China’s social media streaming platform YY (NASDAQ: YY) reported 4th quarter revenue and earnings just ahead of analyst estimates on Tuesday. YY managed to earn $1.87 per share on total revenue of $675 million, versus the expected $1.86 on revenue of $667 million.


By the Numbers

For the full year net revenue increased by 36% to $2.29 billion, just ahead of analyst estimates. The company earned $7.38 per ADR, versus the $7.28 expected by analysts.

The share price rose as much as 19% before closing 13% higher at $81.44 on Tuesday. On Wednesday the stock price erased some of those gains but remains more than 10% higher than last Friday’s close. These results and the guidance issued actually represent slowing growth, however, the stock price rally may have more to do with the company’s future prospects — and strong subscriber growth from its subsidiaries — than its own earnings numbers.

YY subsidiary Huya also released strong numbers on Monday, having recently reached 100 million monthly active users. Huya offers live video game streaming. Huya’s share price rallied 22% after the company beat earnings and revenue estimates.


Strong User Growth

YY is not very well known outside of China, but user numbers show that it is comparable with some of the world’s largest platforms like Twitter, Reddit, and LinkedIn.

Monthly active mobile users grew 18% YoY to 90.4 million, while the number of users actually paying for the company’s live streaming services grew 36.6% to 8.9 million. One of YY’s recently launched international products, HAGO which is available in 33 countries, has already attracted nearly 21 million monthly users.

Steady Guidance for the Current Quarter

For the first quarter of 2019, YY guided revenue in the $598 million to $620 million range, ahead of Wall Street’s estimate of $596 million, and up 23 to 28% YoY. The company did not issue full-year guidance.

CEO David Xueling Li emphasized the fact that the company plans to continue its plan to grow the platform globally and not just in China.


Is YY a Bargain?

YY’s results showed earnings and revenue growth slowing, but much of that is already in the price, which is still more than 40% off last year’s highs.

The company now has a market cap of some $5 billion which is low compared to U.S. social networks with similar user numbers. Microsoft bought LinkedIn with its 270 million users for $26 billion, while Twitter with 320 million users has a market value of $23 billion.

Valuation aside, investing in YY is more about the company’s future prospects than its current earnings multiple. The company is well positioned to capitalize on the rapidly growing live game streaming business and has an ambitious plan to grow globally. It is also in the process of acquiring control of BIGO, an international and localized version of YY, which should help it grow its international footprint, especially in countries like Indonesia and India.

With rapidly growing expenses and lower margins, the next year could be a little rocky for YY’s stock price, and in the short- to medium-term it’s entirely likely those chasing the stock may be disappointed. However, for long-term investors who believe in the company, any volatility in the next 12 months may present a great buying opportunity.

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