Why YY Inc (ADR) (NASDAQ:YY) Stock Is My Value of the Month For January

- January 1, 2017

yy-stockYY Inc (ADR) (NASDAQ:YY) is poised to take China by storm. Furthermore, YY stock is my value of the month, and also a company that could end up the next Facebook Inc (NASDAQ:FB) in China.

YY Inc is based in China and was founded in 2005 as an online social platform, sort of like a mixture between Facebook and Youtube.  YY Inc., through its subsidiaries, operates an online social platform that provides numerous services.  It engages users in real-time activities through voice, video, and text on PC and mobile.  Also, YY enables users to create and organize groups of various sizes to discover and participate in a range of online activities.

These include music, shows, online games, dating shows, online gambling, live games, broadcasting, and e-learning.  The company’s core product is YY Client, which enables users to engage in live interactions online.  YY also offers Web-based YY service that enables users to conduct real-time interactions on their Web browser without any downloads or installations.  Mobile YY, is a mobile application that provides users access to the company’s music and entertainment content.

Other services YY offers that makes it an attractive investment.

YY is a Chinese social platform that lets viewers engage with broadcasters in real-time activities.  Viewers can sign up for paid subscriptions to channels or buy virtual gifts for their favorite broadcasters. YY generates revenue by retaining a cut of each sale.  The company has also expanded into adjacent markets like e-commerce and the Twitch-like Huya gameplay broadcasting platform.

Further, it operates an education platform 100.com, which provides various online English courses specializing in the preparation of International English Language Testing System (IELTS); and DuBooker that publishes various teaching materials relevant to language education. Needless to say, YY has its hand in a very big cookie jar.

Why YY stock is undervalued

YY Inc (ADR) (NASDAQ:YY) shares have declined more than 30% this year due to concerns about the Chinese economy.  Yet YY’s sales surged 40% last quarter, thanks to robust demand for the platform’s live-streaming services.  YY Inc shares are down 34.8% year-to-date,  underperforming the Market sector, which has gained 11.7% over the same period.  Gross margins fell 20 basis points annually to 39%, but GAAP net income  surged 156% as non-GAAP (adjusted) net income improved 84%.

YY is pretty cheap at 13 times earnings, which is much lower than the industry average of 50 for other internet information providers.  The company has expected earnings growth of 24.9% for the current year.  Its earnings estimate for the current year has improved by 9.2% over the last 30 days.  I believe this  provides a good opportunity to buy YY stock, which remains valued below its market potential at this point.

Of the 12 analysts who cover YY, they all have a buy or strong buy on this stock.  Medium price target is $62.00 and YY is trading at $39.42 as of close on Friday.  With 3 billion people in China and computers getting cheaper, more and more people are going to be using this type of service. That’s probably the best reason of all to own YY stock.

 

 

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