We estimate that we will receive net proceeds from this offering of
approximately US$71.5 million, or approximately US$82.9 million if the
underwriters exercise their option to purchase additional ADSs in full, after
deducting underwriting discounts and commissions and the estimated offering
expenses payable by us.
The primary purposes of this offering are to create a public market for our
shares for the benefit of all shareholders, retain talented employees by
providing them with equity incentives and obtain additional capital. We intend
to use the net proceeds from this offering for the following purposes:
• approximately US$15.0 million to invest in our voice and video technology
and infrastructure, including purchasing servers and leasing more
bandwidth to support our expanding user base and further enhancing user
experience;
• approximately US$15.0 million to expand our product development and
services offerings, including through the hiring of additional research
and development personnel and the further development of Mobile YY;
• approximately US$15.0 million to expand our sales and marketing
activities, including the hiring of additional sales and marketing
personnel; and
• the balance for other general corporate purposes, including working
capital needs, potential acquisitions, partnerships, alliances and
licensing opportunities.
The amounts and timing of any expenditures will vary depending on the amount of
cash generated by our operations, and the rate of growth, if any, of our
business. Accordingly, our management will have significant flexibility in
applying the net proceeds of the offering. If an unforeseen event occurs or
business conditions change, we may use the proceeds of this offering differently
than as described in this prospectus.
In utilizing the proceeds from this offering, we are permitted under PRC laws
and regulations to provide funding to our PRC subsidiaries only through loans or
capital contributions, and only if we satisfy the applicable government
registration and approval requirements. We cannot assure you that we will be
able to meet these requirements on a timely basis, if at all.
Pending use of the net proceeds, we intend to hold our net proceeds in demand
deposits or invest them in interest-bearing government securities.
We face competition in several major aspects of our business, particularly from
companies that provide online social networking, internet communication and
online games. We also compete for online advertising revenues with other
internet companies that sell online advertising services in China.
Social connectivity and communications. We are not aware of any other company
that offers a live voice- or video-enabled online social platform of similar
scale as ours in China. In relation to voice-enabled communication tools, there
are several internet voice communication service providers in China, including
iSpeak, Tencent’s QQtalk and Dudu, and leading international internet voice
communication service providers, such as Skype, that are expanding in the China
market. In addition, some other leading Chinese internet companies have
announced the launch of internet voice communication services. We compete with
other internet companies that provide voice and video services to Chinese
internet users. However, we do not believe any of these companies have the
capacity to handle large group multi-party voice- and video-enabled live
interactions like we do, and we do not believe they can compete directly with us
on the number of users we can support concurrently on our voice- and
video-enabled platform. The internet voice and video communication industry in
China has become increasingly competitive, and some of our potential competitors
are adopting aggressive measures to gain market share and may challenge our
leading market position in the future.
We may also face potential competition from global social networking service
providers that seek to enter the China market, whether independently or through
the formation of alliances with, or acquisition of, PRC domestic internet
companies. However, we do not believe these companies pose direct competition to
us as they do not currently offer voice- and video-enabled technology on a large
scale.
The barriers to entry are comparatively high in this field, because of the
technical challenges facing the delivery of voice and video data through
frequent unstable internet connections in China. In addition, unless a
competitor has reached a certain size, we believe it would be difficult for such
competitor to economically and efficiently resolve the practical operational
difficulties that arise when a platform hosts large numbers of concurrent users.
This in turn would lead to inability to timely resolve technical issues as they
arise, which would impact user experience and make it difficult, we believe, to
challenge our current dominance in the market for the provision of platform and
services for voice- and video-enabled live online social group gathering.
Online game media and hosting. We have various competitors in the online game
media market in China. Duowan.com’s primary competitor among game media websites
is 17173.com. For web game hosting, our competitors include other major internet
companies that host web games, such as Tencent, Qihoo 360 and other private
companies.
approximately
10.0 million peak concurrent users and approximately 70.5 million monthly
active users on YY in August 2012. Because we do not operate our platform on a
real name basis, however, certain metrics may overstate the number of unique
individuals using or paying for our products and services.
People are social creatures with a fundamental desire to connect, interact and
communicate with each other. YY empowers users to create and organize groups of
varying sizes to discover and participate in a wide range of online activities,
including online games, karaoke, music concerts, education, live shows and
conference calls. We believe that our proprietary technology infrastructure was
the first to develop the capacity to support simultaneous communication among
millions of concurrent users in a single channel. YY’s scale, social features
and high quality voice and video make it popular among internet users in China,
as evidenced by the 393.0 billion voice minutes that users spent on YY Client
in the first nine months of 2012. “Voice minute” means a minute in which the
user is using our voice- or video-enabled services, such as listening to or
talking on YY channels.
Our platform consists of YY Client, the YY.com and Duowan.com web portals and
Mobile YY. YY Client is our personal computer, or PC-based user software that
provides real-time access to online activities groups, which we refer to as
channels. Although online communication tools such as instant messenger and
social networking services existed when we introduced YY Client in July 2008,
these tools and services were confined to text or limited-scale voice or video
communications. YY Client has transformed online social communications by
enabling large-scale group activities through our platform. In 2011, we held an
approximate 84.2% market share in the real-time online group voice
communications market in China in terms of user time spent, according to the
iResearch Report. On average, each active user spent approximately 51.7 hours
on YY Client in September 2012. YY Client is available to download for free
from YY.com, our online portal and guide to channels, events and content
available across our platform. We also operate Duowan.com, which provides
access to and interactive resources for online games, and was ranked the No. 2
game media website in China in terms of monthly unique visitors in the eight
months ended August 31, 2012 according to iResearch. To increase the
accessibility and usage of YY Client, we introduced our mobile application,
Mobile YY, in September 2010. To make YY more easily and widely accessible, in
October 2012, we launched web-based YY, a version of YY Client that enables
users to conduct real-time interactions on the web using a flash plug-in
without requiring any downloads or installations.
Delivering superior user experience is our core focus, which in turn relies on
our proprietary technology and industry know-how. A single YY channel can
currently have from only a handful to approximately 1.4 million concurrent
users. YY enables users to continually create new channels to engage in
activities on our open platform designed to make offline group activities more
effective and efficient online. YY is supported by our highly scalable
infrastructure throughout China, and our proprietary algorithms enabling low
latency, low jitter and low loss rates in delivering voice and video data.
While the basic use of our platform is currently free, we monetize our user
base through internet value-added services, or IVAS, and online advertising.
Currently, revenues from IVAS are primarily generated through sales of virtual
items and game tokens that our users may purchase for use in online activities
on our platform, including online games, which are all web games, and YY Music,
our music channels on YY Client. Online advertising revenues are primarily
generated from sales of different forms of advertising on Duowan.com. Although
we do not currently derive revenues from Mobile YY, we have plans to monetize
it by selling virtual items on Mobile YY in the future. We believe that we will
be able to capitalize on the large and highly engaged user base of our open
platform by exploring additional monetization opportunities and diversifying
our revenue sources.
We have achieved significant growth in recent years. Our total net revenues
increased from RMB32.7 million in 2009 to RMB128.3 million in 2010 and to
RMB319.7 million (US$50.8 million) in 2011, representing a CAGR of 212.6% from
2009 to 2011. For the nine months ended September 30, 2012, our total net
revenues grew to RMB553.2 million (US$88.0 million), representing a 167.6%
increase from RMB206.7 million for the nine months ended September 30, 2011.
We had a net loss of RMB47.1 million, RMB238.9 million and RMB83.2 million
(US$13.2 million) in 2009, 2010 and 2011, respectively, and in the nine months
ended September 30, 2012, we had a net income of RMB56.0 million (US$8.9
million). Our adjusted net loss, a non-GAAP measure, decreased from RMB10.6
million in 2009 to RMB1.9 million in 2010, and in 2011, we had an adjusted net
income of RMB51.8 million (US$8.2 million). In the nine months ended September
30, 2012, our adjusted net income amounted to RMB130.7 million (US$20.8
million) compared to an adjusted net income of RMB19.3 million in the same
period in 2011. Our adjusted net (loss) income excludes non-cash share-based
compensation expenses.
The PRC government extensively regulates foreign ownership of, and the
licensing and permit requirements pertaining to, companies that provide
internet-based services such as our YY platform. To comply with these
restrictions, we conduct our operations primarily through our consolidated
affiliated entities in China. We face risks and uncertainties associated with
our corporate structure, as our control over these consolidated affiliated
entities is based on contractual arrangements rather than equity ownership.
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Our principal executive offices are located at Building 3-08, Yangcheng
Creative Industry Zone, No. 309 Huangpu Avenue Middle, Tianhe District,
Guangzhou 510655, People’s Republic of China. Our telephone number at this
address is (+86 20) 2916 2000. Our registered office in the Cayman Islands is
located at the offices of Codan Trust Company (Cayman) Limited of Cricket
Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KYI-1111, Cayman Islands.
Our agent for service of process in the United States is Law Debenture
Corporate Services Inc. Our website is www.yy.com.
We commenced operations in April 2005 in China. In November 2007, we established
Duowan Entertainment Corp., or Duowan BVI, in the British Virgin Islands.
Through its wholly owned subsidiary, Duowan BVI entered into a series of
contractual arrangements with certain PRC consolidated affiliated entities and
their shareholders through which it exercises effective control over the
operations of these PRC consolidated affiliated entities. Our current holding
company, YY Inc., was incorporated in July 2011 as a limited liability company
in the Cayman Islands. Through a share exchange in September 2011, the
shareholders of Duowan BVI exchanged all of their outstanding common and
preferred shares in Duowan BVI for common shares, meaning common shares with a
par value US$0.00001 per share, and preferred shares, meaning series A, B, C-1
and C-2 preferred shares with a par value of US$0.00001 per share, of YY Inc.
on a pro rata basis. No additional consideration was paid in connection with the
share exchange. As a result, Duowan BVI became a wholly owned subsidiary of YY
Inc.