JOYY Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

A global social media company, JOYY operates live streaming platforms, primarily in Southeast Asia, the Middle East, and other regions. While historically focused on live streaming entertainment, it’s increasingly diversifying into other areas, like e-commerce and business services.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

JOYY Inc. operates a global social media business, with a primary focus on live streaming platforms. Its main platforms include Bigo Live, Likee, and imo. While the business is headquartered in Singapore, its main audience lies outside North America and Europe. Here’s a breakdown of its operations:

Live Streaming (Bigo Live): This platform allows users to broadcast live videos, offering a diverse range of content, including entertainment, talent shows, gaming, and social interactions. It primarily monetizes through virtual gifting, where viewers purchase virtual items for creators and can offer exclusive content.
Short-Form Video (Likee): Likee is a platform similar to TikTok, focusing on short-form videos, memes, and content creation. It primarily attracts users in various emerging markets and it is mainly monetized through advertising.
Instant Messaging (imo): Imo is a global communication app offering messaging, voice, and video call capabilities, primarily used by people in parts of the Middle East, North Africa, Southeast Asia, and Sub-Saharan Africa to stay connected with their loved ones. The platform can be monetized by advertising and is also a part of the platform and ecosystem strategy.
Other: YY has been expanding into areas such as e-commerce, gaming, advertising, and other Internet-related services. These are mainly integrated into its Live platform.

Revenues Distribution:

Geographical: JOYY’s revenue is heavily concentrated in Asia, with a significant presence in the Middle East, Southeast Asia, and parts of Africa. China is no longer one of its core regions, after selling off its domestic video streaming business.
Platform: Revenues are primarily derived from live streaming, advertising on its apps, in-app purchases, and subscriptions.
Sources: A majority of revenue comes from live streaming. Advertising also makes up a good chunk of their revenue.

Industry Trends:

Live Streaming Boom: The live-streaming industry has experienced massive growth, particularly in Asia, the Middle East, and other developing economies.
Competition: The markets JOYY operates in are increasingly competitive, with the presence of competitors from both global and local players.
Monetization: The industry is changing its ways of monetizing, with newer avenues being explored by companies, such as e-commerce, virtual gifting, and subscription-based models.
Globalization: Many companies are looking to grow their geographic reach.

Competitive Landscape:

JOYY operates in a fast-evolving and highly competitive market. It faces competition from both global giants and local players.

Global Players: TikTok, YouTube, Facebook, etc, which have their own live streaming and social video offerings. These behemoths have lots of users, a lot more content, and a high brand recognition.
Local Players: Different emerging economies have their own home grown competitors. These competitors tend to have more local knowledge, and cater to local tastes more than their global peers. They also have a lot of users.

What Makes JOYY Different

Emerging Market Focus: JOYY’s focus is on emerging markets in Asia, the Middle East, and parts of Africa which differentiates it from the big tech companies that mainly focus on developed nations like the USA. This focused strategy can help in the acquisition of users.
Multiple Platforms: It has a strong suite of various platforms that serve the different needs of its users. It has platforms that are into live video, short-form video, and messaging.
Proprietary AI Technologies: The company employs proprietary technologies to create more engaging and personalized content experiences and to facilitate the interaction between users.

Financial Analysis

Income Statement:

YoY revenues have increased in all of the years from 2020-2022 and it’s expected to increase till 2025, according to analysts predictions. The revenue drivers for YY Inc. were primarily the live streaming, while the operating profit saw a decrease due to their investments in the new business verticals and acquisitions.
Cost of revenue was also quite high, mainly due to the revenue sharing with the content creators on their live platforms. Thus, gross profits were also affected. But despite these, the company was able to maintain an average gross profit of 60-65% for most years.
Operating profits have varied heavily in recent years due to different events, while the net profits were consistently positive.
Overall, the company is growing its revenues, but its costs are also growing at a similar rate.

Balance Sheet:

In terms of Assets, cash and cash equivalents constitute a bulk of it. Also, the company has a lot of investments in marketable securities.
Goodwill makes up a high chunk of intangible assets. It is a concern that these investments may never materialize into value for shareholders.
Liabilities primarily consist of short term debt, long term debt, and various other liabilities due to acquisitions.
YY has a relatively small amount of equity when compared to the total value of its assets. -Overall, the balance sheet seems reasonably healthy.

Cash Flows:

The cash flows from operating activities are positive for the past few years.
Cash flows from investing activities is negative, indicating that they are investing.
The cash flows from financing activities are quite volatile from year to year, but in the past few years they are positive, indicating that the company is taking more debt, and not using it for buybacks or other financing activities.
Overall, the company has good cashflows from operations, but it remains to be seen if they can improve the efficiency of these operations.

Moat:

YY’s moat stems from its established network effect in niche markets, especially in regions where their platforms are more popular. However, this moat faces some risks:

Strength (2/5): The network effect and brand recognition creates some barriers to entry and switching. However, the technology is easily replicable and many new and rising competitors are also looking to capture the market.
Durability (Short): The technology changes very quickly and competitors can also use aggressive strategies like better marketing, incentives, etc. to poach users from them.

Legitimate Risks and Business Resilience

JOYY faces some real challenges that can damage its moat and overall prospects:

Intense Competition: The social media and live streaming industries are exceptionally competitive, with new apps and platforms continuously vying for user attention. Any new competitor can capture market share quickly.
Regulatory Hurdles: Many of the regions where JOYY operates are volatile and have stringent regulations around data, user privacy, etc. In China, for example, there have been strict restrictions imposed on some apps that provide live streaming services. The regulations can impose limitations on their operations and even make it impossible to operate in some areas.
Evolving User Preferences: Consumer tastes in entertainment and social media are constantly shifting. It can be tough for companies to keep pace with the change and to innovate quickly enough.
Acquisitions: JOYY has been making a lot of acquisitions in the past, which could lead to potential financial damage if those acquisitions do not perform up to the level required by the company. Moreover, a lot of the time, the company has also used their equity as a method of funding and that dilutes the existing shares.
Growth Uncertainty: A significant part of revenue growth comes from global expansion. There is a risk in the ability of the management to effectively expand and get the same success outside their existing markets.

Resilience:

Financial Strength: The company has a decent balance sheet with positive cash flows, that provide a cushion to sustain during times of lower revenues.
Global Reach: JOYY is not dependent on a single market or country. If they fail to perform well in a particular area, then other geographies might compensate for that loss.
Diversification Strategy: The company has been exploring various different revenue channels in the past, including areas other than live streaming such as e-commerce, advertising, and so on. If its core live-streaming platform stops performing, the other ventures might be able to offset the losses.

Understandability (3/5) JOYY’s business model is moderately complicated. While the concept of live streaming is easy to understand, the way JOYY monetizes its platforms is more detailed. It depends a lot on micro-transactions, advertising, and the business model and operations across each of its various platforms are different from another. In addition, its various acquisitions and joint ventures makes the business even more opaque.

Balance Sheet Health (4/5)

JOYY possesses a reasonably healthy balance sheet. Its has a lot of cash on hand, and its debt levels are relatively low. But, a large chunk of assets is held in intangible forms which presents a considerable risk for shareholders. Also, the value of intangible assets are more susceptible to various external forces, like geopolitical shifts and market crashes, than tangible assets.

Controversies and Problems:

The company has been under fire from various countries, especially China, because of the content on their platform and its regulations. China has a strict regulatory environment and have penalized companies before, so there is a risk that YY’s financial health may be permanently impaired if Chinese authorities find any wrong-doing.
The company has been under investigation of accounting practices which might have created an overvaluation of the business. Though the claims are yet to be verified, it can still spook the investors and may cause a temporary drop in the stock price.