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YY Reports Second Quarter 2019 Unaudited Financial Results

GUANGZHOU, China, Aug. 14, 2019 (GLOBE NEWSWIRE) -- YY Inc. (YY) (“YY” or the “Company”), a global social media platform, today announced its unaudited financial results for the second quarter of 2019. 

Second Quarter 2019 Financial Highlights

  • Net revenues increased by 66.8% to RMB6,295.2 million (US$917.0 million) from RMB3,773.2 million in the corresponding period of 2018.
  • Net income attributable to controlling interest of YY Inc.1 was RMB42.1 million (US$6.1 million), compared to net loss attributable to controlling interest of YY Inc. of RMB99.9 million in the corresponding period of 2018.
  • Non-GAAP net income attributable to controlling interest of YY Inc.2 was RMB424.2 million (US$61.8 million), compared to RMB910.2 million in the corresponding period of 2018, primarily due to the impact of the consolidation of Bigo Inc (“Bigo”).

Second Quarter 2019 Operational Highlights

  • Global average mobile MAUs3 reached 433.5 million, among which about 78.1% were from markets outside China.
  • Average mobile MAUs of IMO reached 211.9 million.
  • Average mobile MAUs of global short-form video services increased by 431.2% to 90.3 million from 17.0 million in the corresponding period of 2018, including 80.7 million from Likee (formerly known as Like), which increased by 374.7% year-over-year, and 9.6 million from IMO’s embedded short-form video services.
  • Average mobile MAUs of global live streaming services increased by 39.2% to 140.9 million from 101.2 million in the corresponding period of 2018, among that (i) 94.8 million were from China, including 38.9 million from YY, which increased by 3.7% year-over-year and 55.9 million from Huya, which increased by 31.1% year-over-year; (ii) 46.1 million were from outside China, including 20.8 million from Bigo Live, which increased by 6.6% year-over-year; and 25.3 million from Hago.
  • Total number of paying users4 of YY increased by 19.1% to 4.2 million from 3.5 million in the corresponding period of 2018.
  • Total number of paying users of Huya increased by 46.7% to 4.9 million from 3.4 million in the corresponding period of 2018.

Mr. David Xueling Li, Chairman and Chief Executive Officer of YY, commented, “After we successfully completed the acquisition of BIGO in March, the second quarter was the first time we had the full quarter consolidation of the financial performance of BIGO. In the second quarter, our global average mobile MAUs reached 433.5 million, of which the average mobile MAUs of global short-form video services increased by 431.2% year-over-year to 90.3 million, and the average mobile MAUs of global live streaming services increased by 39.2% year-on-year to 140.9 million. More importantly, average mobile MAUs of our instant messaging platform IMO had reached nearly 211.9 million. Our massive and diverse user base offers us a great opportunity for the synergy and future monetization. During the second quarter, we further enhanced the stickiness of IMO users by introducing short-form video content into IMO. About 17.5 million monthly users in more than 40 countries were able to access to the short-form video content on IMO. We were pleased to see that the conversion rate to short-form video users had reached to over 50%. In addition, we also continued to bolster the foundation of our global ecosystem by enhancing our AI technologies and cultivating our localization capabilities. Going forward, as we continue to refine the synergies between our business segments and launch new monetization venues on a global scale, we are confident of achieving our vision of connecting people and enriching their lives through video.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We once again achieved strong financial and operating performances in the second quarter of 2019, highlighted by rapid growth and sustained profitability. Our total net revenues in the second quarter of 2019 increased by 66.8% year over year to RMB6,295.2 million, exceeding the high end of our previous guidance range. The increase in net revenues was primarily driven by a 66.4% year-over-year increase in live streaming revenues to RMB5,922.8 million. The consolidation of Bigo fueled additional user and revenue growth. Looking ahead, we will continue to enhance content offerings and develop AI technologies across our products on a global scale, and we are confident that our instant messaging and short-form video businesses will become the next dual growth engines for the group and further drive our global expansion.”

Second Quarter 2019 Financial Results

NET REVENUES
Net revenues increased by 66.8% to RMB6,295.2 million (US$917.0 million) in the second quarter of 2019 from RMB3,773.2 million in the corresponding period of 2018, primarily driven by an increase in live streaming revenues, and the contribution from the consolidation of Bigo segment.

Live streaming revenues increased by 66.4% to RMB5,922.8 million (US$862.7 million) in the second quarter of 2019 from RMB3,559.7 million in the corresponding period of 2018, primarily attributable to (i) the continued live streaming revenues growth in YY and Huya segments, amounting to RMB1,224.9 million (US$178.4 million), driven by user growth; and (ii) the contribution from the consolidation of Bigo segment, amounting to RMB1,138.2 million (US$165.8 million).

Other revenues increased by 74.4% to RMB372.5 million (US$54.3 million) in the second quarter of 2019 from RMB213.6 million in the corresponding period of 2018, primarily driven by the increase in advertising revenues from Huya and Bigo segments.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 80.4% to RMB4,173.8 million (US$608.0 million) in the second quarter of 2019 from RMB2,313.8 million in the corresponding period of 2018, mainly attributable to an increase in revenue-sharing fees and content costs to RMB3,149.3 million (US$458.7 million) in the second quarter of 2019 from RMB1,882.6 million in the corresponding period of 2018, which was in line with the increase in live streaming revenues of the Company. Bandwidth costs increased to RMB423.8 million (US$61.7 million) in the second quarter of 2019 from RMB246.0 million in the corresponding period of 2018, primarily reflecting continued overseas user base expansion mainly due to the impact of the consolidation of Bigo.

Gross profit increased by 45.4% to RMB2,121.4 million (US$309.0 million) in the second quarter of 2019 from RMB1,459.5 million in the corresponding period of 2018. Gross margin was 33.7% in the second quarter of 2019, compared to 38.7% in the corresponding period of 2018, primarily due to the impact caused by the relatively low gross margin of Huya and Bigo segments as their contributions to net revenues increased significantly year over year. The decrease in gross margin was also attributable to the increase in revenue-sharing fees and content costs.

OPERATING INCOME
Operating expenses were RMB2,090.9 million (US$304.6 million) in the second quarter of 2019, compared to RMB779.6 million in the corresponding period of 2018, primarily due to the increase in sales and marketing expenses of RMB853.4 million (US$124.3 million), and research and development expenses of RMB359.5 million (US$52.4 million). The increase in sales and marketing expenses was primarily attributable to the Company’s increased efforts in sales and marketing activities in overseas markets and the impact of depreciation and amortization related to the consolidation of Bigo, while the increase in research and development expenses was due to the increase in staff related expenses.

Operating income was RMB71.9 million (US$10.5 million) in the second quarter of 2019, compared to RMB713.8 million in the corresponding period of 2018. Operating margin was 1.1% in the second quarter of 2019, compared to 18.9% in the corresponding period of 2018, primarily due to the decrease in gross margin, the consolidation of Bigo and other overseas expansion initiatives.

Non-GAAP operating income5 was RMB524.9 million (US$76.5 million) in the second quarter of 2019, compared to RMB933.1 million in the corresponding period of 2018. Non-GAAP operating margin6 was 8.3% in the second quarter of 2019, compared to 24.7% in the corresponding period of 2018.

NET INCOME
Net income attributable to controlling interest of YY Inc. was RMB42.1 million (US$6.1 million) in the second quarter of 2019, compared to net loss attributable to controlling interest of YY Inc. of RMB99.9 million in the corresponding period of 2018. Net margin was 0.7% in the second quarter of 2019, compared to negative 2.6% in the corresponding period of 2018. The significantly high effective tax rate in the second quarter of 2019 was primarily due to the profit (loss) structure and the different effective tax rates of YY, Huya and Bigo segments. Particularly, the Company was not getting as much benefit from losses incurred by Bigo as a majority of Bigo’s business that was subject to a low applicable tax rate in its jurisdiction.

Non-GAAP net income attributable to controlling interest of YY Inc. was RMB424.2 million (US$61.8 million) in the second quarter of 2019, compared to RMB910.2 million in the corresponding period of 2018. Non-GAAP net margin7 was 6.7% in the second quarter of 2019, compared to 24.1% in the corresponding period of 2018.

NET INCOME PER ADS
Diluted net income per ADS8 was RMB0.27 (US$0.04) in the second quarter of 2019, compared to diluted net loss per ADS of RMB2.14 in the corresponding period of 2018.

Non-GAAP diluted net income per ADS9 was RMB5.14 (US$0.75) in the second quarter of 2019, compared to RMB13.75 in the corresponding period of 2018.

BALANCE SHEET AND CASH FLOWS
As of June 30, 2019, the Company had cash and cash equivalents, restricted cash and cash equivalents, restricted short-term deposits, short-term deposits and short-term investments of RMB25,106.5 million (US$3,657.2 million), which also included the proceeds received from the issuance of convertible senior notes and follow-on public offering of Huya in the second quarter of 2019. For the second quarter of 2019, net cash from operating activities was RMB1,125.4 million (US$163.9 million).

SHARES OUTSTANDING
As of June 30, 2019, the Company had a total of 1,617.1 million common shares, or the equivalent of 80.9 million ADSs, outstanding.

Business Outlook
For the third quarter of 2019, the Company expects net revenues to be between RMB6.57 billion and RMB6.77 billion10, representing a year-over-year growth of 60.2% to 65.1%. 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 today announced that its board of directors has authorized a share repurchase plan under which the Company may repurchase up to US$300 million of its shares over the next 12 months. The share repurchases may be made from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. YY’s board of directors will review the share repurchase plan periodically, and may authorize adjustment of its terms and size. The Company expects to fund repurchases made under this plan from its existing funds.

Conference Call Information
The Company will hold a conference call on Tuesday, August 13, 2019, at 9:00 P.M. Eastern Time (or Wednesday, August 14, 2019, at 9:00 A.M.  Beijing Time) to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:              +1-845-675-0437
International:               +65-6713-5090
China Domestic:           400-620-8038
Hong Kong:                 +852-3018-6771
Conference ID:             #6472108

The replay will be accessible through August 21, 2019, by dialing the following numbers:

United States:              +1-646-254-3697
International:               +61-2-8199-0299
Conference ID:             #6472108
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 RMB6.8650 to US$1.00, the noon buying rate in effect on June 28, 2019 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 global social media platform. 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 owns YY Live, a leading live streaming social media platform in China and Huya, a leading game live streaming platform in China. In addition, YY completed the acquisition of Bigo in March 2019. Bigo is a fast-growing global tech company. Headquartered in Singapore, Bigo owns Bigo Live, a leading global live streaming platform outside China; Likee, a leading global short-form video social platform; IMO, a global video communication app, and other social applications. YY has created an online community for global video and live streaming users. 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 third 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 controlling interest of YY Inc., non-GAAP net margin attributable to controlling interest of YY Inc., non-GAAP net income attributable to common shareholders of YY Inc., 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, amortization of intangible assets from business acquisitions, 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, amortization of intangible assets from business acquisitions, 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, interest expenses related to the convertible bonds’ amortization to face value, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to controlling interest of YY Inc. is net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, 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, interest expenses related to the convertible bonds’ amortization to face value, 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 controlling interest of YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders of YY Inc. is net income attributable to common shareholders of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, 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, interest expenses related to the convertible bonds’ amortization to face value, accretion, cumulative dividend and deemed dividend to subsidiaries’ 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. After the non-GAAP reconciliation, non-GAAP net income attributable to controlling interests of YY Inc. is equal to the non-GAAP net income attributable to common shareholders of YY Inc. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders of 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 and amortization of intangible assets from business acquisitions, interest expenses related to the convertible bonds’ amortization to face value, 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 accretion, cumulative dividend and deemed dividend to subsidiaries’ 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 Net income attributable to controlling interest of YY Inc., is net income less net (loss) income attributable to the non-controlling interest shareholders and the mezzanine equity classified as non-controlling interest shareholder.

2 Non-GAAP net income attributable to controlling interest of YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, amortization of intangible assets from business acquisitions, 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, interest expenses related to the convertible bonds amortization to face value, 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 RMB382.1 million (US$55.7 million) and RMB1,010.1 million in the second quarters of 2019 and 2018, respectively. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for more details.

3 Refers to mobile average monthly active users. Average mobile MAU for any period is calculated by dividing (i) the sum of the Company’s mobile active users for each month of such period, by (ii) the number of months in such period.

4 Refers to a registered user that has purchased virtual items on YY’s platforms at least once during the period presented.

5 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, amortization of intangible assets from business acquisitions, 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.

6 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.

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

8ADS 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 common shareholders of YY Inc. divided by weighted average number of diluted ADS.

9Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders of 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.

10 The outlook of net revenues for the third quarter of 2019 includes the impact from Bigo’s consolidation. However, when calculating the year-over-year growth rate, Bigo’s net revenues in the same period of 2018 was not included as the part of denominator.


 
YY INC.
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
 
    December
 31,
2018 
  June
30,
2019
  June
30,
2019
    RMB   RMB   US$
Assets            
Current assets            
Cash and cash equivalents   6,004,231   11,010,997   1,603,933
Restricted cash and cash equivalents   -   283,161   41,247
Short-term deposits   7,326,996   10,050,554   1,464,028
Restricted short-term deposits   -   302,990   44,135
Short-term investments   979,053   3,458,790   503,830
Accounts receivable, net   198,428   629,508   91,698
Amounts due from related parties   193,559   14,098    2,054
Financing receivables, net   768,343   494,088   71,972
Prepayments and other current assets   1,019,019   942,311   137,260
             
Total current assets   16,489,629   27,186,497   3,960,157
             
Non-current assets            
Long-term deposits   1,000,000   -   -
Deferred tax assets   70,834   120,141   17,501
Investments   4,591,524   1,534,593   223,539
Property and equipment, net   1,296,319   1,984,150   289,024
Land use rights, net   1,784,639   1,760,591   256,459
Intangible assets, net   74,685   3,411,719   496,973
Right-of-use assets, net(1)   -   292,791   42,650
Goodwill   11,763   12,758,974   1,858,554
Financing receivables, net   224,793   224,048   32,636
Other non-current assets   223,859   276,233   40,238
             
Total non-current assets   9,278,416   22,363,240   3,257,574
             
Total assets   25,768,045   49,549,737   7,217,731
             
Liabilities, mezzanine equity and shareholders’ equity            
Current liabilities            
Convertible bonds   6,863   -   -
Accounts payable   114,589   215,254   31,355
Deferred revenue   951,616   1,335,794   194,580
Advances from customers   101,690   97,081   14,141
Income taxes payable   235,561   403,005   58,704
Accrued liabilities and other current liabilities   2,414,371   3,855,975   561,686
Amounts due to related parties   28,336   34,890   5,082
Lease liabilities due within one year(1)   -   111,179   16,195 
Short-term loans   -   281,588   41,018
             
Total current liabilities   3,853,026   6,334,766   922,761
             
Non-current liabilities            
  Convertible bonds   -   4,736,225   689,909
Lease liabilities(1)   -   187,094   27,253
Deferred revenue   91,710   153,948   22,425
Deferred tax liabilities   27,505   326,025   47,491
             
Total non-current liabilities   119,215   5,403,292   787,078
             
Total liabilities   3,972,241   11,738,058   1,709,839
             


YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
    December
31,
2018
  June
 30,
2019
  June
 30,
2019
    RMB   RMB   US$
             
Mezzanine equity   418,673   439,325   63,995
             
Shareholders’ equity            
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 981,740,848 shares issued and outstanding as of December 31, 2018; 1,298,420,684 shares issued and 1,290,568,495 shares outstanding as of and June 30, 2019, respectively)   59   80   12
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 288,182,976 and  326,509,555 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively)   21   24   3
Additional paid-in capital   11,168,866   21,620,780   3,149,422
Statutory reserves   101,725   101,725   14,818
Retained earnings   6,913,469   10,057,138   1,464,987
Accumulated other comprehensive income   336,152   600,217   87,431
             
Total YY Inc.’s shareholders’ equity   18,520,292   32,379,964   4,716,673
             
Non-controlling interests   2,856,839   4,992,390   727,224
             
Total shareholders’ equity   21,377,131   37,372,354   5,443,897
             
Total liabilities, mezzanine equity and            
shareholders’ equity   25,768,045   49,549,737   7,217,731
             
             

(1) The Company has adopted ASC842 “Leases” beginning January 1, 2019 using the optional transition method. The only major impact of the standard is that assets and liabilities amounting to RMB145.2 million and RMB141.2 million, respectively, are recognized beginning January 1, 2019 for leased office space with terms of more than 12 months.

 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended   Six Months Ended
    June
 30,
2018
March
31,
2019
June
 30,
2019
June
 30,
2019
  June
30,
2018
June
30,
2019
June
30,
2019
    RMB RMB RMB US$   RMB RMB US$
                   
Net revenues                  
Live streaming(1)   3,559,666     4,485,020     5,922,761     862,747     6,591,701     10,407,781     1,516,064  
Others   213,564     295,564     372,486     54,259     430,460     668,050     97,312  
                   
Total net revenues   3,773,230     4,780,584     6,295,247     917,006     7,022,161     11,075,831     1,613,376  
                   
Cost of revenues(2)   (2,313,772 )   (3,160,325 )   (4,173,841 )   (607,988 )   (4,329,569 )   (7,334,166 )   (1,068,342 )
                   
Gross profit   1,459,458      1,620,259     2,121,406     309,018     2,692,592      3,741,665     545,034  
                   
Operating expenses(2)                  
Research and development expenses   (295,946 )   (404,736 )   (655,421 )   (95,473 )   (545,411 )   (1,060,157 )   (154,429 )
Sales and marketing expenses   (246,130 )   (534,236 )   (1,099,494 )   (160,159 )   (481,788 )   (1,633,730 )   (237,980 )
General and administrative expenses   (237,532 )   (276,424 )   (335,973 )   (48,940 )   (401,508 )   (612,397 )   (89,206 )
                   
Total operating expenses   (779,608 )   (1,215,396 )   (2,090,888 )   (304,572 )   (1,428,707 )   (3,306,284 )   (481,615 )
                   
Other income   33,922     68,688     41,407     6,032     46,296     110,095     16,037  
                   
Operating income   713,772     473,551     71,925     10,478     1,310,181     545,476     79,456  
                   
Interest expenses   (1,548 )   (6,219 )   (12,268 )   (1,787 )   (3,567 )   (18,487 )   (2,693 )
Interest income and investment income   128,850     148,289     156,619     22,814     221,041     304,908     44,415  
Foreign currency exchange (losses) gains, net   (2,823 )   1,333     13,801     2,010     3,896     15,134     2,205  
Gain on deemed disposal and disposal of investments   13,999     -     -     -     13,999     -     -  
Gain on fair value change of investments   1,205,049     2,649,843     14,291     2,082     1,631,596     2,664,134     388,075  
Fair value loss on derivative liabilities   (2,273,355 )   -     -     -       (2,285,223 )   -     -  
Other non-operating expenses   (2,000 )   -     -     -       (2,000 )   -     -  
                   
(Loss) income before income tax expenses   (218,056 )   3,266,797     244,368     35,597     889,923     3,511,165     511,458  
                   
Income tax expenses   (147,419 )   (123,971 )   (143,896 )   (20,961 )   (295,664 )   (267,867 )   (39,019 )
                   
(Loss) income before share of income  in equity method investments, net of income taxes   (365,475 )   3,142,826     100,472     14,636     594,259     3,243,298     472,439  
                   
Share of income in equity method investments, net of income taxes   88,992     7,156     6,947     1,012     98,171     14,103     2,054  
                   
Net (loss) income   (276,483 )   3,149,982     107,419     15,648     692,430     3,257,401     474,493  
                   
Less: Net (loss)  income attributable to the non-controlling interest shareholders and the mezzanine equity classified as non-controlling interest shareholders   (176,565 )   29,549     65,342     9,518     (171,181 )   94,891     13,822  
                   
Net (loss) income attributable to controlling interest of YY Inc.   (99,918 )   3,120,433     42,077     6,130     863,611     3,162,510     460,671  
                   
Less: Accretion of subsidiaries’  redeemable convertible preferred shares to redemption value   36,969     9,365     9,476     1,380     67,076     18,841     2,745  
Cumulative dividend on subsidiary’s Series A Preferred Shares   -     6,730     6,811     992     -     13,541     1,972  
Deemed dividend to subsidiary’s Series A preferred shareholders   -     -     -     -     489,284     -     -  
                   
Net (loss) income attributable to common shareholders of YY Inc.   (136,887 )   3,104,338     25,790     3,758     307,251     3,130,128     455,954  


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended   Six Months Ended
    June
 30,
2018
  March
 31,
2019
  June
 30,
2019
  June
 30,
2019
  June
 30,
2018
  June
 30,
2019
  June
30,
2019
    RMB   RMB   RMB   US$   RMB   RMB   US$
                           
 

Net (loss) income per ADS
                         
—Basic   (2.14 ) 44.93   0.32   0.05   4.82   42.06   6.13
—Diluted   (2.14 ) 44.55   0.27   0.04   4.75   41.31   6.02
Weighted average number of ADS used in calculating net income  per ADS                          
—Basic   63,839,293   69,097,090   79,682,966   79,682,966   63,780,159   74,418,556   74,418,556
—Diluted   63,839,293   69,640,885   81,167,679   81,167,679   64,712,271   75,764,380   75,764,380

(1)     Live streaming revenues by geographical areas were as follows:

    Three Months Ended   Six Months Ended
    June
 30,
2018
March
 31,
2019
June
 30,
2019
June
30,
2019
  June
 30,
2018
June
30,
2019
June
30,
2019
    RMB RMB RMB US$   RMB RMB US$
                   
PRC   3,559,666 4,189,410 5,016,587 730,748   6,591,701 9,205,997 1,341,004
Non-PRC   - 295,610 906,174 131,999   - 1,201,784 175,060

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

    Three Months Ended   Six Months Ended
    June
 30,
2018
March
 31,
2019
June
 30,
2019
June
30,
2019
  June
 30,
2018
June
30,
2019
June
30,
2019
    RMB RMB RMB US$   RMB RMB US$
                   
Cost of revenues   24,059 14,309 15,604 2,273   43,667 29,913 4,357
Research and development expenses   67,912 70,607 160,029 23,311   122,379 230,636 33,596
Sales and marketing expenses   2,406 1,976 3,452 503   4,275 5,428 791
General and administrative expenses   124,978 94,877 85,197 12,410   161,541 180,074 26,231


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended   Six Months Ended
    June
 30,
2018
  March
 31,
2019
  June
 30,
2019
  June
30,
2019
    June
 30,
2018
  June
30,
2019
  June
30,
2019
 
    RMB   RMB   RMB   US$     RMB   RMB   US$  
                                 
Operating income   713,772   473,551   71,925   10,478     1,310,181   545,476   79,456  
Share-based compensation expenses   219,355   181,769   264,282   38,497     331,862   446,051   64,975  
Impairment of goodwill and investments   -   -   -   -     18,349   -   -  
Amortization of intangible assets from business acquisitions   -   62,000   188,740   27,493     -   250,740   36,524  
                                 
Non-GAAP operating income   933,127   717,320   524,947   76,468     1,660,392   1,242,267   180,955  


Net (loss) income   (276,483 ) 3,149,982   107,419   15,648     692,430   3,257,401   474,493  
Share-based compensation expenses   219,355   181,769   264,282   38,497     331,862   446,051   64,975  
Impairment of goodwill and investments   -   -   -   -     18,349   -   -  
Amortization of intangible assets from business acquisitions   -   62,000   188,740   27,493     -   250,740   36,524  
Gain on deemed disposal and disposal of investments   (13,999 ) -   -   -     (13,999 ) -   -  
Gain on fair value change of investments and equity investees’ investments   (1,287,301 ) (2,655,338 ) (13,332 ) (1,942 )   (1,713,848 ) (2,668,670 ) (388,736 )
Fair value loss on derivative liabilities   2,273,355   -   -   -     2,285,223   -   -  
Interest expenses related to the convertible bonds’ amortization to face value   -   -   4,287   624     -   4,287   624  
Income tax effects on non-GAAP adjustments   30,601   (16,996 ) (31,891 ) (4,645 )   75,067   (48,887 ) (7,121 )
                                 
Non-GAAP net income   945,528   721,417   519,505   75,675     1,675,084    1,240,922   180,759  


Net (loss) income attributable to common shareholders of YY Inc.   (136,887 ) 3,104,338   25,790   3,758     307,251   3,130,128   455,954  
Share-based compensation expenses   219,355   181,769   264,282   38,497     331,862   446,051   64,975  
Impairment of goodwill and investments   -   -   -   -     18,349   -   -  
Amortization of intangible assets from business acquisitions   -   62,000   188,740   27,493     -   250,740   36,524  
Gain on deemed disposal and disposal  of investments   (13,999 ) -   -   -     (13,999 ) -   -  
Gain on fair value change of investments and equity investees’ investments   (1,287,301 ) (2,655,338 ) (13,332 ) (1,942 )   (1,713,848 ) (2,668,670 ) (388,736 )
Fair value loss on derivative liabilities   2,273,355    -   -   -     2,285,223   -   -  
Interest expenses related to the convertible bonds’ amortization to face value   -   -   4,287   624     -   4,287   624  
Accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders   36,969   16,095   16,287   2,372     556,360   32,382   4,717  
Income tax effects on non-GAAP adjustments   30,601   (16,996 ) (31,891 ) (4,645 )   75,067   (48,887 ) (7,121 )
Non-GAAP adjustments for net loss attributable to the non-controlling interest shareholders   (211,884 ) (38,346 ) (29,941 ) (4,361 )   (206,064 ) (68,287 ) (9,947 )
                                 
Non-GAAP net income attributable to controlling interest and common shareholders of YY Inc.   910,209   653,522   424,222   61,796     1,640,201    1,077,744   156,990  


...
 

Non-GAAP net income per ADS
                               
—Basic   14.26   9.46   5.32   0.77     25.72   14.48   2.11