.

OPERATING INCOME
Operating expenses were RMB931.2 million (US$135.4 million) in the fourth quarter of 2018, compared to RMB652.9 million in the corresponding period of 2017, primarily due to our increased efforts in sales and marketing activities in both China and the overseas market.

Operating income was RMB718.6 million (US$104.5 million) in the fourth quarter of 2018, compared to RMB821.5 million in the corresponding period of 2017. Operating margin was 15.5% in the fourth quarter of 2018, compared to 22.7% in the corresponding period of 2017, primarily due to the increase in sales and marketing expenses and the decrease in gross margin.

Non-GAAP operating income3 was RMB888.5 million (US$129.2 million) in the fourth quarter of 2018, compared to RMB1,034.1 million in the corresponding period of 2017. Non-GAAP operating margin4 was 19.1% in the fourth quarter of 2018, compared to 28.5% in the corresponding period of 2017.

NET INCOME
Net income attributable to YY Inc. was RMB684.0 million (US$99.5 million) in the fourth quarter of 2018, compared to RMB740.4 million in the corresponding period of 2017. Net margin was 14.7% in the fourth quarter of 2018, compared to 20.4% in the corresponding period of 2017.

Non-GAAP net income attributable to YY Inc. was RMB836.2 million (US$121.6 million) in the fourth quarter of 2018, compared to RMB932.1 million in the corresponding period of 2017. Non-GAAP net margin5 was 18.0% in the fourth quarter of 2018, compared to 25.7% in the corresponding period of 2017.

NET INCOME PER ADS
Diluted net income per ADS6 was RMB10.54 (US$1.53) in the fourth quarter of 2018, compared to RMB11.53 in the corresponding period of 2017.

Non-GAAP diluted net income per ADS7 was RMB12.86 (US$1.87) in the fourth quarter of 2018, compared to RMB14.51 in the corresponding period of 2017.

BALANCE SHEET AND CASH FLOWS
As of December 31, 2018, the Company had cash and cash equivalents of RMB6,004.2 million (US$873.3 million) and short-term deposits of RMB7,327.0 million (US$1,065.7 million). For the fourth quarter of 2018, net cash from operating activities was RMB2,123.8 million (US$308.9 million).

SHARES OUTSTANDING
As of December 31, 2018, the Company had a total of 1,269.9 million common shares, or the equivalent of 63.5 million ADSs, outstanding.

Full Year 2018 Financial Results

For the full year of 2018, net revenues increased by 36.0% to RMB15,763.6 million (US$2,292.7 million) from RMB11,594.8 million in 2017, primarily driven by a 39.4% year-over-year increase in live streaming revenues.

Net income attributable to YY Inc. for the full year of 2018 was RMB1,642.0 million (US$238.8 million), compared to RMB2,493.2 million in 2017. Net margin for the full year of 2018 was 10.4%, compared to 21.5% in 2017.

Non-GAAP net income attributable to YY Inc. for the full year of 2018 increased by 18.4% to RMB3,196.4 (US$464.9 million) from RMB2,699.4 million in 2017. Non-GAAP net margin for the full year of 2018 was 20.3%, compared to 23.3% in 2017.

Diluted net income per ADS was RMB25.38 (US$3.69) in 2018, compared to RMB41.33 in the corresponding period of 2017. Non-GAAP diluted net income per ADS for the full year of 2018 increased by 9.7% to RMB49.05 (US$7.13) from RMB44.72 in 2017.

For the full year of 2018, net cash from operating activities was RMB4,464.8 million (US$649.4 million).

Business Outlook
For the first quarter of 2019, the Company expects net revenues to be between RMB4.01 billion and RMB4.16 billion, representing a year-over-year growth of 23.4% to 28.0%, without giving effect to the acquisition of Bigo Inc. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Recent Developments
The Company recently entered into a strategic partnership agreement with Shanghai Chuangsi Enterprise development Co., Ltd.(“Shanghai Chuangsi”). Shanghai Chuangsi owns 9377 Games, one of the leading game platforms in China. Under the agreement, the Company will obtain 30% equity interest of Shanghai Chuangsi by injecting its online game business into Shanghai Chuangsi. As a result, the financial results of YY’s online games business, which contributed to less than 3% of YY segment’s total revenues in the fourth quarter of 2018, will no longer be consolidated upon the completion of the transaction. Currently, the transaction is expected to be completed in the first quarter of 2019.

Conference Call Information
The Company will hold a conference call on Monday, March 4, 2019, at 9:00 pm Eastern Time (or Tuesday, March 5, 2019, at 10:00 am Beijing Time) to discuss the financial results. Participants may access the call by dialing the following numbers:

United States: +1-845-675-0438
International: +65-6713-5440
China Domestic: 400-1200-654
Hong Kong: +852-3018-6776
Conference ID: #8476342
 
The replay will be accessible through March 12, 2019, by dialing the following numbers:
 
United States: +1-646-254-3697
International: +61-2-9003-4211
Conference ID:  #8476342

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.yy.com/.

Exchange Rate
This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.8755 to US$1.00, the noon buying rate in effect on December 31, 2018 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About YY Inc.
YY Inc. (“YY” or the “Company”) is a leading live streaming social media platform in China. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing, and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY Inc. was listed on the NASDAQ in November 2012.

Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY's strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to fourth parties. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY’s goals and strategies; YY's future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain active users, especially paying users; YY’s ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial Measures
The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses, impairment of goodwill and investments, and gain on deconsolidation and disposal of subsidiary. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income is net income excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, deemed dividend to subsidiary’s Series A preferred shareholders and income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of above reconciling items adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the non-cash effect of (i) share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business, (ii) impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, and deemed dividend to subsidiary’s Series A preferred shareholders, which may not be recurring in its business, and (iii) income tax expenses and non-GAAP adjustments for net income (loss) attributable to non-controlling interest shareholders, which are affected by above non-GAAP reconciling items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.

Investor Relations Contact
YY Inc.
Matthew Zhao
Tel: +86 (20) 8212-0000
Email: IR@YY.com

ICR, Inc.
Jack Wang
Tel: +1 (646) 915-1611
Email: IR@YY.com

____________________________

1 Non-GAAP net income attributable to YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments (deemed disposal refers to dilution of equity interest in equity-method investments), gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, deemed dividend to subsidiary’s Series A preferred shareholders, income tax effects on non-GAAP adjustment and non-GAAP adjustment for net (loss) income attributable to non-controlling interests shareholders. These adjustments amounted to RMB152.2 million (US22.1 million) and RMB191.7 million in the fourth quarter of 2018 and 2017, respectively. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

2 Starting from the first quarter of 2018, the Company re-classified its revenues from online games, revenues from memberships, and other revenues (which mainly represent revenues from the Company’s online advertising revenues) to the category “other revenues” in order to better reflect the Company’s continued strategic shift towards its live streaming business.

3 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, impairment of goodwill and investments and gain on deconsolidation and disposal of a subsidiary. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

4 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

5 Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to YY Inc. divided by weighted average number of diluted ADS.

Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
 
  December   December   December
   31,   31,   31,
  2017    2018   2018
  RMB   RMB   US$
Assets          
Current assets          
Cash and cash equivalents 2,617,432   6,004,231   873,279
Short-term deposits 6,000,104   7,326,996   1,065,667
Restricted short-term deposits 1,000,000   -   -
Short-term investments 124,550   979,053   142,397
Accounts receivable, net 153,944   198,428   28,860
Inventory 315   -   -
Amounts due from related parties 11,190   193,559   28,152
Financing receivables, net -   768,343   111,751
Prepayments and other current assets 221,939   1,019,019   148,210
           
Total current assets 10,129,474   16,489,629   2,398,316
           
Non-current assets          
Long-term deposits -   1,000,000   145,444
Deferred tax assets 113,017   70,834   10,302
Investments 1,153,019   4,591,524   667,809
Property and equipment, net 1,016,998   1,296,319   188,542
Land use rights, net 1,832,739   1,784,639   259,565
Intangible assets, net 37,481   74,685   10,862
Goodwill 11,716   11,763   1,711
Amounts due from related parties 20,000   -   -
Financing receivables, net -   224,793   32,695
Other non-current assets 144,275   223,859   32,559
           
Total non-current assets 4,329,245   9,278,416   1,349,489
           
Total assets 14,458,719   25,768,045   3,747,805
           
Liabilities, mezzanine equity and shareholders’ equity          
Current liabilities          
Convertible bonds -   6,863   998
Accounts payable 76,351   114,589   16,666
Deferred revenue 758,044   951,616   138,407
Advances from customers 80,406   101,690   14,790
Income taxes payable 146,298   235,561   34,261
Accrued liabilities and other current liabilities 1,465,963   2,414,371   351,156
Amounts due to related parties 30,502   28,336   4,121
Short-term loans 588,235   -   -
           
Total current liabilities 3,145,799   3,853,026   560,399
           
Non-current liabilities          
Convertible bonds 6,536   -   -
Deferred revenue 57,718   91,710   13,339
Deferred tax liabilities 10,810   27,505   4,000
           
Total non-current liabilities 75,064   119,215   17,339
           
Total liabilities 3,220,863   3,972,241   577,738
           

 

 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
  December    December   December
  31,    31,    31,
  2017   2018   2018
  RMB   RMB   US$
           
Mezzanine equity 524,997   418,673   60,893
           
Shareholders’ equity          
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 945,245,908 and 981,740,848 shares issued and outstanding as of December 31, 2017 and December 31, 2018, respectively) 57   59   9
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 317,982,976 and  288,182,976  shares issued and outstanding as of December 31, 2017 and December 31, 2018, respectively) 23   21   3
Additional paid-in capital 5,339,844   11,168,866   1,624,444
Statutory reserves 62,718   101,725   14,795
Retained earnings(1) 5,218,110   6,913,469   1,005,522
Accumulated other comprehensive (loss) income(1) (9,597)   336,152   48,891
           
Total YY Inc.’s shareholders’ equity 10,611,155   18,520,292   2,693,664
           
Non-controlling interests 101,704   2,856,839   415,510
           
Total shareholders’ equity 10,712,859   21,377,131   3,109,174
           
Total liabilities, mezzanine equity and          
shareholders’ equity 14,458,719   25,768,045   3,747,805
           


(1)
 On January 1, 2018, the Company adopted ASU 2016-1, “Classification and Measurement of Financial Instruments”. After the adoption of this new guidance, the Company measures long-term investments other than equity method investments at fair value through earnings. For those investments without readily determinable fair values, the Company elects to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. Changes in the basis of these investments are reported in current earnings. Following the adoption of this guidance, accumulated fair value gain, amounting to RMB87.8 million, was reclassified from accumulated other comprehensive loss to retained earnings as of January 1, 2018.

 

 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended   Twelve Months Ended
  December     September      December     December     December      December      December  
   31,     30,      31,      31,   31,     31,     31,  
  2017     2018     2018     2018   2017     2018     2018  
  RMB     RMB     RMB     US$     RMB     RMB     US$  
                 
Net revenues(1)                
Live streaming 3,368,520     3,894,548     4,391,418     638,705     10,670,954     14,877,667     2,163,867  
Others 258,018     205,924     249,506     36,289     923,838     885,890     128,847  
                 
Total net revenues 3,626,538     4,100,472     4,640,924     674,994     11,594,792     15,763,557     2,292,714  
                 
Cost of revenues(2) (2,196,649   (2,674,502   (3,013,063   (438,232   (7,026,402   (10,017,134   (1,456,932
                 
Gross profit 1,429,889     1,425,970     1,627,861     236,762     4,568,390     5,746,423     835,782  
                 
Operating expenses(2)                
Research and development expenses (282,827 )   (314,128 )   (332,513 )   (48,362 )   (781,886 )   (1,192,052 )   (173,377 )
Sales and marketing expenses (148,765 )   (343,839 )   (323,689 )   (47,079 )   (691,281 )   (1,149,316 )   (167,161 )
General and administrative expenses (218,766 )   (206,738 )   (274,979 )   (39,994 )   (544,641 )   (883,225 )   (128,460 )
Goodwill impairment (2,527 )       -     -     (2,527 )   -     -  
                 
Total operating expenses (652,885 )   (864,705 )   (931,181 )   (135,435 )   (2,020,335 )   (3,224,593 )   (468,998 )
                 
Gain on deconsolidation and disposal of subsidiaries -     -     -     -     37,989     -     -  
Other income 44,534     49,640     21,924     3,189     113,187     117,860     17,142  
                 
Operating income 821,538     610,905     718,604     104,516     2,699,231     2,639,690     383,926  
                 
Interest expense (3,744 )   (4,910 )   (139 )   (20 )   (32,122 )   (8,616 )   (1,253 )
Interest income and investment income 74,531     141,110     123,401     17,948     180,384     485,552     70,621  
Foreign currency exchange losses, net (351 )   (3,072 )   (1,338 )   (195 )   (2,176 )   (514 )   (75 )
Gain on deemed disposal and disposal of investments -     -     2,179     317     45,861     16,178     2,353  
Gain on fair value change of investments -     31,670     26,138     3,802     -     1,689,404     245,714  
Fair value loss on derivative liabilities -     -     -     -     -     (2,285,223 )   (332,372 )
Other non-operating expenses -     -     -     -     -     (2,000 )   (291 )
                 
Income before income tax expenses 891,974     775,703     868,845     126,368     2,891,178     2,534,471     368,623  
                 
Income tax expenses (151,523 )   (74,929 )   (107,114 )   (15,579 )   (415,811 )   (477,707 )   (69,480 )
                 
Income before share of income  (loss)  in equity method investments, net of income taxes 740,451     700,774     761,731     110,789     2,475,367     2,056,764     299,143  
                 
Share of income (loss) in equity method investments, net of income taxes 17,557     (19,957   (19,281   (2,804   33,024     58,933     8,571  
                 
Net Income 758,008     680,817     742,450     107,985     2,508,391     2,115,697     307,714  
                 
Less: Net income (loss) income attributable to the non-controlling interest shareholders and the mezzanine equity classified non-controlling interest shareholders 17,602     30,127     53,827     7,829     15,156     -20,151     -2,931  
Cumulative dividend on subsidiary’s Series A Preferred Shares -     -     4,606     670     -     4,606     670  
Deemed dividend to subsidiary’s Series A preferred shareholders -     -     -     -     -     489,284     71,163  
                 
Net income attributable to YY Inc. 740,406     650,690     684,017     99,486     2,493,235     1,641,958     238,812  
                                         


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended   Twelve Months Ended
  December
31,
  September
30,
  December
31,
  December
31,
  December
31,
  December
31,
  December
31,
 
 
  2017    2018   2018   2018   2017   2018   2018  
  RMB   RMB   RMB   US$   RMB   RMB   US$  
                             
                             
Net income per ADS                            
—Basic 11.63   10.12   10.64   1.55   42.03   25.64   3.73  
—Diluted 11.53   10.01   10.54   1.53   41.33   25.38   3.69  
Weighted average number of ADS used in calculating net income  per ADS                            
—Basic 63,686,056   64,301,796   64,307,569   64,307,569   59,323,007   64,042,390   64,042,390  
—Diluted 64,224,006   64,829,757   64,609,000   64,609,000   60,831,887   64,704,470   64,704,470  


(1) On January 1, 2018, the Company adopted ASC 606, "Revenue from Contracts with Customers" using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Based on the Company’s assessment, the adoption of ASC 606 did not have any material impact on the Company’s consolidated financial statements.

(2) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

  Three Months Ended   Twelve Months Ended
  December
31,
2017
  September
 30,
2018
  December
31,
2018
  December
31,
2018
  December
 31,
2017
  December
31,
2018
  December
31,
2018
 
  RMB   RMB   RMB   US$   RMB   RMB   US$  
                             
Cost of revenues 36,549   16,022    14,650    2,131   42,759    74,339    10,812  
Research and development expenses 106,501   52,752     50,042    7,278   122,348    225,173    32,750  
Sales and marketing expenses 3,679   290    1,158    168   4,417    5,723    832  
General and administrative expenses 61,731   92,340    88,909    12,931   88,137    342,790    49,857  
                             

 

...
 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended   Twelve Months Ended
  December     September     December     December      December       December      December   
  31,     30,     31,     31,      31,       31,     31,  
   2017      2018      2018     2018     2017       2018     2018  
  RMB     RMB     RMB     US$     RMB       RMB     US$  
                 
Operating income 821,538     610,905     718,604     104,516     2,699,231       2,639,690     383,926  
Share-based compensation expenses 208,460     161,404     154,759     22,508     257,661       648,025     94,251  
Impairment of goodwill and investments 4,113     1,900     15,099     2,196     45,732       35,348     5,141  
Gain on deconsolidation and disposal of a subsidiary -     -     -     -     (37,989 )     -     -  
                                           
Non-GAAP operating income 1,034,111     774,209     888,462     129,220     2,964,635       3,323,063     483,318  
 
Net income 758,008     680,817     742,450     107,985     2,508,391       2,115,697     307,714  
Share-based compensation expenses 208,460     161,404     154,759     22,508     257,661       648,025     94,251  
Impairment of goodwill and investments 4,113     1,900     15,099     2,196     45,732       35,348     5,141  
Gain on deconsolidation and disposal of a subsidiary -     -     -     -     (37,989 )      -       -   
Gain on deemed disposal and disposal  of investments -     -     (2,179 )   (317 )   (45,861 )     (16,178 )   (2,353 )
(Gain) loss on fair value change of investments and equity investees’ investments (20,555 )   3,428     (1,089 )   (158 )   (20,555 )     (1,711,509 )   (248,929 )
Fair value loss on derivative liabilities -     -     -     -     -       2,285,223     332,372  
Income tax effects on non-GAAP adjustments -     1,014     21,479     3,124     9,263       97,560     14,190  
                                           
Non-GAAP net income 950,026     848,563     930,519     135,338     2,716,642       3,454,166     502,386  
 
Net income attributable to YY Inc. 740,406     650,690     684,017     99,486     2,493,235       1,641,958     238,812  
Share-based compensation expenses 208,460     161,404     154,759     22,508     257,661       648,025     94,251  
Impairment of goodwill and investments 4,113     1,900     15,099     2,196     45,732       35,348     5,141  
Gain on deconsolidation and disposal of a subsidiary -     -