JOYY (NASDAQ:YY), the Chinese streaming video company formerly known as YY, fully acquired Singapore-based start-up Bigo last March. The acquisition added the live streaming app Bigo Live, the messaging app IMO, and the short video app Like to its core live streaming services.

JOYY subsequently rebranded Like as Likee, and downloads of the app surged. Likee was the seventh-most downloaded app worldwide in 2019, according to App Annie's annual "State of Mobile" report, surpassing Snap's Snapchat, Netflix, and Spotify in total downloads.

Likee is also advancing on ByteDance's short video app TikTok, which ranked fourth on App Annie's chart. TikTok's meteoric growth previously forced market leaders like Facebook (NASDAQ:FB) and Tencent (OTC:TCEHY) to launch their own short video apps, but those smaller apps couldn't keep pace with TikTok, which topped 500 million monthly active users in 2018. Let's see why Likee is gaining ground against TikTok, and what its growth means for the future of JOYY's stock.

JOYY's Likee app.

Image source: Likee.

How Likee became TikTok's biggest rival

Many of TikTok's challengers, including Facebook's Lasso and Tencent's Weishi, cloned TikTok's short video format without adding innovative features. Likee, however, lets users edit their videos with a wider range of tools, filters, stickers, and special effects than TikTok.

TikTok mainly focuses on China, the United States, and other developed countries, while Likee considers India, Russia, Indonesia, Latin America, and the U.S. to be its top markets. Much of Likee's growth comes from India, where it's engaging younger users with viral hashtag campaigns and granular localization campaigns in multiple Indian languages. It's also expanding into Russia with offline events.

JOYY also integrates Likee's video content into Bigo's messaging app IMO for users in over 45 countries and regions. IMO hit 212 million mobile monthly active users (MAUs) last quarter, and 50.2 million of them watched Likee's embedded videos -- which feeds the growth of both apps.

Those efforts boosted Likee's MAUs to 100.2 million in the third quarter of 2019, up from 80.7 million MAUs in the second quarter. Its MAUs also grew 413% from a year earlier, when it was still known as Like.

During last quarter's conference call, CEO David Li claimed that Likee was the "second-largest short-form video platform globally outside of China," and that it was "well-positioned to capitalize on the growing market demand" for short-form videos from Gen Z users worldwide.

Liu also noted that Likee was attracting and retaining users with fresh features like "data visualization tools, collaborative travel vlog projects, AI-based image cropping, photo series, and face-swapping features." Liu claims that these new features "significantly lower the short-form video production entry barrier to users."

A young woman streams a live video on a smartphone.

Image source: Getty Images.

What does this mean for JOYY's investors?

Likee's growth gives JOYY a meaningful way to challenge ByteDance's TikTok, but CFO Bing Jin admitted that the app remained in a "very early stage of monetization" during last quarter's conference call.

Bing noted that most of JOYY's revenue from Bigo still came from its eponymous live video streaming platform, Bigo Live, instead of Likee or IMO. However, Bing also stated that Likee would continue exploring monetization options through ads and live streaming.

Those statements indicate that JOYY won't catch up to ByteDance, which surpassed Baidu and Tencent in digital ad revenue from China last year, any time soon. It also indicates that Likee's expansion will likely throttle its margins instead of boosting its revenue.

Yet JOYY's revenue growth has clearly accelerated over the past year. Its core live streaming business remains strong, and revenue from its "other" businesses -- including its game streaming platform Huya (NYSE:HUYA), its mobile gaming social network Hago, and Bigo's platforms -- is still surging:

YOY revenue growth

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Live streaming

36%

30%

48%

66%

66%

Others

(7%)

(3%)

36%

74%

98%

Total

33%

28%

47%

67%

68%

YOY = year-over-year, RMB terms. Source: YY quarterly reports.

JOYY's "other" revenue only accounted for 6% of its top line last quarter, but that percentage should climb as it monetizes Likee and IMO. But that growth could also be a double-edged sword, since Huya and Bigo's apps generate lower-margin revenue than its live streaming services, which allow viewers to buy virtual gifts for their favorite broadcasters.

The bottom line

Likee is succeeding where other short video apps failed, but it's premature to call this app a "TikTok killer." TikTok still has a much larger audience, and it's generating significantly more revenue from ads.

Investors shouldn't buy JOYY's stock based on Likee's growth alone. However, analysts still expect the company's revenue and earnings to grow 26% and 30%, respectively, next year -- which are high growth rates for a stock that trades at 13 times forward earnings. In short, JOYY remains an undervalued growth stock in China's crowded tech market, and it could still have plenty of room to run over the long term.