Q4 2016 Real-Time Call Brief

Highlights

YY's live streaming business increased dramatically by 41.7% as compared with the prior year period.

Our live streaming revenues for the full year 2016 reached over RMB7 billion, which is a testament to our ability to maintain our market leaderships and capture the growth in our industry despite the highly competitive landscape.

Looking at excitement as surrounding the live streaming industry, recent research shows that by 2020 its market size will reach RMB60 billion annually.

In the fourth quarter of 2016, we continue to see strong growth momentums in our revenues with total net revenue increased by 30.8% year-over-year to RMB2.4 billion.

Our live streaming revenue increased by 41.7% year-over-year in the fourth quarter of 2016.

In particular, revenue for Huya Broadcasting increased by 150%, which not only ensure our platforms strong profitability capabilities but also save card in a long term profitability returns for our content providers.

In addition, the growth in our pay user remained robust in a past quarters with live streaming paying users increased by 91.9% year-over-year to 5.2 million.

Specifically, pay users for YY life increased by 63.2% year-over-year and paying user for Huya Broadcasting increased by 160% year-over-year.

Despite the intense competitive landscape in the live streaming industries in 2016, our profit margin for the year exceeded 20%.

Net revenue for the fourth quarter of 2016 increased by 30.8% to RMB2.48 billion, the increase was primarily driven by the increase in live streaming revenues.

Live streaming revenues increased by 41.7% to RMB2.22 billion, which was mainly driven by the growth of Huya Broadcasting revenue.

Revenue from online games were RMB125.4 million as compared to RMB172.4 million in the corresponding period of 2015.

Revenue from membership was RMB74.7 million in the fourth quarter of 2016, as compared to RMB80.8 million in the corresponding period of 2015.

Other revenues mainly including revenues from our online education platform online advertising revenue were RMB65.9 million in the fourth quarter of 2016 compared with RMB81.4 million in corresponding period of 2015.

Cost of revenue increased by 33.5% to RMB1.56 billion, which was primarily attributable to a increase in a revenue sharing fee and content cost to RMB1.22 billion in the fourth quarter of 2016.

In addition, bandwidth costs slightly increased RMB168.9 million in the fourth quarter of 2016, primarily reflecting the cost continued user-based expansion in our video quality improvement.

Gross profit increased by 26.4% to RMB924.6 million in a fourth quarter of 2016.

Gross margin was 37.2% in the fourth quarter 2016, as compared to 38.5% in the prior year period.

Our non-GAAP operating income increased by 42.9% to RMB673 million in the fourth quarter of 2016.

The non-GAAP operating margin was 27.1% in the fourth quarter of 2016 as compared to 24.8% in the prior year period.

GAAP net income attributable to YY increased by 59.3% to RMB572.3 million in the fourth quarter.

Net margin in the fourth quarter of 2016 increased to 23% from 18.9% in the corresponding period of 2015.

Non-GAAP net income attributable to YY increased by 42.4% to RMB598.6 million from RMB420.4 million in the prior year period.

Non-GAAP net margin in the fourth quarter of 2016 increased to 24.1% from 22.1% in the corresponding period of 2015.

Diluted net income per ADS in the fourth quarter of 2016 increased by 56.1% to RMB9.74 from RMB6.24 in a prior year period.

Non-GAAP diluted net income per ADS increased by 40.3% to RMB10.17 from RMB 7.25 in the prior year period.

Looking at business outlook for the first quarter of 2017, the company expects its revenue to be between RMB2.4 billion to RMB2.3 billion, representing a year-over-year growth of approximately 33.4% to 39.5%.