The novel coronavirus pandemic finally killed off the aging bull market, but Chinese tech companies that generate most of their revenue from live streaming platforms have remained surprisingly resilient. One such company is JOYY (YY -0.45%), the streaming video giant formerly known as YY.
According to its latest earnings report released Tuesday, JOYY's revenue rose 64% annually to 7.62 billion yuan ($1.09 billion) during the fourth quarter, beating estimates by $20 million. Its net income fell 82% to 173 million yuan ($25 million), or $0.27 per ADS -- which still beat estimates by $0.11. Its non-GAAP net income, which excludes certain one-time charges, dipped 29% to 601 million yuan ($86 million). Those declines were largely attributed to its acquisition and consolidation of Bigo.
JOYY's growth rate exceeded its prior forecast, and indicate it's well-insulated from the COVID-19 crisis. Let's see how its businesses are shielded from those headwinds, and why its stock remains undervalued relative to its long-term growth.
Image source: Getty Images.
A well-diversified portfolio of live streaming services
JOYY generated 94% of its revenue from its live-streaming segment during the quarter. That unit owns YY Live, its live video platform for entertainment, music, sports, and e-learning videos; a majority stake in the game streaming platform Huya (HUYA -4.34%); and the Bigo Live streaming app.
The rest of its revenue came from "other" businesses, which include Huya's ad revenue, Bigo's Likee short video app and IMO video chat app, and the Hago mobile gaming social network. Here's how those two businesses fared over the past year:
|
YOY revenue growth |
Q4 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
|---|---|---|---|---|---|
|
Live streaming |
30% |
48% |
66% |
66% |
63% |
|
Others |
(3%) |
36% |
74% |
98% |
89% |
|
Overall |
28% |
47% |
67% |
68% |
64% |
YOY = year-over-year, RMB terms. Source: JOYY quarterly reports.
JOYY ended the quarter with 485.2 million mobile monthly active users (MAUs) across that entire ecosystem. Of those MAUs, 79% came from markets outside of China.
Within that total, average mobile MAUs for JOYY's live streaming services rose 22% to 158.9 million. Roughly 103 million of those users, from YY Live and Huya, were in China. YY's MAUs rose 4% to 41.2 million, and Huya's MAUs grew 22% to 61.6 million.
The remaining 56.1 million live streaming MAUs came from Bigo Live and Hago, which mainly operate outside China. Bigo Live's MAUs rose 19% annually to 23.1 million, and Hago's MAUs grew 58% to 33 million.
The rest of JOYY's MAUs came from other video platforms. IMO ended the quarter with 211 million MAUs, while Likee -- which competes against ByteDance's TikTok -- grew its MAUs by 208% to 115.3 million. Likee's meteoric growth made it the seventh-most downloaded app worldwide last year, according to App Annie.
Lower margins (for now)
JOYY's top-line growth looks impressive, and its video platforms are well-insulated from the global pandemic. Its base of paid users also continued to expand, growing 10% annually to 4.5 million at YY and climbing 6% to 5.1 million at Huya. It also remains in the early stages of monetizing Likee, which could mirror TikTok's massive growth rates and Bigo's other platforms.
Image source: Getty Images.
But for now, JOYY's gross and operating margins are declining. Its gross margin dipped from 35.1% to 33% due to a higher mix of lower-margin revenue from Huya and Bigo, while the costs of consolidating Bigo and expanding overseas reduced its operating margin from 15.5% to 4.8%.
JOYY expects its revenue to rise 41%-43% annually in the first quarter of 2020, even after factoring in the potential impact of the coronavirus pandemic. It didn't provide any earnings guidance, but its margins should improve after it fully integrates Bigo.
Analysts expect JOYY's revenue and earnings to rise 22% and 23%, respectively, this year. Those are impressive growth rates for a stock that trades at 11 times forward earnings.
Is it the right time to buy JOYY?
JOYY's live streaming, short video, and video chat apps should all continue growing throughout the crisis. Its confident outlook for the first quarter indicates its business will continue expanding, and its stock is undervalued relative to its growth. JOYY's stock could certainly slip lower in this volatile coronavirus-driven market, but I believe it will rebound and hit new highs after the crisis ends.
