Young people in China are like young people anywhere. They
like to listen to music, play games, chat with each other and
complain about their parents.
) lets them do all of those things in a single place.
The company operates an online social platform that lets users
engage in group activities through voice, text and video. Users
can play games, watch shows and concerts, screech out karaoke
songs and chat with other users with real-time audio and
YY's platform serves the mainland and consists of YY Client,
the YY.com and Duowan.com Web portals, Mobile YY and Web-based
YY. It offers free services as well as paid memberships.
Most of its revenue comes from online games and music, though
it also gets revenue from online advertising and other
YY went public in November at an opening price of $10.50 per
share. Its stock price has more than doubled since then and
currently trades near 28.
The company's annual revenue has grown more than sevenfold
over the last two years alone. For that, it can thank its unique
operating model as well as a rabid hunger for all things online
"Partly due to a fragmented and highly regulated offline media
environment, combined with a highly developed consumer technology
culture, the Internet takes a structurally larger share of total
media consumption time in China vs. global peers," Citigroup
analyst Ravi Sarathy noted in a report initiating coverage on
He says the Internet's share of media consumption is 47% in
China. That compares with around 25% in the U.S.
YY has been an early innovator in recognizing the potential of
that market and designing its products in a way that taps into
the interests of China's tech-savvy young people.
The company began in 2005 as an online games content site and
a group voice and text real-time chat application designed for
massively multiplayer online (MMO) gamers.
YY has since deepened and evolved its games presence via its
Web games platform, games portal and other applications, Sarathy
says. But it has also developed "significantly beyond" its
initial gaming focus.
"Based on evolving user demands and interests, as well as YY's
continuous innovation of the platform, the company has
capitalized on underlying market demand to evolve its platform
beyond a focus primarily on gamers' needs towards first karaoke
and now broader grass-roots musical talent cultivation," Sarathy
YY has focused much of its recent attention on expanding its
online education offerings, including a move to broaden the
platform's functionality to include interest-based "how to"
YY's emphasis on expanding into new areas should help the
company continue its rapid financial growth.
"Despite volatile operating metrics over the past few
quarters, YY has managed to gradually improve overall
monetization while management proves its strong execution
skills," Deutsche Bank analyst Alan Hellawell noted in a report
upgrading YY to buy from hold.
"We believe ample room exists for YY to grow revenue as it
expands monetization to new verticals, e.g. online education,
etc., over the next few years," Hellawell added.
According to a report from Macquarie Equities Research, YY
should get an additional lift from its focus on mobile devices.
Growth here will be driven by a combination of China's embrace of
smartphones and the recent addition of video functionality for
YY's mobile users.
Meanwhile, YY continues to expand its footprint in
entertainment. Last month, it announced a partnership with Hunan
Satellite Television and EE Media to bring the 2013 season of
China's popular "Happy Boy Show" singing talent competition to
YY's interactive Internet platform.
In late June, YY began broadcasting contestants' training and
rehearsal sessions live across PC and mobile platforms.
During the final rounds of competition this month, YY will
establish a designated channel on YY Music for each finalist,
documenting their real-life stories and offering live,
behind-the-scenes viewer interaction.
"The dynamic combination of bringing together the
interactivity of YY Music with massively popular TV content will
further drive additional user traffic and stickiness with our
end-users and advertisers," YY Chief Executive David Xueling Li
said in a statement.
Financially, YY is off to a good start as a publicly traded
company. During its first quarter it logged sales of $50.7
million, up from $21.7 million the previous year. Earnings came
in at 23 cents per American depositary receipt.
Gross profit margin for the quarter was 53.7%, up from 49.5% a
year earlier. Operating margin rose to 20.5% from only 3.1% the
prior year. The company said margin expansion is mainly the
result of improved cost efficiencies due to greater scale, as
well as YY's ability to control bandwidth costs. The number of
paying users on the YY platform grew by more than 35% to over 1
million during the quarter.
"We will continue to diversify and strengthen the content on
the YY platform by expanding into new verticals and introducing
new products across PC and mobile devices to address the
increasing entertainment and real-time social demands in China,"
CEO Li said on a conference call with analysts.