YY Reports Third Quarter 2017 Unaudited Financial Results

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GUANGZHOU, China, Nov. 14, 2017 — YY Inc. (NASDAQ:YY) (“YY” or the “Company”), a leading live streaming social media platform in China, today announced its unaudited financial results for the third quarter of 2017.
Third Quarter 2017 HighlightsNet revenues increased by 48.0% to RMB3,092.3 million (US$464.8 million) from RMB2,089.8 million in the corresponding period of 2016.Net income attributable to YY increased by 59.0% to RMB636.0 million (US$95.6 million) from RMB400.0 million in the corresponding period of 2016.Non-GAAP net income attributable to YY1 increased by 46.7% to RMB639.1 million (US$96.1 million) from RMB435.6 million in the corresponding period of 2016.“We continued to deliver robust financial and operating results in the third quarter of 2017,” stated Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY. “Our mobile live streaming monthly active users (MAU) increased by 36.6% year over year to 73.0 million, and our total live streaming paying users increased by 46.5% year over year to over 6.3 million. Our solid performance is a testament to our highly effective strategies in introducing more initiatives to attract younger generation users and to enhance existing user’s engagement and consumption on our live streaming social media platform.  In the past quarter, we rolled out a series of innovative social functionalities and features in the latest version of YY Live 7.0, including Accompany Me, Happy Basketball, and Clip Doll Online. In addition, we launched several new short-form video products to tap into more segmented video verticals and fulfill the diversified demands of users across China. On the Huya side, we are pleased to see that it continued its trajectory of user growth and revenue generation in the third quarter. Looking ahead, by leveraging our dual growth engines, YY Live and Huya, we will continue to invent new ways to attract users and stimulate user engagement, further build our content ecosystem, and explore more monetization opportunities. We believe that we have the right strategy in place to stay ahead of the competition in China’s live streaming social media industry.”Mr. Bing Jin, Chief Financial Officer of YY, further commented, “This was another quarter with solid financial growth for YY. In the third quarter, our total net revenues increased by 48.0% year over year to RMB3,092.3 million, exceeding the high end of our previous guidance range. The growth was primarily attributable to the significant increase of our live streaming revenues, which grew by 60.4% year over year to RMB2,871.6 million. Both YY Live and Huya broadcasting contributed to such rapid revenue growth. Our non-GAAP net income attributable to YY increased by 46.7% to RMB639.1 million in the quarter, of which Huya’s Non-GAAP operating loss further shrank year over year from RMB159.3 million to RMB10.1 million. In addition, during the quarter, we completed a secondary offering and received approximately USD442.2 million in net proceeds, thus further demonstrating investors’ confidence in YY and laying a solid capital foundation for YY’s future development.”Third Quarter 2017 Financial ResultsNET REVENUES
Net revenues increased by 48.0% to RMB3,092.3 million (US$464.8 million) in the third quarter of 2017 from RMB2,089.8 million in the corresponding period of 2016, primarily driven by the increase in live streaming revenues. Live streaming revenues increased by 60.4% to RMB2,871.6 million (US$431.6 million) in the third quarter of 2017 from RMB1,790.4 million in the corresponding period of 2016. Live streaming revenues from the YY Live segment were RMB2,319.2 million (US$348.6 million) and from the Huya segment were RMB552.4 million (US$83.0 million) in the third quarter of 2017. 
Revenues from online games were RMB122.0 million (US$18.3 million) in the third quarter of 2017 as compared to RMB149.5 million in the corresponding period of 2016.Revenues from membership were RMB49.5 million (US$7.4 million) in the third quarter of 2017 as compared to RMB68.8 million in the corresponding period of 2016.Other revenues, mainly representing revenues from the Company's online advertising revenues, were RMB49.2 million (US$7.4 million) in the third quarter of 2017, compared with RMB81.1 million in the corresponding period of 2016. The declines in online gaming, membership, and other revenues mainly reflected the Company’s continued strategic shift towards its live streaming business.COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 48.2% to RMB1,889.3 million (US$284.0 million) in the third quarter of 2017 from RMB1,275.0 million in the corresponding period of 2016, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,604.9 million (US$241.2 million) in the third quarter of 2017 from RMB967.4 million in the corresponding period of 2016. The increase in revenue-sharing fees and content costs paid to performers, guilds and content providers was in line with the increase in revenues and was primarily due to the higher level of user engagement and spending driven by promotional activities. In addition, bandwidth costs increased to RMB160.5 million (US$24.1 million) in the third quarter of 2017 from RMB149.2 million in the corresponding period of 2016, primarily reflecting continued user base expansion and video quality improvements, but largely offset by the Company’s improved efficiency and pricing terms.
Gross profit increased by 47.6% to RMB1,203.0 million (US$180.8 million) in the third quarter of 2017 from RMB814.8 million in the corresponding period of 2016. Gross margin was 38.9% in the third quarter of 2017 as compared to 39.0% in the corresponding period of 2016 and 40.1% in the second quarter of 2017. The sequential decline of gross margin was mainly attributable to the increased revenue sharing with entry-level hosts on the Company’s platform to develop a more healthy and balanced ecosystem.OPERATING INCOME
Operating expenses in the third quarter of 2017 increased by 49.4% to RMB560.3 million (US$84.2 million) from RMB375.0 million in the corresponding period of 2016.
Operating income in the third quarter of 2017 increased by 39.9% to RMB661.4 million (US$99.4 million) from RMB472.9 million in the corresponding period of 2016. Operating margin in the third quarter of 2017 was 21.4% as compared to 22.6% in the corresponding period of 2016.Non-GAAP operating income2 increased by 30.7% to RMB664.5 million (US$99.9 million) in the third quarter of 2017 from RMB508.4 million in the corresponding period of 2016. Non-GAAP operating margin3 was 21.5% in the third quarter of 2017 as compared to 24.3% in the corresponding period of 2016.NET INCOME
Net income attributable to YY Inc. increased by 59.0% to RMB636.0 million (US$95.6 million) in the third quarter of 2017 from RMB400.0 million in the corresponding period of 2016. Net margin in the third quarter of 2017 increased to 20.6% from 19.1% in the corresponding period of 2016.
Non-GAAP net income attributable to YY Inc. increased by 46.7% to RMB639.1 million (US$96.1 million) from RMB435.6 million in the corresponding period of 2016. Non-GAAP net margin in the third quarter of 2017 was 20.7% as compared to 20.8% in the corresponding period of 2016.NET INCOME PER ADS
Diluted net income per ADS4 increased by 52.3% to RMB10.51 (US$1.58) in the third quarter of 2017 from RMB6.90 in the corresponding period of 2016.
Non-GAAP diluted net income per ADS5 increased by 41.2% to RMB10.56 (US$1.59) in the third quarter of 2017 from RMB7.48 in the corresponding period of 2016.BALANCE SHEET AND CASH FLOWS
As of September 30, 2017, the Company had cash and cash equivalents of RMB1,129.0 million (US$169.7 million), short-term deposits of RMB6,474.2 million (US$973.1 million) and restricted short-term deposits of RMB1,000.0 million (US$150.3 million). For the third quarter of 2017, net cash from operating activities was RMB1,045.0 million (US$157.1 million).
SHARES OUTSTANDING
As of September 30, 2017, the Company had a total of 1,260.8 million common shares, or the equivalent of 63.0 million ADSs outstanding.
Business Outlook
For the fourth quarter of 2017, the Company expects net revenues to be between RMB3.4 billion and RMB3.5 billion, representing a year-over-year growth of 36.5% to 40.6%. This forecast reflects the Company's current and preliminary view on the market and operational conditions, which are subject to change.
Conference Call Information
The Company will hold a conference call on Tuesday, November 14, 2017 at 8:00 pm Eastern Time, or Wednesday, November 15, 2017 at 9:00 am Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:
The replay will be accessible through November 22, 2017 by dialing the following numbers:A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://investors.yy.com/
Exchange Rate
This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.6533 to US$1.00, the noon buying rate in effect on September 30, 2017 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.
About YY Inc.
YY Inc. (“YY” or the “Company”) is a leading live streaming social media platform in China. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real-time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY Inc. was listed on the NASDAQ in November 2012.
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY's strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY’s goals and strategies; YY's future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain  active users, especially paying users; YY’s ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
Use of Non-GAAP Financial Measures
The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except that the consolidated statement of changes in shareholders’ equity, consolidated statements of cash flows, and the detailed notes have not been presented. YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, non-GAAP net income attributable to common shareholders, and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders is net income attributable to common shareholders excluding share-based compensation expenses. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.
The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.Investor Relations Contact
YY Inc.
Matthew Zhao
Tel: +86 (20) 8212-0000
Email: [email protected] 
ICR, Inc.
Xueli Song
Tel: +1 (646) 915-1611
Email: [email protected]
__________________________________1 Non-GAAP net income attributable to YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to YY Inc. excluding share-based compensation expenses. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.2 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.  3 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.4 ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to common shareholders divided by weighted average number of diluted ADS.5 Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details).
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Maria Burns

Maria Burns

Maria is a Viral News Editor who graduated from the University Of California. She likes social media trends, being semi-healthy, Buffalo Wild Wings and vodka with lime. When she isn’t writing, Maria loves to travel. She last went to Thailand to play with elephants and is planning a trip to Bali.
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