Chinese Internet companies have been among the stock market's
biggest gainers over recent months as investors adopt a more
bullish attitude on growth prospects in China.
One of the beneficiaries isYY (
), which operates an online social communication platform that
lets users take part in group activities through voice, text and
video. They can play games, watch shows and concerts, sing along
to karaoke songs, and chat with other users using real-time audio
Shares of YY have risen more than 300% since the beginning of
May. The stock has risen more than 40% so far in 2014, notching
new record intraday highs Wednesday, Thursday and on Friday, when
it opened at 72.78 before settling back.
YY joins other Chinese Internet stocks -- includingBaidu (
),SouFun Holdings (
) andBitAuto (
) -- in establishing new stock-price highs in 2014.
These gains are partly the result of a rapidly expanding
online market in China, analysts say, helped by accelerated
adoption of smartphones and other mobile devices.
Revenue for Chinese search services in 2013 rose 40% from the
prior year to 39.32 billion yuan, or about $6.5 billion,
according to a report by Chinese online data service iResearch
A Triple Play
YY itself has been growing in triple digits as it continues to
expand its user base and product mix. Its
interactive/entertainment platform serves the mainland and
includes YY Client, the YY.com and Duowan.com Web portals, Mobile
YY and Web-based YY. It offers free services as well as paid
Most of its business comes from online games and music, though
YY also gets revenue from online advertising, online education
and other sources.
"YY offers a rich-media platform which allows large-scale
communications in real time," JPMorgan analyst Alex Yao noted in
a report last year initiating coverage on the stock. "Expansion
of monetization into other activities, such as education, should
increase the payment ratio and drive revenue growth over the next
On a third-quarter conference call with analysts, YY CEO David
Xueling Li sounded particularly upbeat about prospects for the
company's education platform. It lets teachers broadcast classes
and host small group discussions afterward.
During the third quarter, the number of teachers on the
platform increased by 29% from the previous quarter to
"We are confident both in the long-term growth prospects
associated with the online education sector in China, as well as
our internal capabilities to successfully expand deeper into this
vertical," Li said.
For now, much of the attention is on YY's core products such
as YY Music, a streaming music and karaoke site that has grown at
a staggering rate in recent quarters.
During the third quarter, revenue from YY Music grew 161%
year-over-year as the number of users more than doubled to
Sound Of Success
Expectations for YY Music are so high that even those numbers
weren't enough to satisfy Wall Street. YY stock fell 11% the day
the company reported its Q3 results -- partly because YY Music's
revenue growth didn't keep pace with 184% and 246% gains logged
in the second and first quarters respectively.
That was about the only sour point during the quarter. YY
reported earnings of 47 cents a share, topping views for 31
cents. Sales more than doubled to $79.6 million, above estimates
for $71.3 million.
In a note, Morgan Stanley analyst Timothy Chan pointed out
that YY's music and game-playing users grew 90% year over year
and have "ample" upside potential.
"YY is in the initial stages of monetizing its user base,"
Chan noted. "New services, such as education, game broadcasting
and group conference calls, may provide monetization
Another highlight of the quarter was development of YY's
partnership with Hunan Satellite Television and EE Media,
announced in June, to bring the 2013 season of China's popular
"Happy Boy Show" singing talent competition to YY's interactive
"Close cooperation with Hunan TV on 'Happy Boy' bolstered both
user engagement and monetization for YY Music, which helped YY
promote its branding with mainstream media and lay the foundation
for further hybrid social TV content," Citigroup analyst Ravi
Meanwhile, YY continues to grow its number of mobile users.
During the third quarter, monthly active users of the company's
mobile platform increased 19% quarter over quarter and 94% year
over year to more than 17 million.
YY also launched its mobile gaming platform during the
quarter, and has been busy building its gaming portfolio.
"In this beginning stage, we remain more focused on the
development of the platform and the expansion of its user base,"
CEO Li said on the company's quarterly conference call with
analysts. "As we head into 2014, we will continue to focus
heavily on suggesting our monetization efforts on the mobile
Analysts polled by Thomson Reuters expect YY to log EPS of
$1.49 for all of 2013. They see EPS rising to $2.19 in 2014 and
$2.67 in 2015.
YY is the 16th largest name in IBD's Internet-Content industry
group, whereGoogle (
) is the largest by market cap, of 46 stocks. The group ranks No.
6 of 197 IBD tracks.