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YY INC ADS EA REPR 20 ORD CL'A'
Symbol U : YY
Recent Sedar Documents

YY Reports Second Quarter 2019 Unaudited Financial Results

2019-08-13 18:00 ET - News Release

GUANGZHOU, China, Aug. 14, 2019 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ: YY) (“YY” or the “Company”), a global social media platform, today announced its unaudited financial results for the second quarter of 2019. 

Second Quarter 2019 Financial Highlights

  • Net revenues increased by 66.8% to RMB6,295.2 million (US$917.0 million) from RMB3,773.2 million in the corresponding period of 2018.
  • Net income attributable to controlling interest of YY Inc.1 was RMB42.1 million (US$6.1 million), compared to net loss attributable to controlling interest of YY Inc. of RMB99.9 million in the corresponding period of 2018.
  • Non-GAAP net income attributable to controlling interest of YY Inc.2 was RMB424.2 million (US$61.8 million), compared to RMB910.2 million in the corresponding period of 2018, primarily due to the impact of the consolidation of Bigo Inc (“Bigo”).

Second Quarter 2019 Operational Highlights

  • Global average mobile MAUs3 reached 433.5 million, among which about 78.1% were from markets outside China.
  • Average mobile MAUs of IMO reached 211.9 million.
  • Average mobile MAUs of global short-form video services increased by 431.2% to 90.3 million from 17.0 million in the corresponding period of 2018, including 80.7 million from Likee (formerly known as Like), which increased by 374.7% year-over-year, and 9.6 million from IMO’s embedded short-form video services.
  • Average mobile MAUs of global live streaming services increased by 39.2% to 140.9 million from 101.2 million in the corresponding period of 2018, among that (i) 94.8 million were from China, including 38.9 million from YY, which increased by 3.7% year-over-year and 55.9 million from Huya, which increased by 31.1% year-over-year; (ii) 46.1 million were from outside China, including 20.8 million from Bigo Live, which increased by 6.6% year-over-year; and 25.3 million from Hago.
  • Total number of paying users4 of YY increased by 19.1% to 4.2 million from 3.5 million in the corresponding period of 2018.
  • Total number of paying users of Huya increased by 46.7% to 4.9 million from 3.4 million in the corresponding period of 2018.

Mr. David Xueling Li, Chairman and Chief Executive Officer of YY, commented, “After we successfully completed the acquisition of BIGO in March, the second quarter was the first time we had the full quarter consolidation of the financial performance of BIGO. In the second quarter, our global average mobile MAUs reached 433.5 million, of which the average mobile MAUs of global short-form video services increased by 431.2% year-over-year to 90.3 million, and the average mobile MAUs of global live streaming services increased by 39.2% year-on-year to 140.9 million. More importantly, average mobile MAUs of our instant messaging platform IMO had reached nearly 211.9 million. Our massive and diverse user base offers us a great opportunity for the synergy and future monetization. During the second quarter, we further enhanced the stickiness of IMO users by introducing short-form video content into IMO. About 17.5 million monthly users in more than 40 countries were able to access to the short-form video content on IMO. We were pleased to see that the conversion rate to short-form video users had reached to over 50%. In addition, we also continued to bolster the foundation of our global ecosystem by enhancing our AI technologies and cultivating our localization capabilities. Going forward, as we continue to refine the synergies between our business segments and launch new monetization venues on a global scale, we are confident of achieving our vision of connecting people and enriching their lives through video.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We once again achieved strong financial and operating performances in the second quarter of 2019, highlighted by rapid growth and sustained profitability. Our total net revenues in the second quarter of 2019 increased by 66.8% year over year to RMB6,295.2 million, exceeding the high end of our previous guidance range. The increase in net revenues was primarily driven by a 66.4% year-over-year increase in live streaming revenues to RMB5,922.8 million. The consolidation of Bigo fueled additional user and revenue growth. Looking ahead, we will continue to enhance content offerings and develop AI technologies across our products on a global scale, and we are confident that our instant messaging and short-form video businesses will become the next dual growth engines for the group and further drive our global expansion.”

Second Quarter 2019 Financial Results

NET REVENUES
Net revenues increased by 66.8% to RMB6,295.2 million (US$917.0 million) in the second quarter of 2019 from RMB3,773.2 million in the corresponding period of 2018, primarily driven by an increase in live streaming revenues, and the contribution from the consolidation of Bigo segment.

Live streaming revenues increased by 66.4% to RMB5,922.8 million (US$862.7 million) in the second quarter of 2019 from RMB3,559.7 million in the corresponding period of 2018, primarily attributable to (i) the continued live streaming revenues growth in YY and Huya segments, amounting to RMB1,224.9 million (US$178.4 million), driven by user growth; and (ii) the contribution from the consolidation of Bigo segment, amounting to RMB1,138.2 million (US$165.8 million).

Other revenues increased by 74.4% to RMB372.5 million (US$54.3 million) in the second quarter of 2019 from RMB213.6 million in the corresponding period of 2018, primarily driven by the increase in advertising revenues from Huya and Bigo segments.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 80.4% to RMB4,173.8 million (US$608.0 million) in the second quarter of 2019 from RMB2,313.8 million in the corresponding period of 2018, mainly attributable to an increase in revenue-sharing fees and content costs to RMB3,149.3 million (US$458.7 million) in the second quarter of 2019 from RMB1,882.6 million in the corresponding period of 2018, which was in line with the increase in live streaming revenues of the Company. Bandwidth costs increased to RMB423.8 million (US$61.7 million) in the second quarter of 2019 from RMB246.0 million in the corresponding period of 2018, primarily reflecting continued overseas user base expansion mainly due to the impact of the consolidation of Bigo.

Gross profit increased by 45.4% to RMB2,121.4 million (US$309.0 million) in the second quarter of 2019 from RMB1,459.5 million in the corresponding period of 2018. Gross margin was 33.7% in the second quarter of 2019, compared to 38.7% in the corresponding period of 2018, primarily due to the impact caused by the relatively low gross margin of Huya and Bigo segments as their contributions to net revenues increased significantly year over year. The decrease in gross margin was also attributable to the increase in revenue-sharing fees and content costs.

OPERATING INCOME
Operating expenses were RMB2,090.9 million (US$304.6 million) in the second quarter of 2019, compared to RMB779.6 million in the corresponding period of 2018, primarily due to the increase in sales and marketing expenses of RMB853.4 million (US$124.3 million), and research and development expenses of RMB359.5 million (US$52.4 million). The increase in sales and marketing expenses was primarily attributable to the Company’s increased efforts in sales and marketing activities in overseas markets and the impact of depreciation and amortization related to the consolidation of Bigo, while the increase in research and development expenses was due to the increase in staff related expenses.

Operating income was RMB71.9 million (US$10.5 million) in the second quarter of 2019, compared to RMB713.8 million in the corresponding period of 2018. Operating margin was 1.1% in the second quarter of 2019, compared to 18.9% in the corresponding period of 2018, primarily due to the decrease in gross margin, the consolidation of Bigo and other overseas expansion initiatives.

Non-GAAP operating income5 was RMB524.9 million (US$76.5 million) in the second quarter of 2019, compared to RMB933.1 million in the corresponding period of 2018. Non-GAAP operating margin6 was 8.3% in the second quarter of 2019, compared to 24.7% in the corresponding period of 2018.

NET INCOME
Net income attributable to controlling interest of YY Inc. was RMB42.1 million (US$6.1 million) in the second quarter of 2019, compared to net loss attributable to controlling interest of YY Inc. of RMB99.9 million in the corresponding period of 2018. Net margin was 0.7% in the second quarter of 2019, compared to negative 2.6% in the corresponding period of 2018. The significantly high effective tax rate in the second quarter of 2019 was primarily due to the profit (loss) structure and the different effective tax rates of YY, Huya and Bigo segments. Particularly, the Company was not getting as much benefit from losses incurred by Bigo as a majority of Bigo’s business that was subject to a low applicable tax rate in its jurisdiction.

Non-GAAP net income attributable to controlling interest of YY Inc. was RMB424.2 million (US$61.8 million) in the second quarter of 2019, compared to RMB910.2 million in the corresponding period of 2018. Non-GAAP net margin7 was 6.7% in the second quarter of 2019, compared to 24.1% in the corresponding period of 2018.

NET INCOME PER ADS
Diluted net income per ADS8 was RMB0.27 (US$0.04) in the second quarter of 2019, compared to diluted net loss per ADS of RMB2.14 in the corresponding period of 2018.

Non-GAAP diluted net income per ADS9 was RMB5.14 (US$0.75) in the second quarter of 2019, compared to RMB13.75 in the corresponding period of 2018.

BALANCE SHEET AND CASH FLOWS
As of June 30, 2019, the Company had cash and cash equivalents, restricted cash and cash equivalents, restricted short-term deposits, short-term deposits and short-term investments of RMB25,106.5 million (US$3,657.2 million), which also included the proceeds received from the issuance of convertible senior notes and follow-on public offering of Huya in the second quarter of 2019. For the second quarter of 2019, net cash from operating activities was RMB1,125.4 million (US$163.9 million).

SHARES OUTSTANDING
As of June 30, 2019, the Company had a total of 1,617.1 million common shares, or the equivalent of 80.9 million ADSs, outstanding.

Business Outlook
For the third quarter of 2019, the Company expects net revenues to be between RMB6.57 billion and RMB6.77 billion10, representing a year-over-year growth of 60.2% to 65.1%. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Recent Developments
The Company today announced that its board of directors has authorized a share repurchase plan under which the Company may repurchase up to US$300 million of its shares over the next 12 months. The share repurchases may be made from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. YY’s board of directors will review the share repurchase plan periodically, and may authorize adjustment of its terms and size. The Company expects to fund repurchases made under this plan from its existing funds.

Conference Call Information
The Company will hold a conference call on Tuesday, August 13, 2019, at 9:00 P.M. Eastern Time (or Wednesday, August 14, 2019, at 9:00 A.M.  Beijing Time) to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:              +1-845-675-0437
International:               +65-6713-5090
China Domestic:           400-620-8038
Hong Kong:                 +852-3018-6771
Conference ID:             #6472108

The replay will be accessible through August 21, 2019, by dialing the following numbers:

United States:              +1-646-254-3697
International:               +61-2-8199-0299
Conference ID:             #6472108
A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.yy.com/.

Exchange Rate
This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.8650 to US$1.00, the noon buying rate in effect on June 28, 2019 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About YY Inc.
YY Inc. (“YY” or the “Company”) is a global social media platform. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing, and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY owns YY Live, a leading live streaming social media platform in China and Huya, a leading game live streaming platform in China. In addition, YY completed the acquisition of Bigo in March 2019. Bigo is a fast-growing global tech company. Headquartered in Singapore, Bigo owns Bigo Live, a leading global live streaming platform outside China; Likee, a leading global short-form video social platform; IMO, a global video communication app, and other social applications. YY has created an online community for global video and live streaming users. YY Inc. was listed on the NASDAQ in November 2012.

Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY’s strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY’s goals and strategies; YY’s future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain active users, especially paying users; YY’s ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial Measures
The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to controlling interest of YY Inc., non-GAAP net margin attributable to controlling interest of YY Inc., non-GAAP net income attributable to common shareholders of YY Inc., and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, and gain on deconsolidation and disposal of subsidiary. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income is net income excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, interest expenses related to the convertible bonds’ amortization to face value, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to controlling interest of YY Inc. is net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, interest expenses related to the convertible bonds’ amortization to face value, income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. Non-GAAP net margin is non-GAAP net income attributable to controlling interest of YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders of YY Inc. is net income attributable to common shareholders of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, interest expenses related to the convertible bonds’ amortization to face value, accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders and income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. After the non-GAAP reconciliation, non-GAAP net income attributable to controlling interests of YY Inc. is equal to the non-GAAP net income attributable to common shareholders of YY Inc. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders of YY Inc. divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of above reconciling items adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the non-cash effect of (i) share-based compensation expenses and amortization of intangible assets from business acquisitions, interest expenses related to the convertible bonds’ amortization to face value, which have been and will continue to be significant recurring expenses in its business, (ii) impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, and accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders, which may not be recurring in its business, and (iii) income tax expenses and non-GAAP adjustments for net income (loss) attributable to non-controlling interest shareholders, which are affected by above non-GAAP reconciling items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.

Investor Relations Contact
YY Inc.
Matthew Zhao
Tel: +86 (20) 8212-0000
Email: IR@YY.com 

ICR, Inc.
Jack Wang
Tel: +1 (646) 915-1611
Email: IR@YY.com

1 Net income attributable to controlling interest of YY Inc., is net income less net (loss) income attributable to the non-controlling interest shareholders and the mezzanine equity classified as non-controlling interest shareholder.

2 Non-GAAP net income attributable to controlling interest of YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments (deemed disposal refers to dilution of equity interest in equity-method investments), gain on fair value change of investments and equity investees’ investments, fair value loss on derivative liabilities, interest expenses related to the convertible bonds amortization to face value, income tax effects on non-GAAP adjustment and non-GAAP adjustment for net (loss) income attributable to non-controlling interests shareholders. These adjustments amounted to RMB382.1 million (US$55.7 million) and RMB1,010.1 million in the second quarters of 2019 and 2018, respectively. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for more details.

3 Refers to mobile average monthly active users. Average mobile MAU for any period is calculated by dividing (i) the sum of the Company’s mobile active users for each month of such period, by (ii) the number of months in such period.

4 Refers to a registered user that has purchased virtual items on YY’s platforms at least once during the period presented.

5 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, amortization of intangible assets from business acquisitions, impairment of goodwill and investments and gain on deconsolidation and disposal of a subsidiary. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

6 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

7 Non-GAAP net margin is non-GAAP net income attributable to controlling interest of YY Inc. as a percentage of net revenues.

8ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to common shareholders of YY Inc. divided by weighted average number of diluted ADS.

9Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders of YY Inc. divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

10 The outlook of net revenues for the third quarter of 2019 includes the impact from Bigo’s consolidation. However, when calculating the year-over-year growth rate, Bigo’s net revenues in the same period of 2018 was not included as the part of denominator.


 
YY INC.
 UNAUDITED CONDENSEDCONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
 
  December
 31,
2018 
 June
30,
2019
 June
30,
2019
  RMB RMB US$
Assets      
Current assets      
Cash and cash equivalents 6,004,231 11,010,997 1,603,933
Restricted cash and cash equivalents - 283,161 41,247
Short-term deposits 7,326,996 10,050,554 1,464,028
Restricted short-term deposits - 302,990 44,135
Short-term investments 979,053 3,458,790 503,830
Accounts receivable, net 198,428 629,508 91,698
Amounts due from related parties 193,559 14,098  2,054
Financing receivables, net 768,343 494,088 71,972
Prepayments and other current assets 1,019,019 942,311 137,260
       
Total current assets 16,489,629 27,186,497 3,960,157
       
Non-current assets      
Long-term deposits 1,000,000 - -
Deferred tax assets 70,834 120,141 17,501
Investments 4,591,524 1,534,593 223,539
Property and equipment, net 1,296,319 1,984,150 289,024
Land use rights, net 1,784,639 1,760,591 256,459
Intangible assets, net 74,685 3,411,719 496,973
Right-of-use assets, net(1) - 292,791 42,650
Goodwill 11,763 12,758,974 1,858,554
Financing receivables, net 224,793 224,048 32,636
Other non-current assets 223,859 276,233 40,238
       
Total non-current assets 9,278,416 22,363,240 3,257,574
       
Total assets 25,768,045 49,549,737 7,217,731
       
Liabilities, mezzanine equity and shareholders’ equity      
Current liabilities      
Convertible bonds 6,863 - -
Accounts payable 114,589 215,254 31,355
Deferred revenue 951,616 1,335,794 194,580
Advances from customers 101,690 97,081 14,141
Income taxes payable 235,561 403,005 58,704
Accrued liabilities and other current liabilities 2,414,371 3,855,975 561,686
Amounts due to related parties 28,336 34,890 5,082
Lease liabilities due within one year(1) - 111,179 16,195 
Short-term loans - 281,588 41,018
       
Total current liabilities 3,853,026 6,334,766 922,761
       
Non-current liabilities      
  Convertible bonds - 4,736,225 689,909
Lease liabilities(1) - 187,094 27,253
Deferred revenue 91,710 153,948 22,425
Deferred tax liabilities 27,505 326,025 47,491
       
Total non-current liabilities 119,215 5,403,292 787,078
       
Total liabilities 3,972,241 11,738,058 1,709,839
       


YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
  December
31,
2018
 June
 30,
2019
 June
 30,
2019
  RMB RMB US$
       
Mezzanine equity 418,673 439,325 63,995
       
Shareholders’ equity      
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 981,740,848 shares issued and outstanding as of December 31, 2018; 1,298,420,684 shares issued and 1,290,568,495 shares outstanding as of and June 30, 2019, respectively) 59 80 12
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 288,182,976 and  326,509,555 shares issued and outstanding as of December 31, 2018 and June 30, 2019, respectively) 21 24 3
Additional paid-in capital 11,168,866 21,620,780 3,149,422
Statutory reserves 101,725 101,725 14,818
Retained earnings 6,913,469 10,057,138 1,464,987
Accumulated other comprehensive income 336,152 600,217 87,431
       
Total YY Inc.’s shareholders’ equity 18,520,292 32,379,964 4,716,673
       
Non-controlling interests 2,856,839 4,992,390 727,224
       
Total shareholders’ equity 21,377,131 37,372,354 5,443,897
       
Total liabilities,mezzanine equity and      
shareholders’ equity 25,768,045 49,549,737 7,217,731
       
       

(1) The Company has adopted ASC842 “Leases” beginning January 1, 2019 using the optional transition method. The only major impact of the standard is that assets and liabilities amounting to RMB145.2 million and RMB141.2 million, respectively, are recognized beginning January 1, 2019 for leased office space with terms of more than 12 months.

 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended Six Months Ended
  June
 30,
2018
March
31,
2019
June
 30,
2019
June
 30,
2019
 June
30,
2018
June
30,
2019
June
30,
2019
  RMBRMBRMBUS$ RMBRMBUS$
          
Net revenues         
Live streaming(1) 3,559,666  4,485,020  5,922,761  862,747  6,591,701  10,407,781  1,516,064 
Others 213,564  295,564  372,486  54,259  430,460  668,050  97,312 
          
Total net revenues 3,773,230  4,780,584  6,295,247  917,006  7,022,161  11,075,831  1,613,376 
          
Cost of revenues(2) (2,313,772) (3,160,325) (4,173,841) (607,988) (4,329,569) (7,334,166) (1,068,342)
          
Gross profit 1,459,458   1,620,259  2,121,406  309,018  2,692,592   3,741,665  545,034 
          
Operating expenses(2)         
Research and development expenses (295,946) (404,736) (655,421) (95,473) (545,411) (1,060,157) (154,429)
Sales and marketing expenses (246,130) (534,236) (1,099,494) (160,159) (481,788) (1,633,730) (237,980)
General and administrative expenses (237,532) (276,424) (335,973) (48,940) (401,508) (612,397) (89,206)
          
Total operating expenses (779,608) (1,215,396) (2,090,888) (304,572) (1,428,707) (3,306,284) (481,615)
          
Other income 33,922  68,688  41,407  6,032  46,296  110,095  16,037 
          
Operating income 713,772  473,551  71,925  10,478  1,310,181  545,476  79,456 
          
Interest expenses (1,548) (6,219) (12,268) (1,787) (3,567) (18,487) (2,693)
Interest income and investment income 128,850  148,289  156,619  22,814  221,041  304,908  44,415 
Foreign currency exchange (losses) gains, net (2,823) 1,333  13,801  2,010  3,896  15,134  2,205 
Gain on deemed disposal and disposal of investments 13,999  -  -  -  13,999  -  - 
Gain on fair value change of investments 1,205,049  2,649,843  14,291  2,082  1,631,596  2,664,134  388,075 
Fair value loss on derivative liabilities (2,273,355) -  -  -    (2,285,223) -  - 
Other non-operating expenses (2,000) -  -  -    (2,000) -  - 
          
(Loss) income before income tax expenses (218,056) 3,266,797  244,368  35,597  889,923  3,511,165  511,458 
          
Income tax expenses (147,419) (123,971) (143,896) (20,961) (295,664) (267,867) (39,019)
          
(Loss) income before share of income  in equity method investments, net of income taxes (365,475) 3,142,826  100,472  14,636  594,259  3,243,298  472,439 
          
Share of income in equity method investments, net of income taxes 88,992  7,156  6,947  1,012  98,171  14,103  2,054 
          
Net (loss) income  (276,483) 3,149,982  107,419  15,648  692,430  3,257,401  474,493 
          
Less: Net (loss)  income attributable to the non-controlling interest shareholders and the mezzanine equity classified as non-controlling interest shareholders (176,565) 29,549  65,342  9,518  (171,181) 94,891  13,822 
          
Net (loss) income attributable to controlling interest of YY Inc. (99,918) 3,120,433  42,077  6,130  863,611  3,162,510  460,671 
          
Less: Accretion of subsidiaries’  redeemable convertible preferred shares to redemption value 36,969  9,365  9,476  1,380  67,076  18,841  2,745 
Cumulative dividend on subsidiary’s Series A Preferred Shares -  6,730  6,811  992  -  13,541  1,972 
Deemed dividend to subsidiary’s Series A preferred shareholders -  -  -  -  489,284  -  - 
          
Net (loss) income attributable to common shareholders of YY Inc. (136,887) 3,104,338  25,790  3,758  307,251  3,130,128  455,954 


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended Six Months Ended
  June
 30,
2018
 March
 31,
2019
 June
 30,
2019
 June
 30,
2019
 June
 30,
2018
 June
 30,
2019
 June
30,
2019
  RMB RMB RMB US$ RMB RMB US$
              
 

Net (loss) income per ADS
             
—Basic (2.14)44.93 0.32 0.05 4.82 42.06 6.13
—Diluted (2.14)44.55 0.27 0.04 4.75 41.31 6.02
Weighted average number of ADS used in calculating net income  per ADS             
—Basic 63,839,293 69,097,090 79,682,966 79,682,966 63,780,159 74,418,556 74,418,556
—Diluted 63,839,293 69,640,885 81,167,679 81,167,679 64,712,271 75,764,380 75,764,380

(1)     Live streaming revenues by geographical areas were as follows:

  Three Months Ended Six Months Ended
  June
 30,
2018
March
 31,
2019
June
 30,
2019
June
30,
2019
 June
 30,
2018
June
30,
2019
June
30,
2019
  RMBRMBRMBUS$ RMBRMBUS$
          
PRC 3,559,6664,189,4105,016,587730,748 6,591,7019,205,9971,341,004
Non-PRC -295,610906,174131,999 -1,201,784175,060

(2)     Share-based compensation was allocated in cost of revenues and operating expenses as follows:

  Three Months Ended Six Months Ended
  June
 30,
2018
March
 31,
2019
June
 30,
2019
June
30,
2019
 June
 30,
2018
June
30,
2019
June
30,
2019
  RMBRMBRMBUS$ RMBRMBUS$
          
Cost of revenues 24,05914,30915,6042,273 43,66729,9134,357
Research and development expenses 67,91270,607160,02923,311 122,379230,63633,596
Sales and marketing expenses 2,4061,9763,452503 4,2755,428791
General and administrative expenses 124,97894,87785,19712,410 161,541180,07426,231


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended Six Months Ended
  June
 30,
2018
 March
 31,
2019
 June
 30,
2019
 June
30,
2019
  June
 30,
2018
 June
30,
2019
 June
30,
2019
 
  RMB RMB RMB US$  RMB RMB US$ 
                 
Operating income 713,772 473,551 71,925 10,478  1,310,181 545,476 79,456 
Share-based compensation expenses 219,355 181,769 264,282 38,497  331,862 446,051 64,975 
Impairment of goodwill and investments - - - -  18,349 - - 
Amortization of intangible assets from business acquisitions - 62,000 188,740 27,493  - 250,740 36,524 
                 
Non-GAAP operating income 933,127 717,320 524,947 76,468  1,660,392 1,242,267 180,955 


Net (loss) income (276,483)3,149,982 107,419 15,648  692,430 3,257,401 474,493 
Share-based compensation expenses 219,355 181,769 264,282 38,497  331,862 446,051 64,975 
Impairment of goodwill and investments - - - -  18,349 - - 
Amortization of intangible assets from business acquisitions - 62,000 188,740 27,493  - 250,740 36,524 
Gain on deemed disposal and disposal of investments (13,999)- - -  (13,999)- - 
Gain on fair value change of investments and equity investees’ investments (1,287,301)(2,655,338)(13,332)(1,942) (1,713,848)(2,668,670)(388,736)
Fair value loss on derivative liabilities 2,273,355 - - -  2,285,223 - - 
Interest expenses related to the convertible bonds’ amortization to face value - - 4,287 624  - 4,287 624 
Income tax effects on non-GAAP adjustments 30,601 (16,996)(31,891)(4,645) 75,067 (48,887)(7,121)
                 
Non-GAAP net income 945,528 721,417 519,505 75,675  1,675,084  1,240,922 180,759 


Net (loss) income attributable to common shareholders of YY Inc. (136,887)3,104,338 25,790 3,758  307,251 3,130,128 455,954 
Share-based compensation expenses 219,355 181,769 264,282 38,497  331,862 446,051 64,975 
Impairment of goodwill and investments - - - -  18,349 - - 
Amortization of intangible assets from business acquisitions - 62,000 188,740 27,493  - 250,740 36,524 
Gain on deemed disposal and disposal  of investments (13,999)- - -  (13,999)- - 
Gain on fair value change of investments and equity investees’ investments (1,287,301)(2,655,338)(13,332)(1,942) (1,713,848)(2,668,670)(388,736)
Fair value loss on derivative liabilities 2,273,355  - - -  2,285,223 - - 
Interest expenses related to the convertible bonds’ amortization to face value - - 4,287 624  - 4,287 624 
Accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders 36,969 16,095 16,287 2,372  556,360 32,382 4,717 
Income tax effects on non-GAAP adjustments 30,601 (16,996)(31,891)(4,645) 75,067 (48,887)(7,121)
Non-GAAP adjustments for net loss attributable to the non-controlling interest shareholders (211,884)(38,346)(29,941)(4,361) (206,064)(68,287)(9,947)
                 
Non-GAAP net income attributable to controlling interest and common shareholders of YY Inc. 910,209 653,522 424,222 61,796  1,640,201  1,077,744 156,990 


 

Non-GAAP net income per ADS
                
—Basic 14.26 9.46 5.32 0.77  25.72 14.48 2.11 
—Diluted 13.75 9.32 5.14 0.75  24.72 14.11 2.06 
Weighted average number of ADS used in calculating Non-GAAP  net income per ADS                
—Basic 63,839,293 69,097,090 79,682,966 79,682,966  63,780,159 74,418,556 74,418,556 
—Diluted 64,701,643 69,640,885 81,855,180 81,855,180  64,721,304 75,764,380 75,764,380 


       

 
YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  June 30, 2019
        
  YY(1)HuyaBigoElimination(2)TotalTotal
  RMBRMBRMBRMBRMBUS$
        
Net revenues       
Live streaming 2,863,058  1,921,485   1,138,218  -  5,922,761  862,747 
Others 190,758  88,976   92,752  -  372,486  54,259 
        
Total net revenues 3,053,816  2,010,461  1,230,970  -  6,295,247  917,006 
        
Cost of revenues(3) (1,627,744) (1,674,793) (871,304) -  (4,173,841) (607,988)
        
Gross profit  1,426,072  335,668  359,666  -  2,121,406  309,018 
Operating expenses(3)       
Research and development expenses (241,253) (105,411) (308,757) -  (655,421) (95,473)
Sales and marketing expenses (335,602) (119,592) (644,300) -  (1,099,494) (160,159)
General and administrative expenses (171,032) (74,328) (90,613) -  (335,973) (48,940)
        
Total operating expenses (747,887) (299,331) (1,043,670) -  (2,090,888) (304,572)
        
Other income 8,602  31,332  1,473  -  41,407  6,032 
        
Operating income (loss) 686,787  67,669  (682,531) -  71,925  10,478 
        
Interest expenses (12,268) -  (4,201) 4,201  (12,268) (1,787)
Interest income and investment income 84,791  75,021  1,008  (4,201) 156,619  22,814 
Foreign currency exchange (losses) gains, net (4,181) 787  17,195  -  13,801  2,010 
Gain on fair value change of investments 14,291  -  -  -  14,291  2,082 
        
Income (loss) before income tax expenses 769,420  143,477  (668,529) -  244,368  35,597 
        
Income tax (expenses) benefits (160,152) (21,632) 37,888  -  (143,896) (20,961)
        
Income (loss) before share of income (loss) in equity method investments, net of income taxes 609,268  121,845  (630,641) -  100,472  14,636 
        
Share of income (loss) in equity method investments, net of income taxes 6,991  (44) -  -  6,947  1,012 
        
Net income (loss) 616,259  121,801  (630,641) -  107,419  15,648 
        
  1. In 2019 the segment of “YY Live” was renamed as “YY”.
     
  2. The elimination mainly consists of interest income and interest expenses generated from the loan between YY and Bigo segments.
     
  3. Share-based compensation was allocated in cost of revenues and operating expenses as follows:
   
  Three Months Ended
  June 30, 2019
   
  YYHuyaBigoTotalTotal
  RMBRMBRMBRMBUS$
       
Cost of revenues 1,9554,2709,37915,6042,273
Research and development expenses 28,05313,931118,045160,02923,311
Sales and marketing expenses 6559071,8903,452503
General and administrative expenses 43,18929,50112,50785,19712,410


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  June 30, 2019
   
  YY Huya Bigo TotalTotal
  RMB RMB RMB RMBUS$
        
Operating income (loss) 686,787  67,669 (682,531)  71,925  10,478 
Share-based compensation expenses 73,852  48,609 141,821  264,282  38,497 
Amortization of intangible assets from business acquisitions -  - 188,740  188,740  27,493 
           
Non-GAAP operating income (loss) 760,639  116,278 (351,970) 524,947  76,468 
               
Net income (loss) 616,259   121,801 (630,641) 107,419  15,648 
Share-based compensation expenses 73,852  48,609 141,821  264,282  38,497 
Amortization of intangible assets from business acquisitions -  - 188,740  188,740  27,493 
Gain on fair value change of investments and equity investees’ investments (13,332) - -  (13,332) (1,942)
Interest expenses related to the convertible bonds’ amortization to face value 4,287  - -  4,287  624 
Income tax effects on non-GAAP adjustments 1,421  - (33,312) (31,891) (4,645)
               
Non-GAAP net income (loss) 682,487  170,410 (333,392) 519,505  75,675 
               


 
YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  March 31, 2019
        
  YYHuyaBigo(1)Elimination(2)TotalTotal
  RMBRMBRMBRMBRMBUS$
        
Net revenues       
Live streaming 2,566,523  1,552,482  366,015  -  4,485,020  668,289 
Others 186,733  78,996  29,835  -  295,564  44,040 
        
Total net revenues 2,753,256  1,631,478  395,850  -  4,780,584  712,329 
        
Cost of revenues(3) (1,548,046) (1,358,105) (254,174) -  (3,160,325) (470,903)
        
Gross profit  1,205,210  273,373  141,676  -  1,620,259  241,426 
Operating expenses(3)       
Research and development expenses (235,502) (90,044) (79,190) -  (404,736) (60,308)
Sales and marketing expenses (266,317) (78,164) (189,755) -  (534,236) (79,604)
General and administrative expenses (163,364) (85,811) (27,249) -  (276,424) (41,188)
        
Total operating expenses (665,183) (254,019) (296,194) -  (1,215,396) (181,100)
        
Other income 58,066  8,864  1,758  -  68,688  10,235 
        
Operating income (loss) 598,093  28,218  (152,760) -  473,551  70,561 
        
Interest expenses (6,219) -  (1,395) 1,395  (6,219) (927)
Interest income and investment income 94,745  54,585  354  (1,395) 148,289  22,096 
Foreign currency exchange (losses) gains, net (965) (374) 2,672  -  1,333  199 
Gain on fair value change of investments 2,649,843  -  -  -  2,649,843  394,839 
        
Income (loss) before income tax expenses 3,335,497  82,429  (151,129) -  3,266,797  486,768 
        
Income tax (expenses) benefits (110,380) (18,968) 5,377  -  (123,971) (18,472)
        
Income (loss) before share of income (loss) in equity method investments, net of income taxes 3,225,117  63,461  (145,752) -  3,142,826  468,296 
        
Share of income (loss) in equity method investments, net of income taxes 7,157  (1) -  -  7,156  1,066 
        
Net income (loss) 3,232,274  63,460  (145,752) -  3,149,982  469,362 
        
  1. On March 4, 2019, YY completed the acquisition of Bigo. Therefore, Bigo’s financial results from March 4, 2019 to March 31, 2019 were included in YY’s consolidated financial statements.
     
  2. The elimination mainly consists of interest income and interest expenses generated from the loan between YY and Bigo segments.
     
  3. Share-based compensation was allocated in cost of revenues and operating expenses as follows:
 
  Three Months Ended
  March 31, 2019
   
  YYHuyaBigoTotalTotal
  RMBRMBRMBRMBUS$
       
Cost of revenues 7,2244,0203,06514,3092,132
Research and development expenses 25,99211,82432,79170,60710,521
Sales and marketing expenses 5529045201,976294
General and administrative expenses 38,19451,0785,60594,87714,137


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  March 31, 2019
   
  YY HuyaBigoTotalTotal
  RMB RMBRMBRMBUS$
        
Operating income (loss) 598,093  28,218 (152,760) 473,551  70,561 
Share-based compensation expenses 71,962  67,826 41,981  181,769  27,084 
Amortization of intangible assets from business acquisitions -  - 62,000  62,000  9,238 
        
Non-GAAP operating income (loss) 670,055  96,044 (48,779) 717,320  106,883 
              
Net income (loss) 3,232,274  63,460 (145,752) 3,149,982  469,362 
Share-based compensation expenses 71,962  67,826 41,981  181,769  27,084 
Amortization of intangible assets from business acquisitions -  - 62,000  62,000  9,238 
Gain on fair value change of investments and equity investees’ investments (2,655,338) - -  (2,655,338) (395,658)
Income tax effects on non-GAAP adjustments (7,479) - (9,517) (16,996) (2,532)
        
Non-GAAP net income (loss) 641,419  131,286 (51,288) 721,417  107,494 
              


 
YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  June 30, 2018
       
  YYHuyaElimination(1)TotalTotal
  RMBRMBRMBRMBUS$
       
Net revenues      
Live streaming 2,567,854  991,812  -  3,559,666  537,950 
Others 167,044  46,520  -  213,564  32,275 
       
Total net revenues 2,734,898  1,038,332  -  3,773,230  570,225 
       
Cost of revenues(2) (1,441,807) (871,965) -  (2,313,772) (349,666)
       
Gross profit  1,293,091  166,367  -  1,459,458  220,559 
Operating expenses(2)      
Research and development expenses (235,982) (59,964) -  (295,946) (44,724)
Sales and marketing expenses (204,448) (41,682) -  (246,130) (37,196)
General and administrative expenses (149,059) (88,473) -  (237,532) (35,897)
       
Total operating expenses (589,489) (190,119) -  (779,608) (117,817)
       
Other income 27,463  6,459  -  33,922  5,126 
       
Operating income (loss) 731,065  (17,293) -  713,772  107,868 
       
Interest expenses (1,548) -  -  (1,548) (234)
Interest income and investment income 86,406  42,444  -  128,850  19,472 
Foreign currency exchange losses, net (2,823) -  -  (2,823) (427)
Gain on deemed disposal and disposal of  investments 13,999  -  -  13,999  2,116 
Gain on fair value change of investments 1,003,050  -  201,999  1,205,049  182,111 
Fair value loss on derivative liabilities -  (2,273,355) -  (2,273,355) (343,558)
Other non-operating expenses (2,000) -  -  (2,000) (302)
       
Income (loss) before income tax expenses 1,828,149  (2,248,204) 201,999  (218,056) (32,954)
       
Income tax (expenses) benefits (126,522) 6,070  (26,967) (147,419) (22,278)
       
Income (loss) before share of income in equity method investments, net of income taxes 1,701,627  (2,242,134) 175,032  (365,475) (55,232)
       
Share of income in equity method investments, net of income taxes 147,337  116,687  (175,032) 88,992  13,449 
       
Net income (loss) 1,848,964  (2,125,447) -  (276,483) (41,783)
       
  1. Elimination represents the gain resulting from change in fair value of an investment of one of the Company's subsidiaries, on which YY segment and Huya segment have joint control and accounted for as equity method investment.
     
  2. Share-based compensation was allocated in cost of revenues and operating expenses as follows:
  Three Months Ended
  June 30, 2018
      
  YYHuyaTotalTotal
  RMBRMBRMBUS$
      
Cost of revenues 21,4062,65324,0593,636
Research and development expenses 62,0715,84167,91210,263
Sales and marketing expenses 1,6747322,406364
General and administrative expenses 60,10064,878124,97818,887


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
  Three Months Ended
  June 30, 2018
       
  YYHuyaEliminationTotalTotal
  RMBRMBRMBRMBUS$
       
Operating income (loss) 731,065  (17,293) -  713,772  107,868 
Share-based compensation expenses 145,251  74,104  -  219,355  33,150 
       
Non-GAAP operating income 876,316  56,811  -  933,127  141,018 
               
Net income (loss) 1,848,964  (2,125,447) -  (276,483) (41,783)
Share-based compensation expenses 145,251  74,104  -  219,355  33,150 
Gain on deemed disposal and disposal  of investments (13,999) -  -  (13,999) (2,116)
Gain on fair value change of investments and equity investee’s investments (1,143,680) (116,654) (26,967) (1,287,301) (194,541)
Fair value loss on derivative liabilities -  2,273,355  -  2,273,355  343,558 
Income tax effects on non-GAAP adjustments 3,634  -  26,967  30,601  4,625 
       
Non-GAAP net income 840,170  105,358  -  945,528  142,893 
               



 

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