Stuck in a trading range since last August 2018, YY (NASDAQ: YY) stock might start to break out after reporting fourth-quarter earnings that beat analysts’ consensus estimates. In its report posted on March 4, YY reported that its revenue had grown 28% from last year’s Q4. The live-streaming social media giant’s results may spur investors interested in exposure to the Chinese market to buy YY stock.
Fourth-Quarter Highlights
YY reported revenue of RMB4,640.9 million or $675 million for Q4. For the year, its revenue grew 36% to US $2.3 billion. YY attributed the strong quarterly performance of both YY Live. its live online streaming product, and Huya, its video-game-broadcasting business, to the company’s expansion of its user base.
Though revenue grew 28%, cost of revenues increased 37.2%. The latter surge was caused by higher revenue-sharing fees and content costs. YY ended 2018 with $873.3 million in cash and cash equivalents, or $13.75 per share.
Strong Game Titles, Strong Q1 Outlook
YY entered the global market for the first time with its HAGO video game. The company released the game in 33 countries and regions around the world. In Q4, the social game attracted 20.9 million monthly average users. In both Indonesia and Vietnam, the game reached the top of the charts of Apple’s (NASDAQ: AAPL) App Store and Alphabet’s (NASDAQ: GOOG) Google Play.
YY achieved strong growth by offering its content to the right set of users. It continues to upgrade its AI algorithms, enabling its targeting to become more and more accurate. The company’s investments in AI gave it the confidence to issue strong Q1 guidance.
YY forecast that its net revenues would surge 23.4% – 28% YoY, excluding the contribution from its acquisition of Bigo Inc.
A Closer Look at the Acquisition of Bigo
YY’s acquisition of the 68.3% stake of Bigo it didn’t previously own could boost the company’s long-term growth rate, causing the gains of YY stock to accelerate. YY paid a total of $1.452 billion in cash and stock for Bigo.
The owner of BIGO LIVE, a short-form video social platform, Bigo attracts many young users in multiple markets around the world. Bigo’s popularity will ensure that it remains entrenched in Southeast Asia, Southern Asia, and the Middle East.
Bigo will continue to expand to more regions,. further fueling its growth.
The Fair Value of YY Stock
The four analysts who cover YY Inc. stock have an average 12-month price target on YY stock of $86. In early afternoon trading, YY stock was changing hands for nearly $76 per share. Despite the potential gains of YY Inc stock, analysts from Nomura and UBS both have “hold” ratings on YY stock. Following the company’s strong Q4 results, however, these research firms may upgrade their ratings on YY Inc stock.
The average fair value of YY stock calculated by finbox.io users is even more bullish than the average price target of Wall Street analysts. Finbox.io users’ average price target on YY Inc stock is $118.
The Bottom Line on YY Stock
YY is not a popular China-based stock. Investors would prefer to hold Alibaba (NYSE: BABA) or JD.com, Inc. (NASDAQ: JD). Yet if markets turn their attention to growing social media firms in the video-sharing space, YY stock will attract more investors.
As of this writing, the author did not hold a position in any of the aforementioned securities.
