YY: An Attractive Acquisition Target?

The stock price of YY declined more than 30% last year after many analysts predicted that the Chinese internet industry would be subject to massive uncertainties in 2017.

Author: Ed Newton   

After many analysts predicted last year that the Chinese internet industry would be subject to massive uncertainties in 2017, the stock price of YY Inc. (Nasdaq: YY) declined more than 30 percent.

However, thanks to growing demand for the platform's live-streaming and real-time services in China, YY has more than doubled in stock price this year, proving those many critics and analysts wrong.

Taking a closer look at YY's fundamentals shows the company currently has $346.5 million in cash and about $130 million in net operating cash flow. According to its latest quarterly earnings, YY's net revenues increased 31 percent to RMB 2.61 billion ($384.8 million) from RMB 1.98 billion in the corresponding period of 2016. Based on two analysts' forecasts from Zacks Investment, the consensus EPS forecast for the upcoming quarter is $1.54. Last year, third quarter EPS was $1.03.

As one of the leading online social entertainment platforms in China, YY is also aiming to become a much bigger player than simply live streaming and online games. At the same time, being smaller than Alibaba or Tencent makes the company attractive for a possible acquisition target. In fact, thanks to the company's growing live streaming revenue, some investors have suggested YY is better positioned and a more attractive acquisition target than Momo Inc., its main Chinese competitor.

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Snapshot of YY's revenue by category.

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