Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: king888 on June 27, 2013, 08:54:44 PM

Title: YY - YY Inc.
Post by: king888 on June 27, 2013, 08:54:44 PM
YY

Business model of YY is very interesting and profitable.

The press calls YY a gaming platform or social network site . But that is not what YY really is .

YY is a live streaming platform that any user can create a room to broadcast his/her content and viewer can join the room and chat, text or buy a virual item for the room owner.

The usages are variety. In the past until recent , most rooms are for singing shows or playing MMORPG . And users who are famous can make more than $10,000/month by just singing in YY .

Now YY is trying to broaden the usages of its platform. The company can create live room for a conference . The private room for training session for employee . And the next big thing is "Online Education" . EDU uses YY to broadcast the online course and viewers have to pay before join the course.

YY has the infrastructure to support the streaming and also the payment system to help content creators monetize. This is a real winner in this space . If YY can execute this model overseas , it can be even bigger than Youtube .

http://www.techinasia.com/yy-david-li/

http://www.forbes.com/sites/tomiogeron/2012/06/11/yy-com-chinas-unique-real-time-voice-and-video-service-with-a-virtual-goods-twist/

Title: Re: YY - YY Inc.
Post by: claphands22 on February 03, 2014, 09:52:01 PM
Hey King,

There was a great Seeking Alpha article on YY that expanded on a short thesis: http://seekingalpha.com/article/1593492-yy-do-you-know-what-you-own 

On top of that article, I would check out YY's prospectus -- read their related party transactions, and where they originally got their adverting revenue.  I have put way too much time on trying to figure out how YY actually makes money and I can't figure it out. Definitely check out YY.com website and try to be a consumer of the content...it's...special.   

Title: Re: YY - YY Inc.
Post by: SnarkyPuppy on July 15, 2018, 04:53:38 PM
Does anyone follow this?   Looks extremely cheap - you're getting a business growing 20% per year at ~2-3x FCF.     

There's a writeup on VIC which explains the business/background - I won't rehash but some high level headlines:

At 98.43 per ADS you're paying (USD figures):

So for $4.7bn you get 3 assets (Huya, Bigo, and core YY live):

Huya

Bigo

YY Live (core business)


So putting the above together, at 98.43 you're paying $6.4bn and you're getting:

There's some regulatory risk here  (New regulations were put in place during 2017 by the Ministry of Commerce (MOC) and the State Administration of Radio, Film and TV (SARFT) limiting the behavior of live streamers and raising accountability for platforms. Agents mentioned that restrictions included no midriff (area between chest and waist) exposure, no filming on beds and limited cleavage, to name just a few. Implementation of these rules has only recently been enforced with many sanctions since February 2018).   Seems that YY is fine so far and if anything, the larger streaming operators may benefit from some regulatory entrenchment.   

But, the key risk here IMO is a combination of competition and agency consolidation:   Agency (supplier) negotiating power & competition -> spending pressures to retain agencies/broadcasters (these are direct costs for YY as they split revenue 50% with agencies/broadcasters).  This will take some time to get comfortable with - but at the current valuation you're basically paid back in 2-3 years.  [/list]

Curious if others have spent time on this?
Title: Re: YY - YY Inc.
Post by: gaia10 on July 16, 2018, 05:33:47 AM
Hey SnarkyPuppy,

Could you share your source on management's Bigo revenue and profit projection? Btw, I agree with you on most of these points.
Title: Re: YY - YY Inc.
Post by: DooDiligence on July 16, 2018, 05:40:10 AM
Does Amazon talk about the economics of Twitch in annual and quarterly filings?
Title: Re: YY - YY Inc.
Post by: villainx on July 23, 2018, 08:54:26 PM
From my limited understanding, none of the various business/operating units or even any other companies in the various live stream business has come out as a dominant/leading platform/player, right?

So any of Huya/Bigo/YY platform are at risk of being left behind by another company/platform?  My simple analogy would be Tencent/Sina on which weibo platform would dominant.  At the time, I sided with Sina/Weibo, but the sheer adoption rate of WeChat and QQ overcame the supposedly more upscale Weibo.  Or is that a bad analogy?
Title: Re: YY - YY Inc.
Post by: Spekulatius on July 24, 2018, 03:48:51 AM
Does Amazon talk about the economics of Twitch in annual and quarterly filings?

I havenít seen any, but I havenít looked to closely either. From a user perspective, it seems that Twitch loses to YouTube. I watch some streams from gamers every once in a while and most games stream using Twitch and YouTube simultaneously. You can typically hw many users are on which platform and typically 80-90% are on YouTube. YouTube als seems better at setting up donations or chatting. Hence I doubt that Twitch is a meaningful business for AMZN.
Title: Re: YY - YY Inc.
Post by: SnarkyPuppy on July 24, 2018, 04:48:06 AM
From my limited understanding, none of the various business/operating units or even any other companies in the various live stream business has come out as a dominant/leading platform/player, right?

So any of Huya/Bigo/YY platform are at risk of being left behind by another company/platform?  My simple analogy would be Tencent/Sina on which weibo platform would dominant.  At the time, I sided with Sina/Weibo, but the sheer adoption rate of WeChat and QQ overcame the supposedly more upscale Weibo.  Or is that a bad analogy?

It's definitely a risk.   Maybe too simplistic, but at what price would you pay for a business w/ this risk? At some point it's a good stock regardless of its terminal value.   ~2-4x cash flow seems reasonable to me. 
Title: Re: YY - YY Inc.
Post by: villainx on July 24, 2018, 07:00:35 AM
It's definitely a risk.   Maybe too simplistic, but at what price would you pay for a business w/ this risk? At some point it's a good stock regardless of its terminal value.   ~2-4x cash flow seems reasonable to me. 

Thanks for the response.  Just trying to understand the competitive landscape.  It's hard 1) because I'm too old to understand appeal of live streaming and 2) relating that to what's happening in China magnifies. 

YY has it's hand on several different niches it seems.  But is it a race for scale, and at what point does it become clear who is the leader.  Is it a winner takes all type of model? 


Title: Re: YY - YY Inc.
Post by: abyli on August 13, 2018, 03:43:38 PM
https://seekingalpha.com/pr/17243913-yy-reports-second-quarter-2018-unaudited-financial-results

Second Quarter 2018 Highlights

Net revenues increased by 44.6% to RMB3,773.2 million (US$570.2 million) from RMB2,609.0 million in the corresponding period of 2017.
Non-GAAP net income attributable to YY1 increased by 51.6% to RMB873.2 million (US$132.0 million) from RMB576.2 million in the corresponding period of 2017.
Title: Re: YY - YY Inc.
Post by: SnarkyPuppy on August 13, 2018, 06:50:14 PM
~$300mm USD loss in P&L due to GAAP accounting noise (GAAP requires YY to book a paper loss for the option sold to Tencent to sell HUYA)

Implied 8% revenue growth guidance for YY live for Q3 (vs upper 20% for last few quarters).  On call, management says this is largely due to the World Cup being shown at the same time as peak YY hours - and they've already seen a reversal back to normal trends post-world cup (per management conference call).   

My SOTP with YY at $80 per share and HUYA at $30 per share (all figures in USD):
- $2bn Cash
- $1.9bn HUYA (45% ownership, 30% holdco discount)
- $300bn BIGO (see post above)
- ($800bn) NCI to back out HUYA-standalone cash (HUYA reports standalone publicly now)
= Implied remaining value for YY live of $1.6bn = ~3x FCF (FY19 sell side estimates of $500mm).

Viewed another way, YY live earned ~$400mm pretax or ~$280mm FCF over the TTM (5.7x implied YY live price).  This is a growing and capital light business.   

In terms of a margin of safety, if you value the cash, HUYA, and BIGO at $0 then YY live trades at ~13.8x TTM FCF.   

Price seems absurd to me.     
Title: Re: YY - YY Inc.
Post by: ZenaidaMacroura on September 06, 2018, 03:33:20 AM
Does Amazon talk about the economics of Twitch in annual and quarterly filings?
I know this is late but twitch loses money.  It's value is mostly strategic currently and they are going to try somethings to change that in 4th quarter...
Title: Re: YY - YY Inc.
Post by: MrB on January 08, 2019, 09:52:57 AM
YY's Hidden Asset: BIGO
https://seekingalpha.com/article/4231324-yys-hidden-asset-bigo
Title: Re: YY - YY Inc.
Post by: Aqul on January 15, 2019, 07:08:50 PM
~$300mm USD loss in P&L due to GAAP accounting noise (GAAP requires YY to book a paper loss for the option sold to Tencent to sell HUYA)

Implied 8% revenue growth guidance for YY live for Q3 (vs upper 20% for last few quarters).  On call, management says this is largely due to the World Cup being shown at the same time as peak YY hours - and they've already seen a reversal back to normal trends post-world cup (per management conference call).   

My SOTP with YY at $80 per share and HUYA at $30 per share (all figures in USD):
- $2bn Cash
- $1.9bn HUYA (45% ownership, 30% holdco discount)
- $300bn BIGO (see post above)
- ($800bn) NCI to back out HUYA-standalone cash (HUYA reports standalone publicly now)
= Implied remaining value for YY live of $1.6bn = ~3x FCF (FY19 sell side estimates of $500mm).

Viewed another way, YY live earned ~$400mm pretax or ~$280mm FCF over the TTM (5.7x implied YY live price).  This is a growing and capital light business.   

In terms of a margin of safety, if you value the cash, HUYA, and BIGO at $0 then YY live trades at ~13.8x TTM FCF.   

Price seems absurd to me.   

I was going through the 20F today and 2017 FCF exceeds 400mm USD (after counting SBC as an expense). With over 2Bn of net cash as of the latest balance sheet, this things is approaching a 20% FCF yield. Chinese equities have dislocated, but this seems too good to be true. I'll keep doing more work on this and see if there is something glaring that I am missing.
Title: Re: YY - YY Inc.
Post by: SnarkyPuppy on January 15, 2019, 07:24:12 PM
~$300mm USD loss in P&L due to GAAP accounting noise (GAAP requires YY to book a paper loss for the option sold to Tencent to sell HUYA)

Implied 8% revenue growth guidance for YY live for Q3 (vs upper 20% for last few quarters).  On call, management says this is largely due to the World Cup being shown at the same time as peak YY hours - and they've already seen a reversal back to normal trends post-world cup (per management conference call).   

My SOTP with YY at $80 per share and HUYA at $30 per share (all figures in USD):
- $2bn Cash
- $1.9bn HUYA (45% ownership, 30% holdco discount)
- $300bn BIGO (see post above)
- ($800bn) NCI to back out HUYA-standalone cash (HUYA reports standalone publicly now)
= Implied remaining value for YY live of $1.6bn = ~3x FCF (FY19 sell side estimates of $500mm).

Viewed another way, YY live earned ~$400mm pretax or ~$280mm FCF over the TTM (5.7x implied YY live price).  This is a growing and capital light business.   

In terms of a margin of safety, if you value the cash, HUYA, and BIGO at $0 then YY live trades at ~13.8x TTM FCF.   

Price seems absurd to me.   

I was going through the 20F today and 2017 FCF exceeds 400mm USD (after counting SBC as an expense). With over 2Bn of net cash as of the latest balance sheet, this things is approaching a 20% FCF yield. Chinese equities have dislocated, but this seems too good to be true. I'll keep doing more work on this and see if there is something glaring that I am missing.

1. government risk
2. competition risk (direct, other streaming types)
3. supplier cost risk (e.g. streamers in a strong position to, over time, ask a larger % of the gross profit - mitigated somewhat by network effects)

20%+ FCF yield with growing revenues makes it interesting but those are the key downside variables I'd focus on
Title: Re: YY - YY Inc.
Post by: Aqul on January 15, 2019, 07:50:13 PM
Right, those are key diligence items. I wanted to ensure this company isn't a melting ice cube (or has some other dramatic issue), before spending more time on it.
Title: Re: YY - YY Inc.
Post by: Gregmal on January 15, 2019, 07:56:27 PM
I really like this the more I look into it. No position yet, what I need to get a better grasp on is the stickiness of their market position. Otherwise this kind of seems like its potentially a mini IAC type of company in China... Its hard to argue against the cash and equivalents aspect of the SOTP. The question really comes down to what is the catalyst? I don't see one short term.
Title: Re: YY - YY Inc.
Post by: Aqul on January 15, 2019, 08:15:00 PM
Here's an interesting framework from Andreessen Horowtiz: https://a16z.com/2018/12/13/16-metrics-network-effects/

Agree on the lack of catalyst, but if this is a natural oligopoly space, and this company is one of the winners, then you don't need a short-term catalyst at these prices. The cash build alone will get you a great return.
Title: Re: YY - YY Inc.
Post by: constala on January 16, 2019, 12:41:35 AM
if you need a catalyst, there is a clear one. They have the option to buy 100% of BIGO. That would use their idle cash + consolidate a very high growth business, giving them (even) better valuation optics.
Title: Re: YY - YY Inc.
Post by: MrB on January 16, 2019, 01:21:25 AM
David Li interview
https://996.ggvc.com/2018/10/27/episode-23-david-li-of-yy-on-pioneering-live-streaming-in-china/
Title: Re: YY - YY Inc.
Post by: MrB on January 16, 2019, 01:22:51 AM
if you need a catalyst, there is a clear one. They have the option to buy 100% of BIGO. That would use their idle cash + consolidate a very high growth business, giving them (even) better valuation optics.
As argued by this guy too.
https://seekingalpha.com/article/4231324-yys-hidden-asset-bigo
(previously posted link and needs subs)
Title: Re: YY - YY Inc.
Post by: gaia10 on March 01, 2019, 11:19:12 AM
I have written a investment report on YY. I would love to hear your comments and feedback.

https://snowballvalue.wordpress.com/2019/03/01/yy-growth-at-a-cheap-price/
Title: Re: YY - YY Inc.
Post by: MrB on March 05, 2019, 12:48:18 AM
YY Announces Completion of Acquisition of BIGO
http://ir.yy.com/news-releases/news-release-details/yy-announces-completion-acquisition-bigo
Not ecstatic about the shares issued at these levels, but timing was a nice surprise.



YY Reports Fourth Quarter and Full Year 2018 Unaudited Financial Results
http://ir.yy.com/news-releases/news-release-details/yy-reports-fourth-quarter-and-full-year-2018-unaudited-financial
Title: Re: YY - YY Inc.
Post by: SnarkyPuppy on March 06, 2019, 04:25:59 AM
Ridiculous for them to issue undervalued shares vs using cash on balance sheet.  Oh well.  Cheap is cheap.
Title: Re: YY - YY Inc.
Post by: Sergio8 on March 06, 2019, 01:53:44 PM
My understanding is that they can't buy BIGO at this valuation with cash on hand, as a big chunk of the cash is in Huya.

Though I guess the CEO makes a gift to himself through the share issuance, it removes conflicts of interest in the future.
Title: Re: YY - YY Inc.
Post by: Steven B on March 14, 2019, 10:47:57 AM
There are plenty of different streaming options in China. What are the possibilities for earnings falling off a cliff? From some quick searches it seems YY isn't as innovative and integrated as other players. Weibo and all. If you told me that in 5 years they've lost half of their streaming business I couldn't argue that it's impossible. Would like to be proven wrong because 2x FCF is a big matzo ball hanging out there.

It seems that their clientele is more from the 3rd and 4th tier cities, who would be the first to have problems in any economic downturn.

Just throwing in my 2 cents from a quick look. Good luck to the longs.
Title: Re: YY - YY Inc.
Post by: Jurgis on March 27, 2019, 10:08:12 PM
http://www.sixthtone.com/news/1003642/inside-the-dystopian-reality-of-chinas-livestreaming-craze
Title: Re: YY - YY Inc.
Post by: MrB on March 28, 2019, 02:15:03 AM
http://www.sixthtone.com/news/1003642/inside-the-dystopian-reality-of-chinas-livestreaming-craze
Hollywood 2.0
Title: Re: YY - YY Inc.
Post by: Spekulatius on March 28, 2019, 04:11:07 AM
http://www.sixthtone.com/news/1003642/inside-the-dystopian-reality-of-chinas-livestreaming-craze
Hollywood 2.0

Itís a business waiting for a crackdown from big brother.
Title: Re: YY - YY Inc.
Post by: Jurgis on March 28, 2019, 07:23:46 AM
http://www.sixthtone.com/news/1003642/inside-the-dystopian-reality-of-chinas-livestreaming-craze
Hollywood 2.0

Itís a business waiting for a crackdown from big brother.

The crackdown is already there.

Providers have to monitor and ban sexual eating of bananas.