JOYY Inc (JOYY) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to YY's fourth-quarter and full-year 2015 earnings conference call. (Operator Instructions). At this point I would like to turn the call to Charles Eveslage from ICR. Thank you. Please go ahead.

Thank you, operator. Welcome to YY's fourth-quarter and full-year 2015 earnings conference call. With me today is Mr. Eric He, CFO.

I would also like to mention that due to the pending ongoing going-private transaction, we will not be hosting a Q&A session at the end of the call.

Before we begin, I refer you to the Safe Harbor statement in our earnings release, which also applies to our conference call today as we will make forward-looking statements.

I will now turn the call over to the CFO, Mr. Eric He.

Thank you, Charles. Hello, everyone. Welcome to our earnings call. In the fourth quarter we continued to see strong top-line growth, with our net revenue increasing by 62% year over year to RMB1.6b (sic - see press release "RMB1.8998b"), primarily reflecting the growth momentum across our core business lines, namely online music and entertainment, online dating and Huya broadcasting. Furthermore, we were able to increase our quarterly paying users by 30% year over year to 3.2m in the fourth quarter of 2015.

As expected, revenue growth was partially offset by the lackluster performance of our online game segment due to continued industry-wide softness.

In our core online music and entertainment segments, top-line growth continued, with revenue increasing by 69% to RMB1.14b. At the same time, paying users further increased by 45% year over year to 2.2m and ARPU increased 17% year over year to RMB531.

Furthermore, on the mobile front, revenues in this segment increased 4.5 times year over year to RMB527m, which represents 45% of total revenues, up from only 14% a year ago. Mobile ARPU in the segment increased by 139% year over year to RMB388 and mobile paying users increased 131% year over year to 1.4m.

We view the buildup of our mobile offerings as a crucial long-term investment, one that may bring down our overall ARPU in the short term but will eventually rebound and contribute ARPU growth as mobile users continue to grow strongly.

Turning to our online dating business, we witnessed revenue grow by an impressive 102% year over year to RMB189m. The ongoing strong growth was primarily fueled by a 109% year-over-year increase in ARPU to RMB837 in the fourth quarter of 2015, partially driven by contribution from the 2015 YY Online Dating Annual Event Competition, which was held for the first time in December 2015.

We expect the growth of our online dating business to continue in 2016 on an absolute basis. But after a strong performance in 2015, its relative growth momentum is expected to moderate as the law of large numbers dictates.

Now moving on to our online games broadcasting business. In the fourth quarter revenue from Huya broadcasting grew by a strong 154% (sic - see press release "152.2%") year over year to RMB139m (sic - see press release "RMB133.6m"), primarily reflecting the growth of our paying users and ARPU which increased by 70% and 48% year over year respectively.

Going forward, Huya broadcasting will remain a focus of our business and we will further enrich our content and event offerings in order to expand its user base, accelerate its development on the mobile end and optimize its position within our ecosystem.

As we expected, our overall revenue growth was partially offset by a soft performance of online games, which was mainly due to the continued industry softness across China's web-based game markets. In order to strengthen our revenue stream and expand our user community in this sector, we will launch more client-based games in the periods to come.

Going forward, we will continue to ramp up our mobile platform and expand our offering of both user-generated and professional-generated content, as we strive to meet users' evolving demands in a dynamic Internet market.

One example of our mobile expansion was the launch of our ME apps, which enable user to broadcast live and interact with other users anytime, anywhere. The content of our ME apps is relevant for users' daily lives. And by that token it has strong potential to attract more users and accelerate our mobile growth.

Furthermore, in the fourth quarter of 2015 we launched a new online financing broadcasting service called Zhiniu Finance in cooperation with multiple financial services institutions, including Guangfa Securities and Capital Securities, to provide our users with investment consulting, brokerage and other financial-related services. We will continue to invest in this business and capitalize on emerging opportunities in the Internet finance markets.

Overall, despite continuing to face certain challenges, we are confident in our ability to strengthen our position as the leading real-time interactive platform in China.

Looking ahead in 2016, we will focus on leveraging our cutting-edge technology to continue to augment and adapt the services across our diverse business lines.

Now I will turn to our quarterly financial details. Before I get started, I would like to clarify that all the financial numbers we are presenting today are in RMB amounts and percentage changes are year-over-year comparisons unless otherwise noted.

Net revenue for the fourth quarter 2015 increased by 62% to RMB1.6b (sic - see press release "RMB1.8998b"). This increase was primarily driven by the increase in IVAS revenues.

IVAS revenues increased by 61% to RMB1.83b, which was mainly driven by the 30% year-over-year growth in number of paying users and 24% year-over-year growth in ARPU.

Now let's look at each of our IVAS business lines. Revenue from online music and entertainment increased by 69% to RMB1.15b in the fourth quarter of 2015. This increase was driven by an increase of 45% in the number of paying users to 2.2m and an increase of 17% in the average revenue per user, ARPU, to RMB531. More importantly, mobile ARPU grew by an impressive 139% to RMB388 in the fourth quarter 2015 from RMB162 in the corresponding period of 2014.

Revenue from online games was RMB172m in the fourth quarter of 2015 compared to RMB229m in the period -- in the prior-year period. The decline was primarily caused by a 33% year-over-year decrease in paying users to 340,000, reflecting a continued softness in China's web game market, but was partially offset by an 11% year-over-year increase in ARPU of online games.

Revenue from online dating increased by 102% to RMB189m. This increase reflected a 109% year-over-year increase in ARPU to RMB837 in the fourth quarter of 2015, which was partially driven by contribution of the 2015 YY Online Dating Annual Event Competition, which was held for the first time in December 2015.

Other IVAS revenues increased by 131% to RMB325m in the fourth quarter of 2015. This mainly includes revenue from Huya broadcasting, which increased by 154% (sic - see press release "152.2%") to 139 -- RMB135m (sic - see press release "RMB133.6m") and revenue from membership subscription fees which increased by 36% to RMB81m.

Other revenues, mainly including revenue from our online education platform, 100 Education, online advertising revenue from Duowan.com, and ecommerce increased by 123% to RMB68m in the fourth quarter of 2015.

Cost of revenues increased by 87% to RMB1.17b, which was primarily attributable to an increase in revenue-sharing fees and content cost to RMB807m in the fourth quarter of 2015. This increase in the revenue-sharing fee and content costs paid to performers, channel owners and content providers was in line with the increase in revenue and was primarily due to higher level of user engagement and spendings, driven by promotional activities, as well as the Company's investment in expanding the amount of new and innovative content it provides users.

In addition, bandwidth costs increased to RMB161m in the fourth quarter of 2015, primarily reflecting the continued user base expansion and the video quality improvement.

Gross profit increased by 34% to RMB732m in the fourth quarter of 2015. Gross margin was 38.5% compared to 46.7% in the prior-year period. The decrease in the gross margin was mainly attributable to the change in our business mix to include new business lines involving user-generated content and higher revenue-sharing fee and content costs.

Our non-GAAP operating income increased by 29% to RMB471m in the fourth quarter of 2015. The non-GAAP operating margin fell to 24.8% from 31.1% in the prior-year period.

GAAP net income attributable to YY was RMB359m in the fourth quarter of 2015 compared to RMB373m in the prior-year period. Net margin in the fourth quarter of 2015 was 18.9% compared to 31.8% in the corresponding period of 2014.

Non-GAAP net income attributable to YY Inc. increased by 2% to RMB420m from RMB411m in the prior-year period. Non-GAAP net margin decreased 22.1% in the fourth quarter of 2015 from 35.1% in the prior-year period.

Diluted net income per ADS in the fourth quarter of 2015 increased by 2% to RMB6.24 compared to RMB6.15 in the prior-year period. Non-GAAP diluted net income per ADS increased by 8% to RMB7.25 from RMB6.74 in the prior-year period.

Now let me move on to the annual results of 2015. For the full year 2015, net revenues increased by 60% to RMB5.9b, primarily driven by a 60% increase in IVAS revenues.

Net income attributable to YY Inc. was RMB1.03b compared with RMB1.06b in [2015]. Net margin was 17.5% in 2015 compared with 28.9% a year ago.

Non-GAAP net income attributable to YY Inc. increased by 2% to RMB1.22b. Non-GAAP net margin was 22.7% (sic - see press release "20.7%") compared to 32.6% for the full year 2014.

Diluted net income per ADS increased to RMB17.96 from RMB17.76 in the prior year. Non-GAAP diluted net income per ADS increased to RMB21.18 from RMB20.01 in the prior year.

This concludes our prepared remarks. Thank you for joining our conference call. We would like to conclude the call now.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.