On Wednesday, Morgan Stanley adjusted its outlook on shares of YY Inc (NASDAQ: YY), reducing the price target to $30 from $33 while continuing to hold an Equalweight rating on the stock. The firm's analyst cited several factors contributing to the decision, including a dimmer revenue projection for the company's livestreaming business.
Challenges such as stringent content regulations in China, increased competition in the Middle East, and functional adjustments in Europe were noted as influencing factors. However, these were partially offset by improved advertisement revenue from union ads and contributions from Shopline.
The analyst also revised the non-GAAP diluted earnings per ADS estimates for 2024-2026 downwards by 12-15%, based on a low base. This revision led to a 9% decrease in the price target for YY Inc. Moreover, the valuation of Bigo, a part of YY Inc's portfolio, was lowered to $1.2 billion from $1.3 billion, reflecting the adjustments made to earnings estimates.
Despite the reduced earnings forecast and price target, the overall sum-of-the-parts (SOTP) valuation methodology employed by Morgan Stanley remains the same. The analyst applied a 60% discount to the company’s net cash, which is $3.2 million after accounting for the committed amount for share buybacks ($400 million) and the proceeds from the sale of YY Live to Baidu (NASDAQ:BIDU) ($1.9 billion).
The analyst also touched on the company's stock buyback program, suggesting that JOYY (NASDAQ:YY) remains a stock driven by buyback activity. After a buyback of $126 million in the first half of 2024, Morgan Stanley anticipates that YY Inc will buy back an additional $200-300 million worth of shares in 2024, supported by a net profit estimate of $239 million for the year.
In other recent news, JOYY Inc. has demonstrated strong financial performance with robust Q1 2024 results. The company's revenues reached $565 million, largely bolstered by its primary business segment, BIGO, which contributed $505 million.
BIGO also marked a recovery trend with a non-GAAP net profit of $71 million, primarily due to a 28% year-over-year increase in live streaming revenues. Moreover, JOYY Inc.'s non-GAAP net profit rose by 34.8% year-over-year to $67 million, and the company maintained a positive operating cash flow, executing a share buyback of $54.5 million worth of shares within the quarter.
In leadership changes, Ms. Ting Li has stepped into the roles of CEO and Chairperson of the Board, following the departure of Mr. David Xueling Li, who will continue to support the company's strategy from the Board. This transition is part of recent developments within the company.
Financial firm Jefferies has expressed confidence in JOYY Inc., raising the price target for the company's stock and maintaining a Buy rating. The firm's outlook adjustment follows the company's successful second-quarter results and the sustained positive revenue trajectory of BIGO.
The firm also expects a narrowing of losses in YY Inc's 'All Others' category and anticipates that the company's business strategies will continue as planned, despite the recent leadership changes.
Looking ahead, JOYY Inc. anticipates sequential growth for BIGO in the latter half of the year and a continued recovery in year-over-year revenues. The company also plans to diversify revenue streams and focus on non-live streaming revenue contributions.
InvestingPro Insights
In light of Morgan Stanley's updated outlook on YY Inc (NASDAQ: YY), current InvestingPro data and insights provide additional context for investors considering the stock. As of the last twelve months leading up to Q1 2024, YY Inc holds a market capitalization of approximately $1.99 billion and trades at a Price/Earnings (P/E) ratio of 6.64, which adjusts to 7.9 when considering the latest timeframe. This valuation comes in conjunction with a Price/Book multiple of 0.38, suggesting the stock is trading at a low valuation relative to the company's book value.
From a financial health perspective, YY Inc appears to be in a strong position with liquid assets exceeding short-term obligations, ensuring the company can cover its immediate liabilities. This is further supported by the fact that the company holds more cash than debt on its balance sheet, offering a degree of financial stability.
In terms of profitability, analysts predict YY Inc will maintain profitability this year, with the company having been profitable over the last twelve months. These InvestingPro Tips highlight the company's solid financial footing despite the challenges it faces.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/YY, offering further insights into YY Inc's financials and market performance.
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