What happened

Shares of YY Inc. (NASDAQ:YY) slumped on Wednesday despite a first-quarter report that beat analyst estimates by a wide margin. The Chinese online social-entertainment company produced robust revenue and earnings growth, but it wasn't enough to prevent the stock from tumbling 13.5%. YY stock also dropped despite solid results after its fourth-quarter report in March.

So what

YY reported first-quarter revenue of $518 million, up 43.3% year over year and about $30 million above the average analyst estimate. The number of mobile live-streaming monthly active users jumped 23.9% year over year, to 77.6 million, while the number of live-streaming paying users rose 17.3%, to 6.9 million. Live-streaming accounted for the bulk of the company's revenue, with memberships, online games, and advertising now lumped into the "other revenues" category.

A slumping line on a chart of numbers.

Image source: Getty Images.

Non-GAAP earnings per share came in at $1.72, up 18.5% year over year and $0.20 better than analysts were expecting. Looking ahead to the second quarter, YY expects to produce revenue growth between 38% and 41.8%. The company expects a significant loss related to derivative liabilities, which will push net income into the red.

Now what

YY's first-quarter report was almost entirely good news, but the market punished the stock anyway. Prior to Wednesday's drop, the stock had surged 25% over the past month. That rally may have been too much, too fast.

Shares of YY are still up nearly 80% over the past year, but investors seem to be cooling a bit on the fast-growing company.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.