Live video streaming company JOYY (YY 1.12%) reported mixed results for its fourth quarter ended Dec. 31, 2019. Net revenues increased by 64.2% (in constant currency), while net income attributable to shareholders plunged 75% (in constant currency) owing mainly to the consolidation of its newly acquired subsidiary Bigo. Let's look at three major takeaways that investors should note from its earnings report.
JOYY's fast-growing subsidiary Huya (HUYA -2.42%), also known as the Twitch of China, had a strong quarter with solid numbers across the board. It reported that revenue grew 64% to $354 million (in constant currency), while net income jumped 60.3% to $22.9 million (in constant currency). The online game-streaming company also grew its monthly active users, or MAUs, by 28.8% to 150.2 million, with paying users reaching 5.1 million, up 5.9% from 2018 .
Rongjie Dong, Chief Executive Officer of Huya, attributed the growth in user numbers and revenue to the actions Huya took last year, including enriching its content, improving products and services, and strengthening its technology capabilities.
Going forward, Huya guided for a 45%-47% increase in net revenue for the first quarter of 2020. That's strong guidance, considering that it has included the potential impact of the COVID-19 outbreak on the business.
JOYY spent a sizable $1.5 billion to acquire the remaining 68.3% of Singapore-based Bigo's shares that it did not own in March 2019. Through Bigo, JOYY intends to ramp up its overseas offerings in video-streaming services (through Bigo Live platform) and short video services (through Likee platform).
So far, the acquisition seems to have worked out well for the company. Consolidating Bigo gave JOYY's revenue a huge boost, and the growth in Bigo's revenue (up 17% sequentially ) also contributed handsomely toward JOYY's overall gains in the latest quarter. Moreover, both Likee and Bigo Live saw their MAUs jump by 208.3% and 18.6%, respectively, on a year-on-year basis to 115.3 million and 23.1 million.
Bigo Live contributed the bulk of Bigo's income, since other platforms like Likee are still in the very early stages of their development, with little revenue. This will change as Likee achieves critical mass and starts to monetize its users. Also, though BIGO is still operating at a net loss ($74 million for the quarter ), JOYY expects BIGO to break even on a single-month basis by the end of 2020. If the company can meet this goal, it will be a strong boost to JOYY's overall profitability in 2020 and beyond.
Unlike the fast-growing Huya and Bigo, YY (JOYY's China live streaming business) delivered modest growth in the quarter, with revenue growing at "only" 6.7% (in constant currency) as compared to 2018. Despite its slower growth, YY generated a solid operating profit of $108 million (out of $481 million in revenue) through selling virtual gifts to viewers of its live-streaming platform YY Live. Viewers purchase these gifts mainly to reward their favorite hosts.
Though YY is no longer a fast-growing business, its strong profitability (as compared to the groupwide operating profit of only $52 million) provides the necessary firepower for JOYY to grow businesses like Bigo. Still, YY faces competition from the likes of Momo, Tencent Music Entertainment Group-ADR, Kuaishou, Douyin, and other live streaming platforms in China. This is a risk that we will need to keep a close eye on.
Time to invest?
Despite its growth in revenue, JOYY's stock has fallen 39% in the last 12 months, mainly because of the drop in groupwide earnings in the third and fourth quarters of 2019.
Still, JOYY is well-positioned to maintain its high revenue growth rates going forward thanks to the growing Huya and Bigo businesses. In fact, it guided that net revenue would be up by 41.2% to 43.3% for the first quarter of 2020, notwithstanding the potential impact of the COVID-19 outbreak.