Business Context and Reporting Period
This Form 6-K filing by YY Inc. (JOYY Inc.), dated May 9, 2018, discloses selected preliminary unaudited financial information and operating data for its subsidiary, Huya Inc., for the three months ended March 31, 2018. The data was included in Amendment No. 3 to Huya's Form F-1 registration statement for a proposed initial public offering (IPO).
Key Financial Metrics
| Metric | Q1 2018 (RMB) | Q1 2018 (USD) | Q1 2017 (RMB) |
|---|---|---|---|
| Total Revenues | 843.6 million | 134.5 million | 398.9 million |
| Cost of Revenues | 712.5 million | 113.6 million | 382.8 million |
| Operating Income | 28.2 million | 4.5 million | (42.2 million) Loss |
| Net Income | 31.4 million | 5.0 million | (41.7 million) Loss |
Revenue Breakdown (Q1 2018): Live streaming revenues were RMB792.8 million (US$126.4 million), and advertising and other revenues were RMB50.8 million (US$8.1 million).
Operating Expenses (Q1 2018): Research and development expenses were RMB51.5 million; sales and marketing expenses were RMB25.9 million; general and administrative expenses were RMB35.8 million.
Operating Data (Q1 2018): Average Monthly Active Users (MAUs) were 92.9 million (mobile MAUs: 41.5 million). Paying users totaled 3.4 million, and average monthly active broadcasters exceeded 666,000.
Material Changes Versus Prior Period
- Revenue Growth: Total revenue increased 111.5% year-over-year. Live streaming revenue grew 107.2% due to increases in paying users and spending per user. Advertising revenue surged 212.4%.
- Profitability Turnaround: The company moved from an operating loss of RMB42.2 million in Q1 2017 to an operating income of RMB28.2 million in Q1 2018. Net income improved from a loss of RMB41.7 million to a profit of RMB31.4 million.
- Expense Increases: Cost of revenues rose 86.2% driven by revenue sharing, content, and bandwidth costs. General and administrative expenses increased 251.2%, primarily due to share-based compensation and management salaries.
- User Growth: Average MAUs increased 19.2%, mobile MAUs increased 25.0%, and paying users increased 34.9% compared to Q1 2017.
Guidance, Outlook, and Risks
Management Commentary: Management attributes revenue growth to the expansion of the paying user base and advertising services. The shift to profitability is noted, though significant non-cash expenses impacted the bottom line.
Unusual Items: Net income for Q1 2018 included RMB24.4 million in share-based compensation expenses and RMB11.9 million in fair value loss on derivative liabilities related to preferred shares. Operating income also included the RMB24.4 million share-based compensation expense.
Forward-Looking Statement: The filing explicitly states that Huya's results for the three months ended March 31, 2018, should not be viewed as an indicator of financial results for the full year ending December 31, 2018, or any future periods.
Liquidity and Debt: The filing text does not provide specific values for cash flow, debt levels, or liquidity ratios.
Investor Verification Checklist
- Verify the impact of the RMB24.4 million share-based compensation and RMB11.9 million derivative liability loss on adjusted profitability metrics.
- Confirm the sustainability of the 107.2% live streaming revenue growth rate given the 86.2% increase in cost of revenues.
- Review the full Form F-1 registration statement for detailed balance sheet data, cash flow statements, and debt obligations not included in this summary.
- Assess the risks associated with the proposed IPO and the conversion features of preferred shares mentioned in the derivative liability section.