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JOYY Inc. (YY US) Company Update Summary

Core Content Overview

JOYY Inc. (YY US) recently reported its 4Q22 financial results, which showed a relatively stable revenue performance with a -9% YoY decline, aligning with market expectations. The company's bottom line exceeded consensus, reaching US$50 million, which was 82% above the expected level. Despite this, the company faces challenges in the first quarter of 2023, with revenue guidance slightly below consensus due to macroeconomic headwinds and soft seasonality. The report forecasts a continued revenue decline in 1Q23E, with Bigo Live contributing to the decline at -5% QoQ.

Main Points

• 4Q22 Performance:

  • Revenue declined by -8.9% YoY, in line with consensus.
  • Bigo Live MAU increased sequentially by 14.3% to 36.8 million.
  • Non-GAAP net profit reached US$50 million, 82% above consensus.

• 1Q23E Outlook:

  • Revenue guidance is between US$552 million and US$570 million, with a midpoint 1% below consensus.
  • The company is expected to experience a -9% YoY and -7% QoQ revenue drop, primarily due to CNY and Ramadan disruptions, and competition in the Middle East.

• Bingo Recovery Expectations:

  • Bigo Live is expected to resume growth in 2H23E as the Middle East market stabilizes.
  • Rising paying users in the European and US markets are anticipated to support this recovery.

• Margin and Profitability:

  • Shopline's monthly losses (US$10 million in FY23E) may dilute short-term margins.
  • Long-term margin improvement is expected, with the Group's adjusted net profit margin projected at 5.5% in FY23E and 6.5% in FY24E.
  • Bigo Live's operating profit margin is expected to remain stable YoY in FY23E.

• Earnings Revision:

  • CMB International Global Markets has revised its FY22E–24E earnings by 3.4–9.6% to account for 1Q23E softness and Bigo Live investment.
  • The new target price (TP) is set at US$46, reflecting a SOTP-based valuation model.

Key Financial Metrics

Strategic Initiatives

• JOYY plans to further improve Bigo Live's market penetration and user engagement through product innovation and local operations.
• The company aims to maintain profitability for Likee while achieving user growth.
• The management is focused on cost discipline and narrowing losses in Shopline to support long-term margin improvement.

Valuation and Target Price

• SOTP-based Target Price: US$46, down from US$49.
• Valuation Breakdown:
  • YY Live: US$1.9 billion (based on Baidu transaction valuation).
  • Huya: based on market cap.
  • Bigo Live: US$1.5 billion (6x FY23E P/E).
• The valuation model accounts for the slower growth and competition pressure affecting Bigo Live.

Market Position and Comparisons

• JOYY is positioned in the live streaming and other digital content sectors.
• The report includes comparisons with other companies in the sector, such as Huya, Hello Inc, and Bilibili.
• The average P/E and P/S ratios for the sector are around 15.0 and 1.6 respectively, indicating a relatively attractive valuation for JOYY.

Analyst Rating and Investment Outlook

• Rating: Maintain BUY.
• Target Price: US$46, which represents a +70.0% upside from the current price of US$27.
• The company is expected to deliver positive returns over the next 12 months, despite short-term challenges.

Financial Summary Highlights

• Operating Profit: Expected to be positive in FY23E and FY24E, with a forecast of US$36 million and US$67 million respectively.
• Net Profit: Projected to be US$89 million in FY23E and US$119 million in FY24E.
• Adj. Net Profit: Expected to grow from US$136 million in FY23E to US$167 million in FY24E.
• Cash Flow: Operating cash flow is expected to be positive, with a forecast of US$387 million in FY23E.
• Balance Sheet: The company maintains a healthy cash position, with cash ending at US$2,613 million in FY23E.

Key Ratios

Conclusion

JOYY Inc. (YY US) is navigating a challenging market environment, with short-term revenue declines expected in 1Q23E. However, the company is optimistic about recovery in 2H23E, driven by stabilization in the Middle East and growth in paying users. Despite short-term margin pressures from Shopline losses, the long-term margin outlook remains positive. The company's target price has been adjusted to reflect the revised earnings forecast and the valuation model, and the rating remains BUY.