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YY Reports Third Quarter 2014 Unaudited Financial Results

3Q14 Net Revenues Up 105.3% YOY to RMB1.0 Billion

3Q14 Net Income Up 122.0% YOY to RMB286.2 Million

3Q14 Non-GAAP Net Income Up 88.7% YOY to RMB322.3 Million

GUANGZHOU, China, Nov. 11, 2014 (GLOBE NEWSWIRE) -- YY Inc. (Nasdaq:YY) ("YY" or the "Company"), a revolutionary real-time interactive social platform, today announced its unaudited financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 Highlights

  • Net revenues increased by 105.3% to RMB1.0 billion (US$163.0 million) from RMB487.2 million in the corresponding period of 2013, primarily driven by a 114.6% increase in revenues from internet value-added services, or IVAS revenues.
  • Net income attributable to YY Inc. increased by 122.0% to RMB286.2 million (US$46.6 million) from RMB129.0 million in the corresponding period of 2013.
  • Non-GAAP net income attributable to YY Inc.1 increased by 88.7% to RMB322.3 million (US$52.5 million) from RMB170.8 million in the corresponding period of 2013.

Mr. David Xueling Li, Chief Executive Officer of YY, stated, "We entered the second half of 2014 with strong momentum, propelled by both the new initiatives that have diversified our product offerings as well as the continuing strength of our core growth engines that remain the solid foundation of our business. For the first time, we achieved total quarterly net revenue of over one billion RMB, more than double what we achieved in the same period last year. Online music and entertainment, the main contributors to this outstanding performance, continued to experience robust growth of 133.2% year-over-year. Moreover, we were pleased to see that our exciting online dating business, launched less than a year ago, performed impressively again with revenues growing at a torrid pace of 119.0% quarter-over-quarter. Having amassed a solid base of over 105 million average monthly active users for the third quarter of 2014, we are confident that by providing a comprehensive talents and services marketplace for our vast number of users, we will further heighten user stickiness on our platform and elevate the barriers that fortify our leading position as a revolutionary real-time interactive social platform in China."

Mr. Eric He, Chief Financial Officer of YY, commented, "We once again achieved results which exceeded our expectations on both top line growth and margins. Due to the increasing scale of our business operations and cost efficiency, we saw net income attributable to YY grow by 122.0% year-over-year. With a mature understanding of our customers' needs and solid technical know-how, we will remain focused on creating shareholder value by continuing to expand our service offerings as well as growing our core business lines."

Third Quarter 2014 Financial Results

NET REVENUES

Net revenues increased by 105.3% to RMB1.0 billion (US$163.0 million) in the third quarter of 2014 from RMB487.2 million in the corresponding period of 2013, primarily driven by an increase in IVAS revenues.

IVAS revenues, which mainly consisted of revenues from online music and entertainment, online games, online dating, live game broadcasting and membership program, increased by 114.6% to RMB948.0 million (US$154.5 million) in the third quarter of 2014 from RMB441.8 million in the corresponding period of 2013. The overall increase primarily reflected increases in the number of paying users and average revenue per user ("ARPU").

Revenues from online music and entertainment increased by 133.2% to RMB533.8 million (US$87.0 million) in the third quarter of 2014 from RMB228.9 million in the corresponding period of 2013. This increase primarily reflected a 52.9% year-over-year increase in the number of paying users to 1,179,000 and an increase in ARPU of 52.5% to RMB453 in the third quarter of 2014.

Revenues from online games increased by 52.1% to RMB235.1 million (US$38.3 million) in the third quarter of 2014 from RMB154.5 million in the corresponding period of 2013. This increase primarily reflected a year-over-year increase in ARPU of 39.8% to RMB485 from 485,000 paying users. The number of online games operated by the Company increased to 183 as of September 30, 2014 from 111 as of September 30, 2013.

Other IVAS revenues, including online dating, live game broadcasting and membership subscription fees, increased by 206.8% to RMB179.1 million (US$29.2 million) in the third quarter of 2014 from RMB58.4 million in the corresponding period of 2013. Revenues from online dating increased by 119.0% to RMB64.1 million (US$10.4 million) in the third quarter of 2014 from RMB29.2 million in the second quarter of 2014. Revenues from live game broadcasting increased by 172.7% to RMB45.6 million (US$7.4 million) in the third quarter of 2014 from RMB16.7 million in the corresponding period of 2013. Revenues from the membership subscription fees increased by 45.7% to RMB54.0 million (US$8.8 million) in the third quarter of 2014 from RMB37.1 million in the corresponding period of 2013.

Online advertising revenues increased by 15.5% to RMB52.3 million (US$8.5 million) in the third quarter of 2014 from RMB45.3 million in the corresponding period of 2013.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues increased by 94.3% to RMB482.9 million (US$78.7 million) in the third quarter of 2014 from RMB248.6 million in the corresponding period of 2013. This increase was primarily attributable to an increase in revenue-sharing fees and content costs to RMB301.2 million (US$49.1 million) in the third quarter of 2014 from RMB133.9 million in the corresponding period of 2013. This increase in revenue-sharing fees and content costs paid to performers, channel owners and content providers was primarily due to higher levels of user engagement and spending. In addition, bandwidth costs increased to RMB87.7 million (US$14.3 million) in the third quarter of 2014 from RMB54.9 million in the corresponding period of 2013.

Gross profit increased by 116.9% to RMB517.4 million (US$84.3 million) in the third quarter of 2014 from RMB238.6 million in the corresponding period of 2013. Gross margin was 51.7% in the third quarter of 2014 compared with 49.0% in the corresponding period of 2013. The increase in gross margin year-over-year was mainly attributable to higher operating leverage in the third quarter of 2014 and the one-time costs related to our partnership with Hunan Satellite Television Station in the Happy Boy Show, a popular television series,incurred in the corresponding period of 2013.

OPERATING INCOME

Operating expenses for the third quarter of 2014 increased by 73.0% to RMB209.8 million (US$34.2 million) from RMB121.3 million in the corresponding period of 2013. This increase was primarily attributable to an increase in research and development expenses and sales and marketing expenses which were associated with the general growth of the Company's overall business.

Operating income in the third quarter of 2014 increased by 130.4% to RMB308.9 million (US$50.3 million) from RMB134.1 million in the corresponding period of 2013. Operating margin increased to 30.9% in the third quarter of 2014 from 27.5% in the corresponding period of 2013. The increase in operating margin was primarily due to increased operating leverage associated with the Company's expansion.

Non-GAAP operating income2 increased by 96.1% to RMB345.0 million (US$56.2 million) in the third quarter of 2014 from RMB175.9 million in the corresponding period of 2013. Non-GAAP operating margin3 decreased to 34.5% in the third quarter of 2014 from 36.1% in the corresponding period of 2013.

NET INCOME

Net income attributable to YY Inc. increased by 122.0% to RMB286.2 million (US$46.6 million) in the third quarter of 2014 from RMB129.0 million in the corresponding period of 2013. Net margin in the third quarter of 2014 increased to 28.6% from 26.5% in the corresponding period of 2013. Non-GAAP net income attributable to YY Inc.4 increased by 88.7% to RMB322.3 million (US$52.5 million) from RMB170.8 million in the corresponding period of 2013. Non-GAAP net margin5 decreased to 32.2% in the third quarter of 2014 from 35.1% in the corresponding period of 2013.

NET INCOME PER ADS

Diluted net income per ADS6 in the third quarter of 2014 increased by 119.8% to RMB4.77 (US$ 0.78), from RMB2.17 in the corresponding period of 2013.

Non-GAAP diluted net income per ADS7 in the third quarter of 2014 increased by 87.1% to RMB 5.37 (US$0.87) from RMB2.87 in the corresponding period of 2013.

BALANCE SHEET AND CASH FLOWS

As of September 30, 2014, the Company had cash and cash equivalents of RMB802.4 million (US$130.7 million) and short term deposits and restricted short-term deposits of RMB4.2 billion (US$687.5 million). For the third quarter of 2014, net cash from operating activities was RMB418.0 million (US$68.1 million).

SHARES OUTSTANDING

As of September 30, 2014, the Company had a total of 1.1 billion common shares outstanding, or the equivalent of 56.6 million ADSs outstanding.

RECENT DEVELOPMENTS

On August 7, 2014, the Company entered into an agreement to purchase certain floors of an office building in Panyu District, Guangzhou, China for a total consideration of RMB479.2 million (US$78.1 million). The additional office space will be used to support increased headcount associated with the continuing expansion of the Company.

BUSINESS OUTLOOK

For the fourth quarter of 2014, the Company expects its net revenues to be between RMB1.08 billion and RMB1.10 billion, representing a year-over-year growth of approximately 76% to 80%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

Conference Call Information

The Company will hold a conference call on Tuesday, November 11, 2014 at 8:00 pm Eastern Time or Wednesday November 12, 2014 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 Toll Free: +1-855-500-8701
China Domestic: 400-1200654
Hong Kong: +852-3018-6776
Conference ID: #24477425

The replay will be accessible through November 18, 2014 by dialing the following numbers:

United States Toll Free: +1-855-452-5696
International: +61-2-9003-4211
Conference ID: #24477425

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://investors.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 RMB6.1380 to US$1.00, the noon buying rate in effect on September 30, 2014 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 revolutionary real-time interactive social platform that engages users in real-time online group activities through voice, text and video. Launched in July 2008, YY Client, the Company's core product, empowers users to create and organize groups of varying sizes to discover and participate in a wide range of online activities, including online music and entertainment, online games, online dating, live game broadcasting and education.

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 registered user accounts, active users, especially paying users; YY's ability to monetize the user base; YY's ability to continue attracting advertisers and offering popular online games; 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"), except that the consolidated statement of changes in shareholders' equity (deficits), consolidated statements of cash flows, and the detailed notes have not been presented. YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc., non-GAAP net margin, non-GAAP net income(loss)attributable to common shareholders, and basic and diluted non-GAAP net income(loss) per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income (loss) attributable to YY Inc. is net income (loss) attributable to YY Inc. excluding share-based compensation expenses. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Non-GAAP net income (loss) attributable to common shareholders is net income (loss) attributable to common shareholders excluding share-based compensation expenses. Basic and diluted non-GAAP net income (loss) per ADS is non-GAAP net income (loss) attributable to common shareholders divided by weighted average number of ADS used in the calculation of basic and diluted net income (loss) per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation 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 effect of non-cash share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business. 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 (loss) 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" at the end of this release.

1Non-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.

2Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses.

3Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues.

4Non-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.

5Non-GAAP net margin is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

6ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income (loss) per ADS is net income (loss) attributable to common shareholders divided by weighted average number of diluted ADS.

7Non-GAAP diluted net income (loss) per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income (loss) attributable to common shareholders divided by weighted average number of ADS used in the calculation of diluted net income (loss) per ADS.

YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
December 31,
2013
September 30,
2014
September 30,
2014
RMB RMB US$
Assets
Current assets
Cash and cash equivalents 729,598 802,365 130,721
Short-term deposits 1,432,863 4,119,779 671,192
Restricted short-term deposits -- 100,000 16,292
Accounts receivable, net 100,101 116,799 19,029
Amount due from a related party 73 3,136 511
Prepayments and other current assets 67,533 111,190 18,115
Deferred tax assets 66,921 80,062 13,044
Total current assets 2,397,089 5,333,331 868,904
Non-current assets
Deferred tax assets 625 868 141
Investments 62,029 159,630 26,007
Property and equipment, net 102,636 189,243 30,831
Intangible assets, net 29,127 31,620 5,152
Goodwill 1,577 4,112 670
Other non-current assets 4,864 314,925 51,307
Total non-current assets 200,858 700,398 114,108
Total assets 2,597,947 6,033,729 983,012
Liabilities and shareholders' equity
Current liabilities
Accounts payable 56,391 97,497 15,884
Deferred revenue 293,866 329,351 53,658
Advances from customers 19,549 27,950 4,554
Income taxes payable 78,107 74,617 12,157
Accrued liabilities and other current liabilities 250,760 330,441 53,835
Amounts due to related parties 2,640 9,639 1,570
Total current liabilities 701,313 869,495 141,658
Non-current liabilities
Convertible bonds -- 2,461,528 401,031
Deferred revenue 9,425 17,573 2,863
Total liabilities 710,738 3,348,596 545,552
YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
December 31,
2013
September 30,
2014
September 30,
2014
RMB RMB US$
Shareholders' equity
Class A common shares (US$0.00001 par value; 10,000,000,000 shares authorized, 622,658,738 shares issued and outstanding as of December 31, 2013 and 704,275,248 shares issued and outstanding as of September 30, 2014, respectively) 38 43 7
Class B common shares (US$0.00001 par value; 1,000,000,000shares authorized, 485,831,386 shares issued and outstanding as of December 31, 2013 and 427,352,696 shares issued and outstanding as of September 30, 2014, respectively) 34 30 5
Additional paid-in capital 2,765,614 2,862,425 466,345
Statutory reserves 40,657 40,657 6,624
Accumulated deficits (874,697) (183,022) (29,818)
Accumulated other comprehensive losses (44,437) (35,000) (5,703)
Total shareholders' equity 1,887,209 2,685,133 437,460
Total liabilities and shareholders' equity 2,597,947 6,033,729 983,012
YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended Nine Months Ended
September
30,
2013
June
30,
2014
September
30,
2014
September
30,
2014
September
30,
2013
September
30,
2014
September
30,
2014
RMB RMB RMB US$ RMB RMB US$
Net revenues
Internet value-added service
—Online music and entertainment 228,906 516,376 533,821 86,970 516,295 1,433,311 233,514
—Online games 154,529 166,900 235,081 38,299 439,284 582,301 94,868
—Others 58,383 117,387 179,119 29,182 135,754 375,180 61,124
Online advertising 45,337 40,375 52,344 8,528 119,827 116,938 19,051
Total net revenue 487,155 841,038 1,000,365 162,979 1,211,160 2,507,730 408,557
Cost of revenues(1) (248,553) (424,753) (482,918) (78,677) (585,188) (1,224,655) (199,520)
Gross profit 238,602 416,285 517,447 84,302 625,972 1,283,075 209,037
Operating expenses(1)
Research and development expenses (67,148) (107,454) (126,599) (20,625) (191,866) (315,763) (51,444)
Sales and marketing expenses (7,502) (13,634) (33,308) (5,427) (20,744) (53,506) (8,717)
General and administrative expenses (46,663) (58,405) (49,901) (8,130) (151,357) (165,257) (26,924)
Total operating expenses (121,313) (179,493) (209,808) (34,182) (363,967) (534,526) (87,085)
Other income 16,766 1,836 1,245 203 19,107 3,964 646
Operating income 134,055 238,628 308,884 50,323 281,112 752,513 122,598
Gain on disposal of an equity investment -- -- 999 163 -- 999 163
Foreign currency exchange gains (losses), net 5,500 (6,001) 189 31 21,749 (14,495) (2,362)
Interest expense -- (18,003) (18,615) (3,033) -- (37,997) (6,190)
Interest income 16,542 43,643 49,607 8,082 40,681 116,374 18,960
Income before income tax expenses 156,097 258,267 341,064 55,566 343,542 817,394 133,169
Income tax expenses (27,719) (37,356) (54,147) (8,822) (59,121) (125,204) (20,398)
Income before share of income (loss) in equity method investments, net of income taxes 128,378 220,911 286,917 46,744 284,421 692,190 112,771
Share of income (loss) in equity method investments, net of income taxes 586 960 (680) (111) 1,290 (515) (84)
Net income attributable to YY Inc. 128,964 221,871 286,237 46,633 285,711 691,675 112,687
Net income attributable to YY Inc. 128,964 221,871 286,237 46,633 285,711 691,675 112,687
Other comprehensive income (loss):
Foreign currency translation adjustments, net of nil tax (5,678) 1 (47) (8) (22,817) 9,437 1,537
Comprehensive income attributable to YY Inc. 123,286 221,872 286,190 46,625 262,894 701,112 114,224

Net income per ADS
—basic 2.29 3.87 4.94 0.80 5.10 12.03 1.96
—diluted 2.17 3.71 4.77 0.78 4.87 11.55 1.88
Weighted average number of ADS used in calculating net income per ADS
—basic 56,261,659 57,387,988 57,967,199 57,967,199 55,989,991 57,507,038 57,507,038
—diluted 59,546,765 59,854,610 60,055,585 60,055,585 58,713,803 59,901,727 59,901,727
(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:
Three Months Ended Nine Months Ended
September
30,
2013
June
30,
2014
September
30,
2014
September
30,
2014
September
30,
2013
September
30,
2014
September
30,
2014
RMB RMB RMB US$ RMB RMB US$
Cost of revenues 3,191 4,691 5,280 860 6,618 12,379 2,017
Research and development expenses 12,357 15,339 15,431 2,514 27,714 39,649 6,460
Sales and marketing expenses 432 656 744 121 873 1,737 283
General and administrative expenses 25,859 15,803 14,628 2,383 56,996 42,845 6,980
YY INC.
Reconciliations of GAAP and Non-GAAP Results
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended Nine Months Ended
September
30,

2013
June
30,
2014
September
30,

2014
September
30,

2014
September
30,
2013
September
30,
2014
September
30,
2014
RMB RMB RMB US$ RMB RMB US$
Operating income 134,055 238,628 308,884 50,323 281,112 752,513 122,598
Share-based compensation expenses 41,839 36,489 36,083 5,878 92,201 96,610 15,740
Non-GAAP operating income 175,894 275,117 344,967 56,201 373,313 849,123 138,338
Net income attributable to YY Inc. 128,964 221,871 286,237 46,633 285,711 691,675 112,687
Share-based compensation expenses 41,839 36,489 36,083 5,878 92,201 96,610 15,740
Non-GAAP net income attributable to YY Inc. 170,803 258,360 322,320 52,511 377,912 788,285 128,427
Non-GAAP net income per ADS
—Basic 3.04 4.50 5.56 0.91 6.75 13.71 2.23
—Diluted 2.87 4.32 5.37 0.87 6.44 13.16 2.14
Weighted average numbers of ADS used in calculating Non-GAAP net income per ADS:
—Basic 56,261,659 57,387,988 57,967,199 57,967,199 55,989,991 57,507,038 57,507,038
—Diluted 59,546,765 59,854,610 60,055,585 60,055,585 58,713,803 59,901,727 59,901,727

CONTACT: Investor Relations Contact YY Inc. Lili Huang Tel: +86 (20) 2916-2000 Email: IR@YY.com ICR, Inc. Calvin Jiang Tel: +1 (646) 915-1611 Email: IR@YY.comSource:YY Inc.