Please ensure Javascript is enabled for purposes of website accessibility

Why YY Inc. Stock Fell 14.7% in October

By Keith Noonan – Updated Nov 8, 2018 at 10:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

YY was one of last year's best-performing social media stocks, but it's been on a bearish run in 2018.

What happened

Shares of YY Inc. (YY -2.45%) shed 14.7% of their value in October, according to data provided by S&P Global Market Intelligence. The stock fell in conjunction with a broader sell-off and an especially rough performance for Chinese tech stocks.

^SPX Chart

^SPX data by YCharts.

YY has seen steep sell-offs in 2018 after gaining roughly 187% last year. The stock trades down roughly 40% year to date and has struggled due to signs of slowing sales-and-earnings expansion and weakened confidence in China's growth-dependent tech stocks amid broader economic uncertainty. 

A person holding a tablet displaying many miniature screens.

Image source: Getty Images.

So what

YY shareholders can take some comfort in knowing that last month's sell-offs did not stem from negative news or signs of weakness in the business. The Invesco China Technology ETF, which combines 74 different Chinese tech stocks into a single security and reflects the performance of the broader sector, fell 15.1% in October. YY's declines closely mirrored those of China's tech sector, which sold off in the middle of the month due to concerns that ongoing trade disputes with the U.S. will cause the Middle Kingdom's economy to cool. The Invesco China Technology ETF is now down roughly 30% year to date. 

As a video-based social media company that generates almost all of its sales in the Chinese market, YY's business does not appear to be at great risk from trade disputes. The company's performance would likely be impacted by slowing growth and tightening economic conditions that could result from a prolonged trade war, but its core business of hosting video streamers and collecting a portion of donations sent to them by viewers should be largely unaffected by tariffs. For long-term investors, the possibility that China's government will implement stricter rules and restrictions for streaming platforms is probably the bigger risk.

Now what

YY stock has recovered some of the ground it lost in October, with shares trading up roughly 5.8% in the month so far.

CQQQ Chart

CQQQ data by YCharts.

Gains have come amid a recovery for Chinese tech stocks and the broader market, with comments from President Trump on Nov. 1 indicating that the U.S. and China could soon reach a trade agreement seemingly providing the biggest positive catalyst.

YY is scheduled to report its third-quarter earnings and host a conference call after market close on Nov. 12. The company is guiding for sales between RMB3.89 billion and RMB4.02 billion, representing year-over-year growth of roughly 28% at the midpoint. Shares trade at roughly 9.5 times this year's expected earnings and 1.8 times expected sales.

Keith Noonan 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

YY Stock Quote
$25.86 (-2.45%) $0.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.