YY attended our Beijing tour last week, and restated its globalization strategy. Investors eye on: 1) YY core revenue outlook and share ratio under domestic fierce competition; 2) Likee’s user expansion strategy and monetization plan; and 3) HUYA’s agreement with Tencent. Mgmt kept confident on its solid YY core and Likee user expansion. Maintain BUY with our TP of US$82. Valuation at 10x FY20E P/E is attractive.
- Solid YY Core despite competition. Mgmt. stated that sharing ratio to hosts remained unchanged (55% for platform, 45% for hosts (or 5-10% to agents)), despite competition from short videos (e.g. Douyin, Kuaishou). Given adequate supply, platforms should have higher bargaining power than top hosts, backed by its traffic operation mechanism. For instance, its top 10 hosts turnover rate was over 50% in the past few years, but YY Live still delivered solid growth with negligible impact from it. In terms of spender concentration, mgmt. stated that 10% spenders contribute 90% revenue in regular livestreaming platforms.
- Overseas expansion to step up. For 2020 outlook, Likee still focuses more on user acquisition, while Bigo Live will be key monetization contributor. Ads and livestreaming would be top choice for Likee’s monetization, but is still at early stage. Hago contributed ~30% of Bigo revenue in FY18E, but would decline to below 20% in FY19E (~20% in 3Q19), for tightening regulation on audio livestreaming in domestic market. For IMO, it posed limited impact on total S&M, as mgmt would not aggressively acquire users and monetize. User engagement and features enrichment would be top priority for IMO.
- Open to Huya issue. Mgmt restated its open view to Huya’s agreement with Tencent, and this issue depends on Tencent’s plan in Mar 2020. As market has already acknowledged Huya’s potential exclusion, we believe it would pose little impact on YY’s business and stock price, as they operate independently.
- Maintain BUY. We keep our financials and TP unchanged, with TP at US$82. Our 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.
