Market Overview

YY Reports Second Quarter 2018 Unaudited Financial Results

Share:

GUANGZHOU, China, Aug. 14, 2018 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ:YY) ("YY" or "the Company"), a leading live streaming social media platform in China, today announced its unaudited financial results for the second quarter of 2018.

Second Quarter 2018 Highlights

  • Net revenues increased by 44.6% to RMB3,773.2 million (US$570.2 million) from RMB2,609.0 million in the corresponding period of 2017.
  • Non-GAAP net income attributable to YY1 increased by 51.6% to RMB873.2 million (US$132.0 million) from RMB576.2 million in the corresponding period of 2017.

"Our strong performance in the second quarter of 2018 once again demonstrated our robust growth momentum in both YY Live and Huya," stated Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY. "Our mobile live streaming monthly active users (MAU) increased by 21.3% year over year to 80.2 million, and our total live streaming paying users increased by 21.1% year over year to 6.9 million. During the quarter, we achieved solid progress in traffic acquisition, product advancement, and technology enhancement. We have devised an innovative way to attract traffic to our own ecosystem by promoting our top hosts across various short-form video platforms. We advanced our products further by rolling out two new games into Host Battalion features to enhance user engagement and strengthen the interaction between hosts and users. Meanwhile, we have implemented an AI-based content recommendation technology to accurately and efficiently identify and match live streaming content with user preferences. Looking forward, we remain committed to continuous product innovation and technology advancement to uphold YY's market leadership in the live streaming industry."

Mr. Bing Jin, Chief Financial Officer of YY, further commented, "We are pleased to deliver another quarter with strong financial results. During the second quarter, our total net revenues increased by 44.6% year over year to RMB3,773.2 million, exceeding the high end of our previous guidance range. Our total revenue growth was mainly driven by the robust growth of our live streaming revenues, which increased by 50.0% year over year to RMB3,559.7 million. In addition, our non-GAAP net income attributable to YY increased by 51.6% year over year to RMB873.2 million in the second quarter of 2018. Looking ahead, we will continue to bring more innovations and offer more engaging services to users to further grow our market share."

Second Quarter 2018 Financial Results

NET REVENUES
Net revenues increased by 44.6% to RMB3,773.2 million (US$570.2 million) in the second quarter of 2018 from RMB2,609.0 million in the corresponding period of 2017, primarily driven by an increase in live streaming revenues. Live streaming revenues increased by 50.0% to RMB3,559.7 million (US$538.0 million) in the second quarter of 2018 from RMB2,373.4 million in the corresponding period of 2017.

Other revenues2 decreased by 9.4% to RMB213.6 million (US$32.3 million) in the second quarter of 2018 from RMB235.6 million in the corresponding period of 2017.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 48.0% to RMB2,313.8 million (US$349.7 million) in the second quarter of 2018 from RMB1,563.4 million in the corresponding period of 2017, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,882.6 million (US$284.5 million) in the second quarter of 2018 from RMB1,259.0 million in the corresponding period of 2017. The increase in revenue-sharing fees and content costs paid to performers, guilds, and content providers was in line with the increase in live streaming revenues. In addition, bandwidth costs increased to RMB246.0 million (US$37.2 million) in the second quarter of 2018 from RMB165.3 million in the corresponding period of 2017, primarily reflecting continued user base expansion and live streaming quality improvements.

Gross profit increased by 39.6% to RMB1,459.5 million (US$220.6 million) in the second quarter of 2018 from RMB1,045.5 million in the corresponding period of 2017. Gross margin was 38.7% in the second quarter of 2018 compared to 40.1% in the corresponding period of 2017, primarily due to the increase in revenue-sharing fees and content costs.

OPERATING INCOME
Operating expenses were RMB779.6 million (US$117.8 million) in the second quarter of 2018 compared to RMB476.3 million in the corresponding period of 2017.

Operating income increased by 19.1% to RMB713.8 million (US$107.9 million) in the second quarter of 2018 from RMB599.4 million in the corresponding period of 2017. Operating margin was 18.9% in the second quarter of 2018 compared to 23.0% in the corresponding period of 2017, primarily due to the increase in share-based compensation.

Non-GAAP operating income3 increased by 45.5% to RMB933.1 million (US$141.0 million) in the second quarter of 2018 from RMB641.5 million in the corresponding period of 2017. Non-GAAP operating margin4 was 24.7% in the second quarter of 2018 compared to 24.6% in the corresponding period of 2017.

NET INCOME/LOSS
Net loss attributable to YY Inc. was RMB136.9 million (US$20.7 million) in the second quarter of 2018 compared to a net income attributable to YY Inc. of RMB573.7 million in the corresponding period of 2017. Net loss attributable to YY Inc. in the second quarter of 2018 includes a non-recurring and non-cash item of RMB2,273.4 million (US$343.6 million) in fair value loss on derivative liabilities5, which resulted from the preferred shares of HUYA Inc. that existed before its IPO and the increase in HUYA Inc.'s enterprise value as indicated by the price of its initial public offering. Net loss attributable to YY Inc. in the second quarter of 2018 is partially offset by RMB1,205.0 million (US$182.1 million) of fair value change of investments6. The income tax expense in the second quarter of 2018 was significantly impacted by (i) non-recurring fair value loss on derivative liabilities which was non-deductible for income tax purpose, and (ii) gain on fair value change of Bigo Inc. which was non-taxable for income tax purpose.

Non-GAAP net income attributable to YY Inc. increased by 51.6% to RMB873.2 million (US$132.0million) from RMB576.2 million in the corresponding period of 2017. Non-GAAP net margin7 expanded to 23.1% in the second quarter of 2018 compared to 22.1% in the corresponding period of 2017.

NET INCOME PER ADS
Diluted net loss per ADS8 was RMB2.14 (US$0.32) in the second quarter of 2018 compared to diluted net income per ADS RMB9.98 in the corresponding period of 2017.

Non-GAAP diluted net income per ADS9 increased by 34.3% to RMB13.46 (US$2.03) in the second quarter of 2018 from RMB10.02 in the corresponding period of 2017.

BALANCE SHEET AND CASH FLOWS
As of June 30, 2018, the Company had cash and cash equivalents of RMB3,562.3 million (US$538.4 million) and short-term deposits of RMB9,503.5 million (US$1,436.2 million). For the second quarter of 2018, net cash from operating activities was RMB738.3 million (US$111.6 million).

SHARES OUTSTANDING
As of June 30, 2018, the Company had a total of 1,265.4 million common shares, or the equivalent of 63.3 million ADSs, outstanding.

Business Outlook
For the third quarter of 2018, the Company expects net revenues to be between RMB3.89 billion and RMB4.02 billion, representing a year-over-year growth of 25.8% to 30.0%. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Conference Call Information
The Company will hold a conference call on Monday, August 13, 2018, at 9:00 pm Eastern Time or Tuesday, August 14, 2018, at 9:00 am Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:                         +1-845-675-0438
International:                           +65-6713-5440
China Domestic:                      400-1200-654
Hong Kong:                             +852-3018-6776
Conference ID:                        #7888877

The replay will be accessible through August 21, 2018, by dialing the following numbers:

United States:                         +1-646-254-3697
International:                           +61-2-9003-4211
Conference ID:                        #7888877

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.yy.com/.

Exchange Rate
This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.6171 to US$1.00, the noon buying rate in effect on June 29, 2018 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About YY Inc.
YY Inc. ("YY" or the "Company") is a leading live streaming social media platform in China. The Company's highly engaged users contribute to a vibrant social community by creating, sharing, and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY Inc. was listed on the NASDAQ in November 2012.

Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY's strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about YY's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY's goals and strategies; YY's future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain active users, especially paying users; YY's ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial Measures
The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses, impairment of goodwill and investments, and gain on deconsolidation and disposal of subsidiary. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income is net income excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees' investments, fair value loss on derivative liabilities, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees' investments, fair value loss on derivative liabilities, deemed dividend to subsidiary's Series A preferred shareholders and income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of above reconciling items adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the non-cash effect of (i) share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business, (ii) impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees' investments, fair value loss on derivative liabilities, and deemed dividend to subsidiary's Series A preferred shareholders, which may not be recurring in its business, and (iii) income tax expenses and non-GAAP adjustments for net income (loss) attributable to non-controlling interest shareholders, which are affected by above non-GAAP reconciling items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company's net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned "YY Inc. Reconciliations of GAAP and Non-GAAP Results" near the end of this release.

Investor Relations Contact
YY Inc.
Matthew Zhao
Tel: +86 (20) 8212-0000
Email: IR@YY.com

ICR, Inc.
Jack Wang
Tel: +1 (646) 915-1611
Email: IR@YY.com

______________________

1 Non-GAAP net income attributable to YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments (deemed disposal refers to dilution of equity interest in equity-method investments), gain on fair value change of investments and equity investees' investments, fair value loss on derivative liabilities, deemed dividend to subsidiary's Series A preferred shareholders, income tax effects on non-GAAP adjustment and non-GAAP adjustment for net (loss) income attributable to non-controlling interests shareholders. These adjustments amounted to RMB1,010.1 million (US152.7 million) and RMB2.5 million in the second quarter of 2018 and 2017 respectively. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

2 Starting from the first quarter of 2018, the Company re-classified its revenues from online games, revenues from memberships, and other revenues (which mainly represent revenues from the Company's online advertising revenues) to the category "other revenues" in order to better reflect the Company's continued strategic shift towards its live streaming business.

3 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, impairment of goodwill and investments and gain on deconsolidation and disposal of a subsidiary. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details. 

4 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

5 Following the completion of the Series B financing of the Company's subsidiary, HUYA Inc. on March 8, 2018, the conversion features of the Series B-2 and Series A Preferred Shares were accounted for derivative liabilities and were measured at fair value. The derivative liabilities were transferred to shareholders' equity upon the completion of HUYA Inc.'s IPO as all preferred shares were converted into ordinary shares of HUYA Inc. upon completion of the IPO.

6 Following the adoption of ASU 2016-01 on January 1, 2018, the Company measures long-term investments other than equity method investments at fair value through earnings. For those investments without readily determinable fair values, the Company elects to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. In the second quarter of 2018, the Company recognised RMB1,205 million (US$182.1 million) of gain on fair value change on investments (primarily from the gain on fair value change of Bigo Inc).

7 Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to YY Inc. divided by weighted average number of diluted ADS.

Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.

             
YY INC.
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
             
    December
 31,
2017
  June
30,
2018
  June
30,
2018
    RMB   RMB   US$
Assets            
Current assets            
Cash and cash equivalents   2,617,432   3,562,329   538,352
Short-term deposits   6,000,104   9,503,518   1,436,206
Restricted short-term deposits   1,000,000   727,995   110,017
Short-term investments   124,550   686,840   103,798
Accounts receivable, net   153,944   188,389   28,470
Inventory   315   269   41
Amount due from related parties   11,190   20,427   3,087
Prepayments and other current assets   221,939   625,729   94,564
             
Total current assets   10,129,474   15,315,496   2,314,535
             
Non-current assets            
Deferred tax assets   113,017   109,019   16,475
Investments   1,153,019   4,218,457   637,508
Property and equipment, net   1,016,998   1,145,356   173,090
Land use rights, net   1,832,739   1,808,687   273,335
Intangible assets, net   37,481   61,580   9,306
Goodwill   11,716   11,728   1,772
Amount due from related parties   20,000   -   -
Other non-current assets   144,275   166,652   25,185
             
Total non-current assets   4,329,245   7,521,479   1,136,671
             
Total assets   14,458,719   22,836,975   3,451,206
             
Liabilities ,mezzanine equity and shareholders' equity            
Current liabilities            
Convertible bonds   -   6,618   1,000
Accounts payable   76,351   85,346   12,898
Deferred revenue   758,044   692,025   104,581
Advances from customers   80,406   95,311   14,404
Income taxes payable   146,298   182,692   27,609
Accrued liabilities and other current liabilities   1,465,963   1,622,057   245,131
Amounts due to related parties   30,502   24,253   3,665
Short-term loan   588,235   713,435   107,817
             
Total current liabilities   3,145,799   3,421,737   517,105
             
Non-current liabilities            
Convertible bonds   6,536   -   -
Deferred revenue   57,718   69,272   10,469
Deferred tax liabilities   10,810   68,991   10,426
             
Total non-current liabilities   75,064   138,263   20,895
             
Total liabilities   3,220,863   3,560,000   538,000
             


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
             
    December
31,
2017
  June
 30,
2018
  June
 30,
2018
    RMB   RMB   US$
             
Mezzanine equity   524,997   -   -
             
Shareholders' equity            
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 945,245,908 and 977,240,648 shares issued and outstanding as of December 31, 2017 and June 30, 2018, respectively)   57   59   9
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 317,982,976 and 288,182,976 shares issued and outstanding as of December 31, 2017 and June 30, 2018, respectively)   23   21   3
Additional paid-in capital   5,339,844   10,852,697   1,640,099
Statutory reserves   62,718   62,718   9,478
Retained earnings(1)   5,218,110   5,613,163   848,281
Accumulated other comprehensive (loss) income(1)   (9,597)   70,206   10,610
             
Total YY Inc.'s shareholders' equity   10,611,155   16,598,864   2,508,480
             
Non-controlling interests   101,704   2,678,111   404,726
             
Total shareholders' equity   10,712,859   19,276,975   2,913,206
             
Total liabilities, mezzanine equity and            
shareholders' equity   14,458,719   22,836,975   3,451,206
             
             

(1) On January 1, 2018, the Company adopted ASU 2016-1, "Classification and Measurement of Financial Instruments". After the adoption of this new guidance, the Company measures long-term investments other than equity method investments at fair value through earnings. For those investments without readily determinable fair values, the Company elects to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes. Changes in the basis of these investments are reported in current earnings. Following the adoption of this guidance, accumulated fair value gain, amounting to RMB87.8 million, was reclassified from accumulated other comprehensive loss to retained earnings as of January 1, 2018.

 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended   Six Months Ended
    June
 30,
2017
  March
31,
2018
  June
 30,
2018
  June
 30,
2018
  June
30,
2017
  June
30,
2018
  June
30,
2018
    RMB   RMB   RMB   US$   RMB   RMB   US$
                   
Net revenues(1)                  
Live streaming   2,373,397   3,032,035   3,559,666   537,950   4,430,824   6,591,701   996,162
Others   235,594   216,896   213,564   32,275   445,125   430,460   65,053
                             
Total net revenues   2,608,991   3,248,931   3,773,230   570,225   4,875,949   7,022,161   1,061,215
                             
Cost of revenues(2)   (1,563,445)   (2,015,797)   (2,313,772)   (349,666)   (2,940,440)   (4,329,569)   (654,300)
                             
Gross profit   1,045,546   1,233,134   1,459,458   220,559   1,935,509   2,692,592   406,915
                             
Operating expenses(2)                            
Research and development expenses   (167,359)   (249,465)   (295,946)   (44,724)   (332,920)   (545,411)   (82,424)
Sales and marketing expenses   (204,434)   (235,658)   (246,130)   (37,196)   (293,036)   (481,788)   (72,810)
General and administrative expenses   (104,545)   (163,976)   (237,532)   (35,897)   (181,197)   (401,508)   (60,677)
                             
Total operating expenses   (476,338)   (649,099)   (779,608)   (117,817)   (807,153)   (1,428,707)   (215,911)
                             
Gain on deconsolidation and disposal of subsidiaries   -   -   -   -   37,989   -   -
Other income   30,166   12,374   33,922   5,126   49,986   46,296   6,996
                             
Operating income   599,374   596,409   713,772   107,868   1,216,331   1,310,181   198,000
                             
Interest expenses   (3,459)   (2,019)   (1,548)   (234)   (24,727)   (3,567)   (539)
Interest income and investment income   27,317   92,191   128,850   19,472   58,348   221,041   33,405
Foreign currency exchange (losses) gains, net   (281)   6,719   (2,823)   (427)   (1,574)   3,896   589
Gain on deemed disposal and disposal of investments   45,861   -   13,999   2,116   45,861   13,999   2,116
Gain on fair value change of investments   -   426,547   1,205,049   182,111   -   1,631,596   246,573
Fair value loss on derivative liabilities   -   (11,868)   (2,273,355)   (343,558)   -   (2,285,223)   (345,351)
Other non-operating expenses   -   -   (2,000)   (302)   -   (2,000)   (302)
                             
Income (loss) before income tax expenses   668,812   1,107,979   (218,056)   (32,954)   1,294,239   889,923   134,491
                             
Income tax expenses   (100,531)   (148,245)   (147,419)   (22,278)   (189,604)   (295,664)   (44,682)
                             
Income (loss) before share of income in equity method investments, net of income taxes   568,281   959,734   (365,475)   (55,232)   1,104,635   594,259   89,809
                             
Share of income in equity method investments, net of income taxes   4,726   9,179   88,992   13,449   8,661   98,171   14,836
                             
Net Income (loss)   573,007   968,913   (276,483)   (41,783)   1,113,296   692,430   104,645
                             
Less: Net (loss) income attributable to the non-controlling interest shareholders and the mezzanine classified non-controlling interest shareholders   (701)   35,491   (139,596)   (21,096)   (3,566)   (104,105)   (15,733)
Deemed dividend to subsidiary's Series A preferred shareholders   -   489,284   -   -   -   489,284   73,942
                             
Net income (loss) attributable to YY Inc.   573,708   444,138   (136,887)   (20,687)   1,116,862   307,251   46,436
                             


 
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
         
    Three Months Ended   Six Months Ended
    June
 30,
2017
  March
31,
2018
  June
 30,
2018
  June
 30,
2018
  June
 30,
2017
  June
 30,
2018
  June
30,
2018
    RMB   RMB   RMB   US$   RMB   RMB   US$
                             
 

Net income (loss) per ADS
                           
—Basic   10.09   6.97   (2.14)   (0.32)   19.68   4.82   0.73
—Diluted   9.98   6.86   (2.14)   (0.32)   19.21   4.75   0.72
Weighted average number of ADS used
in calculating net income (loss) per ADS
                           
—Basic   56,832,278   63,694,535   63,839,293   63,839,293   56,757,452   63,780,159   63,780,159
—Diluted   57,488,989   64,713,421   63,839,293   63,839,293   59,234,872   64,712,271   64,712,271
                             

(1) On January 1, 2018, the Company adopted ASC 606, "Revenue from Contracts with Customers" using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Based on the Company's assessment, the adoption of ASC 606 did not have any material impact on the Company's consolidated financial statements.

(2) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

    Three Months Ended   Six Months Ended
    June
 30,
2017
  March
 31,
2018
  June
 30,
2018
  June
30,
2018
  June
 30,
2017
  June
30,
2018
  June
30,
2018
    RMB   RMB   RMB   US$   RMB   RMB   US$
                             
Cost of revenues   3,021   19,608   24,059   3,636   6,644   43,667   6,599
Research and development expenses   10,492   54,467   67,912   10,263   21,896   122,379   18,494
Sales and marketing expenses   303   1,869   2,406   364   812   4,275   646
General and administrative expenses   9,649   36,563   124,978   18,887   16,706   161,541   24,413
                             


                   
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands, except share, ADS and per ADS data)
                   
    Three Months Ended   Six Months Ended
    June 
30, 
2017
  March 
31, 
2018
  June 
30, 
2018
  June 
30, 
2018
  June 
30, 
2017
  June 
30, 
2018
  June 
30, 
2018
    RMB   RMB   RMB   US$   RMB   RMB   US$
                                           
Operating income   599,374     596,409     713,772     107,868     1,216,331     1,310,181     198,000  
Share-based compensation expenses   23,465     112,507     219,355     33,150     46,058     331,862     50,152  
Impairment of goodwill and investments   18,634     18,349     -     -     20,334     18,349     2,773  
Gain on deconsolidation and disposal of a subsidiary   -     -     -     -     (37,989 )   -     -  
                                           
Non-GAAP operating income   641,473     727,265     933,127     141,018     1,244,734     1,660,392     250,925  
                                           
Net income (loss)   573,007     968,913     (276,483 )   (41,783 )   1,113,296     692,430     104,645  
Share-based compensation expenses   23,465     112,507     219,355     33,150     46,058     331,862     50,152  
Impairment of goodwill and investments   18,634     18,349     -     -     20,334     18,349     2,773  
Gain on deconsolidation and disposal of a subsidiary   -     -     -     -     (37,989 )   -     -  
Gain on deemed disposal and disposal of investments   (45,861 )   -     (13,999 )   (2,116 )   (45,861 )   (13,999 )   (2,116 )
Gain on fair value change of investments and equity investees' investments   -     (426,547 )   (1,287,301 )   (194,541 )   -     (1,713,848 )   (259,003 )
Fair value loss on derivative liabilities   -     11,868     2,273,355     343,558     -     2,285,223     345,351  
Income tax effects on non-GAAP adjustments   6,820     44,466     30,601     4,625     12,264     75,067     11,344  
                                           
Non-GAAP net income   576,065     729,556     945,528     142,893     1,108,102     1,675,084     253,146  
                                           
Net income (loss) attributable to YY Inc.   573,708     444,138     (136,887 )   (20,687 )   1,116,862     307,251     46,436  
Share-based compensation expenses   23,465     112,507     219,355     33,150     46,058     331,862     50,152  
Impairment of goodwill and investments   18,634     18,349     -     -     20,334     18,349     2,773  
Gain on deconsolidation and disposal of a subsidiary   -     -     -     -     (37,989 )   -     -  
Gain on deemed disposal and disposal of investments   (45,861 )   -     (13,999 )   (2,116 )   (45,861 )   (13,999 )   (2,116 )
Gain on fair value change of investments and equity investees' investments   -     (426,547 )   (1,287,301 )   (194,541 )   -     (1,713,848 )   (259,003 )
Fair value loss on derivative liabilities   -     11,868     2,273,355     343,558     -     2,285,223     345,351  
Deemed dividend to subsidiary's Series A preferred shareholders   -     489,284     -     -     -     489,284     73,942  
Income tax effects on non-GAAP adjustments   6,820     44,466     30,601     4,625     12,264     75,067     11,344  
Non-GAAP adjustments for net (loss) income attributable to the non-controlling interest shareholders   (561 )   5,820     (211,884 )   (32,021 )   (1,594 )   (206,064 )   (31,141 )
                                           
Non-GAAP net income attributable to YY Inc.   576,205     699,885     873,240     131,968     1,110,074     1,573,125     237,738  
                                           
                                           
Non-GAAP net income per ADS                                          
—Basic   10.14     10.99     13.68     2.07     19.56     24.66     3.73  
—Diluted   10.02     10.78     13.46     2.03     19.09     24.24     3.66  
Weighted average number of ADS used in calculating Non-GAAP net income per ADS                                          
—Basic   56,832,278     63,694,535     63,839,293     63,839,293     56,757,452     63,780,159     63,780,159  
—Diluted   57,488,989     64,713,421     64,701,643     64,701,643     59,234,872     64,721,304     64,721,304  
                                           


 
 YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended
    June 30, 2018
             
    YY Live
  Huya
  Elimination(1)
  Total
  Total
    RMB   RMB   RMB   RMB   US$
                               
Net revenues                              
Live streaming   2,567,854     991,812     -     3,559,666     537,950  
Others   167,044     46,520     -     213,564     32,275  
                               
Total net revenues   2,734,898     1,038,332     -     3,773,230     570,225  
                               
Cost of revenues(2)   (1,441,807 )   (871,965 )   -     (2,313,772 )   (349,666 )
                               
Gross profit   1,293,091     166,367     -     1,459,458     220,559  
Operating expenses(2)                              
Research and development expenses   (235,982 )   (59,964 )   -     (295,946 )   (44,724 )
Sales and marketing expenses   (204,448 )   (41,682 )   -     (246,130 )   (37,196 )
General and administrative expenses   (149,059 )   (88,473 )   -     (237,532 )   (35,897 )
                               
Total operating expenses   (589,489 )   (190,119 )   -     (779,608 )   (117,817 )
                               
Other income   27,463     6,459     -     33,922     5,126  
                               
Operating income (loss)   731,065     (17,293 )   -     713,772     107,868  
                               
Interest expenses   (1,548 )   -     -     (1,548 )   (234 )
Interest income and investment income   86,406     42,444     -     128,850     19,472  
Foreign currency exchange losses, net   (2,823 )   -     -     (2,823 )   (427 )
Gain on deemed disposal and disposal of investments   13,999     -     -     13,999     2,116  
Gain on fair value change of investments   1,003,050     -     201,999     1,205,049     182,111  
Fair value loss on derivative liabilities   -     (2,273,355 )   -     (2,273,355 )   (343,558 )
Other non-operating expenses   (2,000 )   -     -     (2,000 )   (302 )
                               
Income (loss) before income tax expenses   1,828,149     (2,248,204 )   201,999     (218,056 )   (32,954 )
                               
Income tax (expenses) benefits   (126,522 )   6,070     (26,967 )   (147,419 )   (22,278 )
                               
Income (loss) before share of income in equity method investments, net of income taxes   1,701,627     (2,242,134 )   175,032     (365,475 )   (55,232 )
                               
Share of income in equity method investments, net of income taxes   147,337     116,687     (175,032 )   88,992     13,449  
                               
Net income (loss)   1,848,964     (2,125,447 )   -     (276,483 )   (41,783 )
                               

(1) Elimination represents the gain resulting from change in fair value of an investment of one of the Company's subsidiaries, on which YY Live segment and Huya segment have joint control and accounted for as equity method investment.

(2) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

    Three Months Ended
    June 30, 2018
           
    YY Live Huya Total Total
    RMB RMB RMB US$
           
Cost of revenues   21,406 2,653 24,059 3,636
Research and development expenses   62,071 5,841 67,912 10,263
Sales and marketing expenses   1,674 732 2,406 364
General and administrative expenses   60,100 64,878 124,978 18,887
           


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
      Three Months Ended
      June 30, 2018
               
      YY Live
  Huya
  Elimination
  Total
  Total
      RMB   RMB   RMB   RMB   US$
             
Operating income (loss)   731,065     (17,293 )   -     713,772     107,868  
Share-based compensation expenses   145,251     74,104     -     219,355     33,150  
                               
Non-GAAP operating income   876,316     56,811     -     933,127     141,018  
                               
Net income (loss)   1,848,964     (2,125,447 )   -     (276,483 )   (41,783 )
Share-based compensation expenses   145,251     74,104     -     219,355     33,150  
Gain on deemed disposal and disposal of investments   (13,999 )   -     -     (13,999 )   (2,116 )
Gain on fair value change of investments and equity investees' investments   (1,143,680 )   (116,654 )   (26,967 )   (1,287,301 )   (194,541 )
Fair value loss on derivative liabilities   -     2,273,355     -     2,273,355     343,558  
Income tax effects on non-GAAP adjustments   3,634     -     26,967     30,601     4,625  
                               
Non-GAAP net income   840,170     105,358     -     945,528     142,893  
                               


 
YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended
    March 31, 2018
             
    YY Live
  Huya
  Elimination(1)
  Total
  Total
    RMB   RMB   RMB   RMB   US$
                               
Net revenues                              
Live streaming   2,239,251     792,784     -     3,032,035     483,378  
Others   168,053     50,798     (1,955 )   216,896     34,578  
                               
Total net revenues   2,407,304     843,582     (1,955 )   3,248,931     517,956  
                               
Cost of revenues(2)   (1,303,264 )   (712,533 )   -     (2,015,797 )   (321,365 )
                               
Gross profit   1,104,040     131,049     (1,955 )   1,233,134     196,591  
Operating expenses(2)                              
Research and development expenses   (198,007 )   (51,458 )   -     (249,465 )   (39,771 )
Sales and marketing expenses   (211,673 )   (25,940 )   1,955     (235,658 )   (37,569 )
General and administrative expenses   (128,193 )   (35,783 )   -     (163,976 )   (26,142 )
                               
Total operating expenses   (537,873 )   (113,181 )   1,955     (649,099 )   (103,482 )
                               
Other income   2,091     10,283     -     12,374     1,973  
                               
Operating income   568,258     28,151     -     596,409     95,082  
                               
Interest expenses   (2,019 )   -     -     (2,019 )   (322 )
Interest income and investment income   81,607     10,584     -     92,191     14,697  
Foreign currency exchange gains, net   6,719     -     -     6,719     1,071  
Gain on fair value change of investments   426,547     -     -     426,547     68,002  
Fair value loss on derivative liabilities   -     (11,868 )   -     (11,868 )   (1,892 )
                               
Income before income tax expenses   1,081,112     26,867     -     1,107,979     176,638  
                               
Income tax (expenses) benefits   (152,709 )   4,464     -     (148,245 )   (23,634 )
                               
Income before share of income in equity method investments, net of income taxes   928,403     31,331     -     959,734     153,004  
                               
Share of income in equity method investments, net of income taxes   9,103     76     -     9,179     1,463  
                               
Net income   937,506     31,407     -     968,913     154,467  
                               

(1) The elimination mainly consists of revenues and expenses generated from advertising services among YY Live and Huya segments.

(2) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

    Three Months Ended
    March 31, 2018
     
    YY Live Huya Total Total
    RMB RMB RMB US$
           
Cost of revenues   19,353 255 19,608 3,126
Research and development expenses   52,677 1,790 54,467 8,683
Sales and marketing expenses   1,451 418 1,869 298
General and administrative expenses   14,659 21,904 36,563 5,829
           


 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
      Three Months Ended
      March 31, 2018
       
      YY Live
  Huya   Total
  Total
      RMB   RMB   RMB   US$
                       
Operating income   568,258     28,151   596,409     95,082  
Share-based compensation expenses   88,140     24,367   112,507     17,936  
Impairment of goodwill and investments   18,349     -   18,349     2,925  
                       
Non-GAAP operating income   674,747     52,518   727,265     115,943  
                       
Net income   937,506     31,407   968,913     154,467  
Share-based compensation expenses   88,140     24,367   112,507     17,936  
Impairment of goodwill and investments   18,349     -   18,349     2,925  
Gain on fair value change of investments and equity investees' investments   (426,547 )   -   (426,547 )   (68,002 )
Fair value loss on derivative liabilities   -     11,868   11,868     1,892  
Income tax effects on non-GAAP adjustments   44,466     -   44,466     7,089  
                       
Non-GAAP net income   661,914     67,642   729,556     116,307  
                       


 
YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
 
    Three Months Ended
    June 30, 2017
     
    YY Live
  Huya
  Total
  Total
    RMB   RMB   RMB   US$
           
Net revenues          
Live streaming   1,931,569     441,828     2,373,397     350,095  
Others   216,058     19,536     235,594     34,752  
                         
Total net revenues   2,147,627     461,364     2,608,991     384,847  
                         
Cost of revenues(1)   (1,159,554 )   (403,891 )   (1,563,445 )   (230,620 )
                         
Gross profit   988,073     57,473     1,045,546     154,227  
Operating expenses(1)                        
Research and development expenses   (132,223 )   (35,136 )   (167,359 )   (24,687 )
Sales and marketing expenses   (183,119 )   (21,315 )   (204,434 )   (30,156 )
General and administrative expenses   (86,678 )   (17,867 )   (104,545 )   (15,421 )
                         
Total operating expenses   (402,020 )   (74,318 )   (476,338 )   (70,264 )
                         
Other income   30,156     10     30,166     4,450  
                         
Operating income (loss)   616,209     (16,835 )   599,374     88,413  
                         
Interest expenses   (3,459 )   -     (3,459 )   (510 )
Interest income and investment income   25,445     1,872     27,317     4,029  
Gain on deemed disposal and disposal of investments   45,861     -     45,861     6,765  
Foreign currency exchange losses, net   (281 )   -     (281 )   (41 )
                         
Income (loss) before income tax expenses   683,775     (14,963 )   668,812     98,656  
                         
Income tax expenses   (100,531 )   -     (100,531 )   (14,829 )
                         
Income (loss) before share of income in equity method investments, net of income taxes   583,244     (14,963 )   568,281     83,827  
                         
Share of income in equity method investments, net of income taxes   4,726     -     4,726     697  
                         
Net Income (loss)(2)   587,970     (14,963 )   573,007     84,524  
                         

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

    Three Months Ended
    June 30, 2017
           
    YY Live Huya Total Total
    RMB RMB RMB US$
           
Cost of revenues   2,372 649 3,021 446
Research and development expenses   8,229 2,263 10,492 1,548
Sales and marketing expenses   282 21 303 45
General and administrative expenses   6,872 2,777 9,649 1,423
           

(2) Starting from the three months ended December 31, 2017, the Company reviews the financial performance of the operating segments up to the net income of each segment. Segment information for comparative periods has been revised to be presented on the same basis as the three months ended December 31, 2017

 
YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)
 
      Three Months Ended
      June 30, 2017
       
      YY Live
  Huya
  Total
  Total
      RMB   RMB   RMB   US$
                           
Operating income (loss)     616,209     (16,835 )   599,374     88,413  
Share-based compensation expenses     17,755     5,710     23,465     3,462  
Impairment of goodwill and investments     18,634     -     18,634     2,749  
                           
Non-GAAP operating income (loss)     652,598     (11,125 )   641,473     94,624  
                           
Net income     587,970     (14,963 )   573,007     84,524  
Share-based compensation expenses     17,755     5,710     23,465     3,461  
Impairment of goodwill and investments     18,634     -     18,634     2,749  
Gain on deemed disposal and disposal of investments     (45,861 )   -     (45,861 )   (6,765 )
Income tax effects on non-GAAP adjustments     6,820     -     6,820     1,006  
                           
Non-GAAP net income     585,318     (9,253 )   576,065     84,975  
                           

View Comments and Join the Discussion!