On Tuesday, BofA Securities adjusted its price target for YY Inc (NASDAQ: YY), increasing it to $36.00 from the previous $35.00 while keeping a Neutral rating on the stock. The adjustment follows an analysis of the company's second-half revenue growth prospects, which appear to be mixed. The firm noted YY's second quarter performance was largely in line with expectations, but highlighted several factors influencing the forecast.
The report by BofA Securities pointed to a transitional phase in YY's domestic audio streaming business, which is expected to undergo further adjustments in the second half of 2024 due to a tighter regulatory environment. Additionally, the international streaming market is showing varied performance: the Middle East is anticipated to reach a low point, North America is experiencing mild growth, and Europe faces challenges with content and revenue-sharing policy changes that may affect growth.
Despite these challenges, BofA Securities sees potential in YY's overseas advertising business, which is expanding both geographically and across different categories. This expansion is projected to compensate for any weaknesses in the live streaming segment during the latter half of the year.
The analyst also noted that the user base for Bigo Live is stabilizing sequentially after previous adjustments to user acquisition strategies, and the IMO platform is expected to see growth in user numbers both quarterly and annually in the second half of 2024, attributed to usage expansion.
The early-stage development of YY's new cross-border e-commerce business is also mentioned, with expectations that it will take time to grow. On the profitability front, the report anticipates on-track cost control measures in content, user acquisition, and revenue sharing. Additionally, a better-than-expected performance in the advertising business could provide some upside to profitability in the second half of 2024.
The firm's forecast for the third quarter includes revenues of $562 million and a non-GAAP net profit of $67 million, aligning with previous expectations.
In other recent news, JOYY (NASDAQ:YY) Inc. reported a steady growth in its financial results for the second quarter of 2024. The company's group revenue saw a 3.3% year-over-year increase, totaling $565.1 million, with its core business segment, BIGO, showing a 7.7% rise in revenue, reaching $507.2 million. The company's gross profit stood at $198.9 million, reflecting a gross margin of 35.2%. JOYY Inc. projects net revenues for the third quarter to range between $555 million and $569 million.
JPMorgan (NYSE:JPM), in its analysis, increased the price target on shares of JOYY Inc. to $35.00 from the previous $30.00, while maintaining a Neutral rating on the stock. The firm cited the company's substantial net cash position and the execution of its share repurchase program as factors supporting the price target increase. However, it noted that despite JOYY Inc.'s reasonable valuation, there are no clear catalysts to drive a significant recovery in revenue.
The firm forecasts an adjusted net profit of $56 million for JOYY Inc. for the third quarter of 2024, which would be a 32% decline year-over-year, with an adjusted net profit margin of 10%. The lower gross margin, driven by the expansion of a low-margin third-party ads business, is anticipated to be the main reason for this decrease in profitability. Despite these challenges, JPMorgan suggests that JOYY Inc.'s share price may find some support from the consistent execution of its share repurchase program.
InvestingPro Insights
To complement BofA Securities' analysis of YY Inc, InvestingPro data offers additional insights into the company's financial health and market position. YY's current market capitalization stands at $1.94 billion, with a price-to-earnings (P/E) ratio of 8.63, indicating a relatively low valuation compared to earnings. This is further supported by an InvestingPro Tip highlighting that YY is trading at a low Price / Book multiple of 0.38, which aligns with the firm's cautious but slightly optimistic outlook.
The company's revenue for the last twelve months as of Q2 2024 was $2.27 billion, with a slight decline of 2.41% year-over-year. However, the quarterly revenue growth of 3.25% in Q2 2024 suggests a potential turnaround, which could support BofA's expectations for the company's performance in the latter half of the year.
Another InvestingPro Tip notes that YY holds more cash than debt on its balance sheet, indicating financial stability that could be crucial as the company navigates the challenges and opportunities outlined in the BofA report. This solid financial footing may provide YY with the flexibility to invest in its expanding overseas advertising business and emerging cross-border e-commerce venture.
For investors seeking a deeper understanding of YY Inc's prospects, InvestingPro offers 5 additional tips, providing a more comprehensive view of the company's financial health and market position.
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