Business context and reporting period
JOYY Inc. (formerly YY Inc.; Nasdaq: YY) filed this Form 20-F for the fiscal year ended December 31, 2019. It is an annual report, not a standalone fourth-quarter filing; the text does not provide a clear set of Q4 financial results. JOYY operates video-based social platforms, including YY Live, Huya, Bigo Live, Likee, imo and Hago. Results are reported under U.S. GAAP in RMB unless otherwise noted.
In March 2019, JOYY acquired the remaining 68.3% of Bigo and began consolidating it; Bigo’s 2019 results are included from March 4. In December, JOYY transferred its online-game business into an investee and ceased consolidating that business.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | RMB25.576bn (US$3.674bn), up 62.2% | RMB15.764bn |
| Live-streaming revenue | RMB24.028bn; 93.9% of revenue, up 61.5% | RMB14.878bn; 94.4% |
| Other revenue | RMB1.548bn, up 74.7% | RMB886m |
| Gross profit / margin | RMB8.428bn / 33.0% | RMB5.746bn / 36.5% |
| Operating income / margin | RMB1.068bn / 4.2% | RMB2.640bn / 16.7% |
| Net income | RMB3.700bn | RMB2.116bn |
| Net income attributable to common shareholders | RMB3.379bn (US$485m); basic/diluted EPS RMB2.19/RMB2.15 | RMB1.642bn; basic/diluted EPS RMB1.28/RMB1.27 |
| Operating cash flow | RMB4.582bn | RMB4.465bn |
| Investing / financing cash flow | Used RMB15.610bn / provided RMB9.470bn | Used RMB6.295bn / provided RMB4.167bn |
At year-end, cash and cash equivalents were RMB3.894bn; restricted cash and restricted short-term deposits added RMB658m. Short-term deposits were RMB16.771bn and short-term investments RMB5.622bn. Current assets totaled RMB28.800bn versus current liabilities of RMB7.638bn. Convertible notes had a carrying value of RMB5.009bn, and short-term loans were RMB557m. The notes’ aggregate principal was US$1.0bn, due in 2025 and 2026. Total assets were RMB52.209bn and shareholders’ equity RMB38.418bn.
Gross margin declined as costs grew faster than revenue. Operating expenses rose 140.8% to RMB7.765bn, including sales and marketing expense of RMB3.740bn (up 225.4%) and R&D expense of RMB2.535bn (up 112.7%). Capital expenditures were RMB1.225bn. The company reported no dividends.
Material changes versus the prior comparable period
- Revenue growth reflected continued growth in YY and Huya and the partial-year consolidation of Bigo. Bigo contributed RMB4.968bn in revenue; the company’s stated segment table reports RMB4.562bn of Bigo live-streaming revenue.
- Operating income fell 59.5%, despite higher revenue, as cost of revenue rose 71.2% and operating expenses increased sharply, including global marketing and acquisition-related costs.
- Common-shareholder net income increased, but included a RMB2.679bn gain on fair-value changes of investments, principally associated with Bigo before its acquisition. The 2018 comparison included a RMB2.285bn fair-value loss on derivative liabilities.
- Investing cash outflow increased substantially, largely reflecting placements into deposits and investments, as well as acquisitions and strategic investments. Operating cash flow was broadly stable year over year.
- Bigo acquisition accounting added RMB12.432bn of goodwill at acquisition; total goodwill reached RMB12.947bn. Management said Bigo’s estimated fair value only slightly exceeded the reporting unit’s carrying value at year-end.
Outlook, commentary, risks and unusual items
Management provided no quantified revenue or earnings guidance. It said existing cash and expected operating cash flow should cover working-capital and capital-expenditure needs for the next 12 months. Priorities include global expansion, user growth and engagement, investment in AI and content, and developing additional monetization such as advertising and e-commerce. Management cautioned that results may fluctuate and historical growth is not necessarily indicative of future performance.
- COVID-19: The filing describes possible disruption to users, broadcasters, events, offices and business partners. The full effect was uncertain; the filing did not quantify an impact on 2019 results.
- Huya transaction after year-end: On April 3, 2020, Tencent exercised its option to acquire additional Huya shares from JOYY for approximately US$262.6m. Tencent gained control and JOYY ceased consolidating Huya; JOYY retained approximately 43% of Huya’s voting power at that date. Future JOYY results therefore will not include Huya’s operating results on a consolidated basis.
- Concentration and regulation: Live streaming generated 93.9% of 2019 revenue. The business faces content-moderation, licensing, privacy, intellectual-property and international regulatory risks. In China, JOYY relies on contractual VIE arrangements because of foreign-ownership restrictions; their enforceability and regulatory treatment remain uncertain.
- Credit and investment risks: JOYY ceased extending credit in its domestic micro-lending business in the second half of 2019 and was collecting historical loans. Financing-receivable impairment charges included RMB104m for personal loans and RMB67m for a corporate loan in 2019. Investment impairment was RMB62m.
- Legal matter: A court judgment requiring RMB20m compensation in NetEase’s game-copyright case was upheld on appeal in December 2019; JOYY said it might seek further review. Other claims and contingencies are described in the filing.
- Other items: JOYY recognized an RMB82.7m gain on disposal of its online-game business. Share-based compensation totaled RMB948m. The auditor issued an unqualified opinion and reported effective internal control over financial reporting; the filing also notes that the auditor could not be inspected by the PCAOB in China.
Investor verification checklist
- Confirm the distinction between annual results and Q4-only results; this filing does not provide a clear standalone Q4 income statement or cash-flow statement.
- Assess how much reported earnings depended on the RMB2.679bn investment fair-value gain, and compare operating income and margins excluding unusual items.
- Verify the liquidity composition, accessibility of PRC-held funds, and the terms, conversion features and put dates of the US$1bn convertible notes.
- Review Bigo’s acquisition valuation, goodwill headroom and future impairment sensitivity, given the narrow reported fair-value cushion.
- Evaluate the post-April 2020 effect of Huya deconsolidation on revenue, profit, cash flow and the accounting for JOYY’s retained stake.
- Monitor credit collections and legal, content, privacy, licensing, VIE-structure and audit-inspection risks.