JOYY Inc. (then YY Inc.) — 2013 Form 20-F
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone 2013 Q4 report; quarterly revenue, profit and cash-flow figures are not clearly provided in the filing text summarized here. Financial amounts below are in RMB unless stated otherwise. Statements are prepared under U.S. GAAP.
Business context
YY operated a China-focused real-time social platform across PC and mobile, with voice, video and text activities including online entertainment, games and education. It monetized primarily through internet value-added services (IVAS)—virtual items, game tokens and subscriptions—and online advertising. Average monthly active users reached 92.3 million in Q4 2013, versus 69.7 million in Q4 2012; registered accounts totaled 700 million at year-end.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Net revenue | RMB 1,823.5 million | RMB 820.0 million | +122.4% |
| Gross profit / gross margin | RMB 941.5 million / 51.6% | RMB 403.9 million / 49.3% | Margin +2.3 percentage points |
| Operating income / operating margin | RMB 476.0 million / 26.1% | RMB 102.9 million / 12.5% | Margin +13.6 percentage points |
| Net income attributable to YY Inc. | RMB 477.7 million | RMB 89.2 million | Higher year over year |
| Operating cash flow | RMB 891.2 million | RMB 356.9 million | Higher year over year |
- Revenue mix: IVAS contributed 91.0% of revenue (RMB 1,660.2 million), up from 85.7% in 2012. Online music and entertainment was RMB 852.9 million (46.8% of revenue); games RMB 602.1 million (33.0%); other IVAS RMB 205.2 million (11.2%); advertising RMB 163.3 million (9.0%).
- Costs: Cost of revenue rose 112.0% to RMB 882.0 million. Revenue-sharing and content costs increased to RMB 444.1 million, including a non-recurring cost associated with the 2013 Happy Boy show partnership. Operating expenses rose 62.3% to RMB 492.5 million, while declining as a share of revenue.
- Cash and liquidity: Year-end cash and cash equivalents were RMB 729.6 million and short-term deposits RMB 1,432.9 million. Current assets were RMB 2,397.1 million against current liabilities of RMB 701.3 million. Management said cash and expected operating cash flow should cover working capital and capital expenditure needs for the next 12 months.
- Debt and obligations: The filing reports no long-term debt obligations at year-end. Operating lease commitments totaled RMB 32.7 million, all due within two years. Capital expenditure was RMB 72.2 million.
- Other reported items: Interest income was RMB 60.2 million, foreign-exchange gains RMB 29.6 million, government grants included in other income RMB 25.4 million, and income-tax expense RMB 90.0 million. The independent auditor issued an unqualified opinion and reported effective internal control over financial reporting at December 31, 2013.
Material changes versus 2012
- Revenue growth was driven by expansion in online music and entertainment, games and other IVAS. Paying users increased from 2.4 million to 3.2 million, and IVAS ARPU rose from RMB 296.5 to RMB 525.2.
- Music and entertainment revenue nearly tripled, while its share of total revenue rose from 34.9% to 46.8%. Games revenue grew 81.2%, but its revenue share fell from 40.5% to 33.0%; advertising’s share declined from 14.3% to 9.0% despite higher advertising revenue.
- Cash from operations increased substantially. Short-term deposits rose to RMB 1,432.9 million, and investing cash outflow included substantial deposit placements and strategic investments.
- Accounts receivable, net, declined to RMB 100.1 million, but the allowance for doubtful accounts increased to RMB 31.2 million from RMB 5.7 million.
Outlook, risks and unusual items
- Management expected IVAS, particularly non-game offerings, to account for a growing portion of revenue. It anticipated higher absolute spending on R&D, staffing, bandwidth, revenue sharing and promotion, while expecting operating expenses to decline as a percentage of revenue in the near term. No numerical revenue or earnings guidance was provided.
- Key risks include reliance on China’s uncertain internet and gaming regulations and the VIE contractual structure: substantially all operating revenue came from VIEs that the company does not own directly. Regulatory action or inability to enforce the contracts could disrupt operations or prevent consolidation.
- Monetization depends on continued user engagement, popular performers and channel owners, third-party games and developers, and third-party payment systems. Mobile YY monetization was relatively new; management did not intend to use mobile advertising at that time.
- Content moderation, copyright and other intellectual-property claims, cybersecurity and service interruptions, competition, user-account metrics that may overstate unique individuals, and foreign-exchange controls are material risks. Revenue is seasonal, and management cautioned that quarterly comparisons may be affected.
- In February 2014, the company sued advertising agent Beijing Wonderad seeking approximately RMB 84 million for unpaid advertising fees and late-payment damages. Management said the suit did not materially affect the 2013 financial statements. The filing also disclosed related-party dealings, including bandwidth services and game revenue sharing.
- The company paid no dividends and had no present plan to pay them in the foreseeable future. Some PRC net assets and earnings are restricted from transfer; the filing reports RMB 303.4 million of restricted net assets at year-end.
Important facts for investors to verify
- Confirm the annual reporting period and review the original filing for any quarterly data; the figures summarized here are full-year results.
- Assess the sustainability of the sharp rise in IVAS ARPU and the increasing concentration in online music and entertainment, including revenue-sharing costs and performer retention.
- Review the RMB 31.2 million doubtful-account allowance, advertising receivable concentration, and outcome and collectability implications of the RMB 84 million claim against Beijing Wonderad.
- Evaluate VIE enforceability, licensing status and regulatory exposure, as well as restrictions on moving cash from PRC entities to the Cayman Islands parent.
- Check the composition, maturity and accessibility of short-term deposits, planned deployment of cash, and potential dilution from outstanding share-based awards.