YY delivered solid 1Q20 results today, with revenue/adj. net profit +50% YoY/-34% YoY, 5%/11% higher than consensus. 2Q20 rev guidance was in line with our estimate. We turn more positive on its overseas expansion, and lifted Bigo’s revenue to grow 65% YoY (vs. previous 60%), with net loss narrowed to US$100mn (vs. previous US$150mn) in FY20E. Bigo’s strong momentum and narrowing loss could help it re-rate, coupled with Likee’s initial monetization. We raised its adj. net profit by 5%/1% in FY20/21E, with higher TP of US$81.
1Q20 beat. 1Q20 revenue grew 50% YoY, 5% above consensus. Adj. net profit declined 34% YoY, 11% above consensus. Mgmt. guided solid 2Q20E revenue at Rmb5.00bn~Rmb5.15bn (midpoint +18.5% YoY, excluding Huya’s revenue), in line with our estimate, but 1% below consensus. We view this result and guidance as positive, for Bigo’s strong momentum.
More bullish on Bigo’s overseas expansion. We turn more confident on Bigo’s overseas expansion, and mgmt. guided 65% YoY revenue growth (pro-forma) in FY20E (vs. previous +60% YoY), mainly on: 1) Overseas user growth to benefit from global COVID-19, with more time spent and healthy retention; and 2) Bigo performed well in developed countries, with 34% revenue contribution from these regions in 1Q20 (vs. 31% in 4Q19). We also revised Bigo’s net loss to US$100mn from US$150mn in FY20E, with effective margin improvement. Mgmt stated that overseas hosts rev sharing ratio was lower than that in China, with less agencies. Bigo Live’s net margin has reached 25%, and still room to improve.
ROI-driven strategy for disciplined expenses. We expect YY Core’s revenue to be flat YoY in 2Q20E, and see positive growth in 2H20E. We forecast YY Core’s non-GAAP OPM at 20% in FY20E (vs. previous 19%). for effective cost control. Given macro uncertainty under epidemic, YY would be disciplined on its investment and expenses, and thus we adjusted JOYY’s non-GAAP OPM at 9.5% in FY20E (vs. previous 6.5%).
Maintain BUY. We raised its adj. net profit by 5%/1% in FY20/21E, and lifted our SOTP-based TP from US$74 to US$81 (16.7x FY21E P/E). We think market concern on COVID-19 and competition has been further eased by this solid result and guidance. Healthy user metrics trend, overseas acceleration, and margin improvement could be further catalysts.
