An investment in YY Inc. will allow the individual investor an entrance into the rapidly expanding social network market in China. The company allows users to communicate through text, voice and video. Participants can also play games, watch various shows and participate in meetings through conference calls. In addition, one can watch music concerts, fashion events, utilize E-learning, finance and other software applications. For some larger events, it can be considered a virtual stadium.
Teachers, singers, actors and other people using the service, can earn money on YY via virtual goods. Top performers on the site can earn in excess of $20,000 USD (United States Dollar) a month. Audience members can buy and give virtual roses to their favorite performers, which can then be cashed in for real money. Classes can be conducted on line as well, for training and instruction, which can easily be provided for in a plethora of subjects.
When the stock first went public in November 2012 the stock sold for $10.50 USD per share. The stock for YY Inc. reached a peak on March 06th of this year, close to $91.00 USD. Following that, there was a general sell off in the technology and internet sector in the stock market, driving the price of YY shares down 45% in 2 months.
At present the stock for the company is still 30% off its peak. On June 11, the stock increased $1.76 USD, a 2.67% increase and ending the business day at $67.72 USD. On June 12, the stock increased a further $1.80 USD a 2.66% increase, ending the day at $69.52 USD. The volume was 2,832,571 with a market capitalization of $3.87 billion USD.
The 52 week range of the stock was from a low of $23.06 USD to a high of $90.93 USD. The average volume for the last 3 months was 2,646,440.
This Chinese company was founded in 2005, as an online gaming company known as Duowan.com. In 2008 the company launched YY, a voice based gaming communications service. By 2011 YY had already grabbed a 84.2% market share in the real-time online communications market in China, based on user time spent. By 2012 there was already a capacity to support over 100,000 participants concurrently on a single channel. There are now over 11 million channels. By 2012 there were over 8 million users on the site at the same time. The company did 421 billion voice minutes in 2011 alone, making it larger than Skype was at the time according to company executives of YY.
I am recommending this stock now, because the sell off in the technology and internet sector was excessive for this company based on the fundamentals of the company. I would predict that the stock will advance above $100.00 USD a share. This analysis is based on the continuing ability of the company to deliver strong revenue and earnings growth in the Chinese market. Internet use is rapidly expanding in China as is social networking, especially among the young. YY is a leader in this industry.
Another positive move by the company is the $100 million USD share repurchase program. This will equal about 1.5 million shares, near 6% of the total stock now available.
The stock is still somewhat undervalued, if one considers that Quarter 1 revenues and earnings were above the analyst expectations. There is good reason to expect the second quarter will bring in similar growth in income. Net income is increasing over 100% driven by over 200% revenue growth in online music and entertainment. This alone accounted for over 50% of the total revenue in the first business quarter. This segment has seen over 100% growth from a year ago in online customers.
The company is estimating revenues of $119.2 million USD to $120.8 million USD for Quarter 2.
The company recently took a hit in share price, as a result of the Chinese government campaign identified as “Clean the Web 2014”. The government initiative is mostly seen as an anti-pornography drive. YY does not base its growth projections on servicing this market, so despite investor fears of Chinese censorship, it is unlikely to effect YY in a negative way. It might actually be a long term benefit to the company.
The YY Platform consists of YY Client, the YY.com and Duowan.com web portals, Mobile YY and Web-based YY. The company began its expansion with YY Client, which provided personal computer software for use in real time access. It provided a link to online activities groups which the company identifies as channels. YY.com is the portal and guide to the various online channels. It allows the user an awareness of the events and content available across the platform.
As mentioned before, Dowan.com is a game media website. The site contains all encompassing information on the available online games and support for potential players.
Mobile YY is the mobile device version of YY Client which was introduced in 2010. WeiChang is another mobile application, later introduced in 2012. It allows users the ability to sign online through a mobile device. It provided high quality musical accompaniment, real-time lyrics display, and allows other users to rank and evaluate performances.
Web-based YY is an extension of YY Client, making YY available to a larger audience because it does not require downloads or installations. It can all be accessed solely by using a web browser.
By the fall of 2012 there were already 400 million registered user accounts with over 70 million monthly active users. If one considers the size of the Chinese market (over 1 billion) the growth potential cannot be underestimated.