YY delivered solid 3Q19 results, with revenue /adj. EPADS +68% YoY/-47% YoY, 2%/15% higher than consensus. 4Q19 Rev guidance came in at +58%~62% YoY, midpoint 1.5% above consensus. User metrics trend well. We raised its adj. net profit by 24.7%/9.5% in FY20/21E, and lifted our TP to US$82 from US$74. Valuation at 10x FY20E P/E is attractive.
- 3Q19 all-round beat. As stated in our preview report, YY’s 3Q19 results were solid on both financials and user metrics. 3Q19 revenue +68% YoY, 2%/2% higher than our estimates/ consensus. Adj. EPS -47% YoY, 15% above consensus. Mgmt. guided solid 4Q19 revenue at RMB7.32bn-RMB7.52bn (midpoint +60% YoY), 1.5% above consensus. Excluding Huya, YY Live & Bigo’s 4Q19E, we estimate revenue to grow 59%-63% YoY.
- User metrics on track; Overseas expansion to step up. Despite regulation and competition, both YY Core and Bigo saw user sequential growth in 3Q19. Global MAU amounted to 470mn, +8% QoQ, and YY/HUYA Paying users +2%/8% QoQ. 3Q19 YY Core revenue grew 9% YoY, in line with our estimate. Bigo revenue reached RMB1.5bn, accounting for 22% of total revenue. Looking ahead, we keep confident on its overseas monetization potential, considering that: 1) paying ratio is still far lower than industry average, despite already-high ARPU; and 2) IMO and Likee will explore diversified monetization in 2020E. We forecast YY Core/Bigo revenue to grow 6%/45% YoY in FY20E.
- Margin dilution priced in. 3Q19 GPM was 31.5% (-3ppts YoY), 1ppt below our estimate; OPM was 6.7% (-11ppts YoY), largely in line with our estimate. We expect 4Q19E non-GAAP OPM to decline 1ppt QoQ on marketing efforts and less one-off other income. We believe near-term margin pressure from overseas expansion is well priced in, and expect stable OPM for YY core in FY20E, while Bigo’s FY20E net loss will be similar to FY19E.
- Maintain BUY. We raised its adj. net profit by 24.7%/9.5% in FY20/21E, and lifted our TP to US$82 from US$74. Our new TP is equivalent to 18x/12x FY19/20E P/E, based on: 1) YY Live (7x FY19E P/E); 2) Huya (based on mkt cap) and 3) Bigo (2x FY19E P/S). The stock is now trading at 9.6x FY20E P/E. Valuation is attractive in our view.
