YY Stock Forecast

YY Stock Forecast: From Apple and Microsoft to Facebook and Google, technology stocks are hot right now but there’s no reason that would-be investors need to limit themselves to U.S. technology companies.

A growing number of investors in technology stocks are looking outside the U.S. toward markets such as China that are already large and growing fast. IT consulting firm IDC projects that by 2021, the Chinese information and communications technology market will reach a value of $8.1 trillion, or a whopping 55 percent of the company’s GDP.

Foreign tech companies have struggled to break into the Chinese market, since a number of Chinese firms have sprung up with similar business models. The Chinese e-commerce website Alibaba, for example, is often called the “eBay of China” due to the two companies’ close resemblance.

YY [NASDAQ: YY] is a video-based social network that is sometimes called the “Twitch of China,” referring to the popular Twitch live streaming platform for users to watch video games and other content. Here’s what you need to know before investing in YY stock: what YY does, the pros and cons of buying YY stock, and the final verdict about purchasing shares of YY.

What Does YY Do?

YY [NASDAQ: YY] is a Chinese live video company and social network.

The company recently spun off its video game streaming unit Huya [NYSE: HUYA] into a separate entity in which it owns a majority stake, which went public in May 2018.

In March 2019, YY also completed its acquisition of Bigo, a Singaporean social media startup that built a streaming app Bigo Live.

The company makes nearly all of its revenue (94 percent) from live streaming video.

YY Live is the company’s flagship live video platform, where users create and share video-based content about topics such as entertainment, sports, and music.

Unlike many other tech companies, YY’s revenue model is not based on ads. Rather, viewers can “tip” content creators with virtual gifts, and YY takes a significant portion of these donations as the owner of the platform.

Founded in 2005, YY is headquartered in Guangzhou, China. David Li is the company’s co-founder and current CEO, serving in the position since 2017.

YY’s main competitor is the Chinese live streaming service Douyu, which focuses mainly on video games and e-sports. Other competitors of YY include the mobile-based social network Momo and the live streaming app Yingke.

Is YY a Buy?

YY’s purchase of Bigo is a good sign that the company is looking to expand outside its core market of China.

Bigo’s users are mainly concentrated in other Asian countries, the Middle East, and the U.S. With the Bigo takeover, YY now has 400 million users active at least monthly, only a quarter of whom are in China.

There’s also more good news for YY [NASDAQ: YY]: the company’s services are all continuing to grow. YY’s average mobile monthly users increased by 66 percent to 60 million in Q2 2019.

What’s more, YY’s new subsidiary Bigo is expanding even faster: in the same time period, monthly active mobile users of Bigo soared by 161 percent to 79 million.

While there might be a bumpy road ahead for YY, the stock’s long-term future looks bright. Analysts expect that the company’s expected earnings will decrease sharply by 31 percent in 2019. However, after this course correction, YY’s earnings are projected to grow over the next five years by an average of 24 percent.

What are the Risks of Buying YY?

Despite the strong numbers posted by YY, the company’s stock has been in a protracted slump ever since the beginning of 2018, when shares reached their all-time high.

YY’s woes are not uncommon for the Chinese tech industry. Economic tensions between the U.S. and China and fears of a slowdown or recession have all contributed to a greater amount of uncertainty and sinking share prices among Chinese tech firms.

YY’s acquisition of Bigo has the potential for a big payoff, but it’s also a bit tricky. Since Bigo has yet to post a profit, the company needs to compensate for these losses in other areas.

However, YY [NASDAQ: YY] is mainly growing its revenue through Huya, which is a problem because it has lower profit margins than the company’s main business YY Live.

With government crackdowns on social media always a possibility in China, it’s hard to predict what the future holds for YY [NASDAQ: YY].

In April 2019, for example, YY’s rival Momo was ordered by Chinese regulators to take down its dating app Tantan. This was followed by a one-month suspension on newsfeed posts for both Momo and Tantan, which caused shares of Momo to plunge throughout the month of May.

YY Stock Forecast Summary

In the short to medium term, investors in YY stock should be looking for the company to successfully turn a profit from its acquisition of Bigo.

YY stock isn’t for everyone, but for those investors willing to wade into the Chinese tech market, it could be a risky investment that pays off big.

YY’s price to earnings ratio currently hovers around 6, which is relatively cheap for a company that is projected to see strong growth in the years ahead.