If you have yet to see, YY stock (NASDAQ:YY) is rallying hard today, with shares up about 18% at the time of this writing. YY stock is rallying on the back of better than expected Q3 results, with beats on both the top and bottom line. In this column we present the highlights you need to be aware of when considering an investment in YY stock:

Net revenues increased by 48.0% to RMB3,092.3 million (US$464.8 million) in the third quarter of 2017 from RMB2,089.8 million in the corresponding period of 2016, primarily driven by the increase in live streaming revenues. Live streaming revenues increased by 60.4% to RMB2,871.6 million (US$431.6 million) in the third quarter of 2017 from RMB1,790.4 million in the corresponding period of 2016. Live streaming revenues from the YY Live segment were RMB2,319.2 million (US$348.6 million) and from the Huya segment were RMB552.4 million (US$83.0 million) in the third quarter of 2017.

Revenues from online games were RMB122.0 million (US$18.3 million) in the third quarter of 2017 as compared to RMB149.5 million in the corresponding period of 2016.

Revenues from membership were RMB49.5 million (US$7.4 million) in the third quarter of 2017 as compared to RMB68.8 million in the corresponding period of 2016.

Other revenues, mainly representing revenues from the Company’s online advertising revenues, were RMB49.2 million (US$7.4 million) in the third quarter of 2017, compared with RMB81.1 million in the corresponding period of 2016. The declines in online gaming, membership, and other revenues mainly reflected the Company’s continued strategic shift towards its live streaming business.

COST OF REVENUES AND GROSS PROFIT 
Cost of revenues increased by 48.2% to RMB1,889.3 million (US$284.0 million) in the third quarter of 2017 from RMB1,275.0 million in the corresponding period of 2016, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,604.9 million (US$241.2 million) in the third quarter of 2017 from RMB967.4 million in the corresponding period of 2016. The increase in revenue-sharing fees and content costs paid to performers, guilds and content providers was in line with the increase in revenues and was primarily due to the higher level of user engagement and spending driven by promotional activities. In addition, bandwidth costs increased to RMB160.5 million (US$24.1 million) in the third quarter of 2017 from RMB149.2 million in the corresponding period of 2016, primarily reflecting continued user base expansion and video quality improvements, but largely offset by the Company’s improved efficiency and pricing terms.

Gross profit increased by 47.6% to RMB1,203.0 million (US$180.8 million) in the third quarter of 2017 from RMB814.8 million in the corresponding period of 2016. Gross margin was 38.9% in the third quarter of 2017 as compared to 39.0% in the corresponding period of 2016 and 40.1% in the second quarter of 2017. The sequential decline of gross margin was mainly attributable to the increased revenue sharing with entry-level hosts on the Company’s platform to develop a more healthy and balanced ecosystem.

OPERATING INCOME
Operating expenses in the third quarter of 2017 increased by 49.4% to RMB560.3 million (US$84.2 million) from RMB375.0 million in the corresponding period of 2016.

Operating income in the third quarter of 2017 increased by 39.9% to RMB661.4 million (US$99.4 million) from RMB472.9 million in the corresponding period of 2016. Operating margin in the third quarter of 2017 was 21.4% as compared to 22.6% in the corresponding period of 2016.

Non-GAAP operating income increased by 30.7% to RMB664.5 million (US$99.9 million) in the third quarter of 2017 from RMB508.4 million in the corresponding period of 2016. Non-GAAP operating margin was 21.5% in the third quarter of 2017 as compared to 24.3% in the corresponding period of 2016.

NET INCOME
Net income attributable to YY Inc. increased by 59.0% to RMB636.0 million (US$95.6 million) in the third quarter of 2017 from RMB400.0 million in the corresponding period of 2016. Net margin in the third quarter of 2017 increased to 20.6% from 19.1% in the corresponding period of 2016.

Non-GAAP net income attributable to YY Inc. increased by 46.7% to RMB639.1 million (US$96.1 million) from RMB435.6 million in the corresponding period of 2016. Non-GAAP net margin in the third quarter of 2017 was 20.7% as compared to 20.8% in the corresponding period of 2016.

NET INCOME PER ADS
Diluted net income per ADS increased by 52.3% to RMB10.51 (US$1.58) in the third quarter of 2017 from RMB6.90 in the corresponding period of 2016.

Non-GAAP diluted net income per ADS increased by 41.2% to RMB10.56 (US$1.59) in the third quarter of 2017 from RMB7.48 in the corresponding period of 2016.

BALANCE SHEET AND CASH FLOWS 
As of September 30, 2017, the Company had cash and cash equivalents of RMB1,129.0 million (US$169.7 million), short-term deposits of RMB6,474.2 million (US$973.1 million) and restricted short-term deposits of RMB1,000.0 million (US$150.3 million). For the third quarter of 2017, net cash from operating activities was RMB1,045.0 million (US$157.1 million).

“We continued to deliver robust financial and operating results in the third quarter of 2017,” stated Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY. “Our mobile live streaming monthly active users (MAU) increased by 36.6% year over year to 73.0 million, and our total live streaming paying users increased by 46.5% year over year to over 6.3 million. Our solid performance is a testament to our highly effective strategies in introducing more initiatives to attract younger generation users and to enhance existing user’s engagement and consumption on our live streaming social media platform.  In the past quarter, we rolled out a series of innovative social functionalities and features in the latest version of YY Live 7.0, including Accompany Me, Happy Basketball, and Clip Doll Online. In addition, we launched several new short-form video products to tap into more segmented video verticals and fulfill the diversified demands of users across China. On the Huya side, we are pleased to see that it continued its trajectory of user growth and revenue generation in the third quarter. Looking ahead, by leveraging our dual growth engines, YY Live and Huya, we will continue to invent new ways to attract users and stimulate user engagement, further build our content ecosystem, and explore more monetization opportunities. We believe that we have the right strategy in place to stay ahead of the competition in China’s live streaming social media industry.”

We expect shares to continue rallying on this news.

What do you think of YY stock here?

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