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YY Reports Second Quarter 2016 Unaudited Financial Results

GUANGZHOU, China, Aug. 17, 2016 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ:YY) ("YY" or the "Company"), a live streaming platform, today announced its unaudited financial results for the second quarter of 2016.

Second Quarter 2016 Highlights

  • Net revenues increased by 45.9% to RMB1,980.8 million (US$298.0 million) from RMB1,357.2 million in the corresponding period of 2015.
  • Net income attributable to YY increased by 18.1% to RMB343.3 million (US$51.7 million) from RMB290.7 million in the corresponding period of 2015.
  • Non-GAAP net income attributable to YY increased by 27.3% to RMB384.8 million (US$57.9 million) from RMB302.3 million in the corresponding period of 2015.

Mr. David Xueling Li, Chairman of YY, stated, “We are glad to report another strong quarter of both top- and bottom-line growth across the board. This growth momentum was primarily driven by solid year-over-year user adoption of over 54.5% to 4.2 million paying users, as well as robust IVAS revenue growth of 48.7% year over year. More importantly, we continued to see steady growth in monthly active users (“MAUs”) on the YY platform increasing by over 16% year over year to 141.9 million users. Additionally, in June 2016, we revamped our online music and entertainment branding to YY Live. This rebranding effort is a key part of YY leveraging our core broadcasting technology to more broadly support the increasing popularity of mobile live-broadcasting on our online music and entertainment platform. With the new brand, we aim to further leverage the established YY brand and build an even deeper content ecosystem which will also include the development of PUGC (Professionally-curated User Generated Content). Meanwhile, we are excited to announce the promotion of Mr. Zhou Chen as YY’s new CEO as well as the promotion of Mr. Rongjie Dong to CEO of our Huya broadcasting division. We firmly believe their deep experience, creative genius and solid leadership capabilities will help to lead YY through our next phase of development. Overall, we remain confident in our ability to stay ahead of our competitors and further fortify YY’s competitive moat as a leading interactive, live streaming platform in China.

Mr. Eric He, Chief Financial Officer of YY, commented, “For the second quarter of 2016, our revenue momentum continued as total revenues increased by 45.9% year over year to RMB1.98 billion. The growth in both top and bottom line reflects the strength of our increasingly large and diverse IVAS revenue streams. Our online game broadcasting business, Huya, saw continued strong growth, with a 67.7% year-over-year increase in revenue and a 111.6% year-over-year increase in the number of paying users to 1.1 million. Our online music and entertainment business, recently upgraded to YY Live, had a 50.3% year-over-year increase in revenue and 51.4% year-over-year increase in the number of paying users. Meanwhile, our leading music and entertainment business for mobile devices continued its robust growth with a 96.7% year-over-year increase in revenue and 88.3% year-over-year increase in the number of paying users to 1.8 million. Going forward, under the leadership of our new management team, we will continue to drive top- and bottom-line growth by expanding our innovative content and service offerings in order to meet the ever-evolving demands of our massive user community."

Second Quarter 2016 Financial Results

NET REVENUES
Net revenues increased by 45.9% to RMB1,980.8 million (US$298.0 million) in the second quarter of 2016 from RMB1,357.2 million in the corresponding period of 2015, primarily driven by the increase in IVAS revenues. IVAS revenues, which mainly consisted of revenues from online music and entertainment, online dating, online games, Huya broadcasting and YY's membership program, increased by 48.7% to RMB1,933.0 million (US$290.9 million) in the second quarter of 2016 from RMB1,300.0 million in the corresponding period of 2015. The increase in IVAS revenues was primarily driven by a 54.5% year-over-year increase in the number of paying users to 4.2 million.

Revenues from online music and entertainment increased by 50.3% to RMB1,098.3 million (US$165.3 million) in the second quarter of 2016 from RMB730.7 million in the corresponding period of 2015. This increase was driven by a year-over-year increase of 51.4% in the number of paying users to 2.8 million. Moreover, the number of mobile paying users grew 88.3% year over year to 1.8 million in the second quarter of 2016.

Revenues from online dating increased by 72.3% to RMB271.1 million (US$40.8 million) in the second quarter of 2016 from RMB157.3 million in the corresponding period of 2015. This increase primarily resulted from a 35.6% year-over-year increase in the number of paying users to 316,000 and 27.1% year-over-year increase in ARPU to RMB858 in the second quarter of 2016.

Revenues from online games were RMB188.3 million (US$28.3 million) in the second quarter of 2016, as compared to RMB199.4 million in the corresponding period of 2015. This decline was primarily caused by a 29.2% year-over-year decrease in the number of paying users to 303,000, which reflects the continued softness in China’s web game market, but was partially offset by a 33.3% year-over-year increase in the average revenue per user (“ARPU”) of online games.

Other IVAS revenues, mainly including Huya broadcasting, PK Show, membership subscription fees and ME App, increased by 76.6% to RMB375.3 million (US$56.5 million) in the second quarter of 2016 from RMB212.6 million in the corresponding period of 2015. Revenues from Huya broadcasting increased by 67.7% to RMB143.1 million (US$21.5 million) in the second quarter of 2016 from RMB85.3 million in the corresponding period of 2015, primarily driven by the 111.6% year-over-year increase in the number of paying users to 1.1 million.

Other revenues, mainly including revenues from the Company's online education platform, Huanqiu Education Online, and online advertising revenues from Duowan.com, were RMB47.8 million (US$7.2 million) in the second quarter of 2016, compared with RMB57.2 million in the corresponding period of 2015.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 45.0% to RMB1,208.3 million (US$181.8 million) in the second quarter of 2016 from RMB833.3 million in the corresponding period of 2015, primarily attributable to an increase in revenue-sharing fees and content costs to RMB893.3 million (US$134.4 million) in the second quarter of 2016 from RMB551.5 million in the corresponding period of 2015. The increase in revenue-sharing fees and content costs paid to performers, channel owners and content providers was in line with the increase in revenues and was primarily due to the higher level of user engagement and spending driven by promotional activities, as well as the Company’s investments in expanding the amount of new and innovative content it provides to users. In addition, bandwidth costs increased to RMB150.7 million (US$22.7 million) in the second quarter of 2016 from RMB132.2 million in the corresponding period of 2015, primarily reflecting the continued user base expansion and video quality improvements, but partially offset by the Company’s improved efficiency and pricing terms.

Gross profit increased by 47.4% to RMB772.4 million (US$116.2 million) in the second quarter of 2016 from RMB523.9 million in the corresponding period of 2015. Gross margin increased to 39.0% in the second quarter of 2016 from 38.6% in the corresponding period of 2015.

OPERATING INCOME
Operating expenses for the second quarter of 2016 increased by 41.7% to RMB351.1 million (US$52.8 million) from RMB247.8 million in the corresponding period of 2015. This increase was primarily attributable to the Company’s overall business expansion and its investments in providing more rich and diversified content to users.

Operating income in the second quarter of 2016 increased by 44.2% to RMB443.9 million (US$66.8 million), as compared to RMB307.7 million in the corresponding period of 2015. Operating margin in the second quarter of 2016 was 22.4%, as compared to 22.7% in the corresponding period of 2015.

Non-GAAP operating income1 increased by 52.0% to RMB485.4 million (US$73.0 million) in the second quarter of 2016 from RMB319.3 million in the corresponding period of 2015. Non-GAAP operating margin2 increased to 24.5% in the second quarter of 2016 from 23.5% in the corresponding period of 2015.

NET INCOME
Net income attributable to YY Inc. increased by 18.1% to RMB343.3 million (US$51.7 million) in the second quarter of 2016 from RMB290.7 million in the corresponding period of 2015. Net margin in the second quarter of 2016 was 17.3%, as compared to 21.4% in the corresponding period of 2015. Excluding a one-time non-operating expense of RMB23.5 million for the disposal of a subsidiary company of YY, net income attributable to YY Inc. was RMB366.8 million (US$55.2 million), representing an increase of 26.2% year over year.

Non-GAAP net income attributable to YY Inc.3 increased by 27.3% to RMB384.8 million (US$57.9 million) from RMB302.3 million in the corresponding period of 2015. Non-GAAP net margin4 was 19.4% in the second quarter of 2016, as compared to 22.3% in the corresponding period of 2015.

NET INCOME PER ADS
Diluted net income per ADS5 increased by 17.1% to RMB5.97 (US$0.90) in the second quarter of 2016 from RMB5.10 in the corresponding period of 2015.

Non-GAAP diluted net income per ADS6 increased by 25.7% to RMB6.65 (US$1.00) in the second quarter of 2016 from RMB5.29 in the corresponding period of 2015.

BALANCE SHEET AND CASH FLOWS
As of June 30, 2016, the Company had cash and cash equivalents of RMB679.1 million (US$102.2 million) and short-term deposits of RMB3,134.7 million (US$471.7 million). For the second quarter of 2016, net cash from operating activities was RMB573.8 million (US$86.3 million).

SHARES OUTSTANDING
As of June 30, 2016, the Company had a total of 1,101.9 million common shares outstanding, or the equivalent of 55.1 million ADSs outstanding.

Recent Development
On June 22, 2016, YY announced it has upgraded its online music and entertainment brand to YY Live. With the new brand, the Company will expand into pan-entertainment market and increase its focus on the increasingly popular live broadcasting segment. On the content side, YY will focus on PUGC offerings as it is expected to become one of the most important content generation models to the Company. YY will also enhance its PUGC offerings through cooperation with entertainment industry partners. The Company also announced the launch of “YY Live Broadcasting Box,” a fully HD codec live broadcasting machine.

Business Outlook

For the third quarter of 2016, the Company expects its net revenues to be between RMB2.00 billion and RMB2.10 billion, representing a year-over-year growth of approximately 34% to 41%. 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 August 18, 2016 at 8:00 am Eastern Time or 8:00 pm 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: 400-1200-654
Hong Kong: +852-3018-6776
Conference ID: # 49135813

The replay will be accessible through August 26, 2016 by dialing the following numbers:

United States Toll Free: +1-855-452-5696
International: +61-2-9003-4211
Conference ID: # 49135813

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 RMB6.6459 to US$1.00, the noon buying rate in effect on June 30, 2016 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 live streaming platform that enables users to interact in live 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 activities, including online music and entertainment, online games, online dating, live game broadcasting and education. YY Inc. was listed on NASDAQ in November 2012 and generated revenues of US$910 million in the fiscal year 2015.

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, as well as uncertainties relating to the proposed “going-private” transaction. 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, 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 attributable to common shareholders, 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. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income attributable to YY Inc. is net income 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 attributable to common shareholders is net income attributable to common shareholders excluding share-based compensation expenses. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders 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 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 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 operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses.

2Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues.

3Non-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.

4Non-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.

5ADS 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 common shareholders divided by weighted average number of diluted ADS.

6Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of diluted net income per ADS.

YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)
December 31,
2015
June 30,
2016
June 30,
2016
RMB RMB US$
Assets
Current assets
Cash and cash equivalents 928,934 679,139 102,189
Short-term deposits 1,894,946 3,134,711 471,676
Restricted short-term deposits 389,221 - -
Accounts receivable, net 132,353 160,160 24,099
Inventory 14,385 3,357 505
Amount due from related parties 5,297 23,236 3,496
Prepayments and other current assets 147,823 178,781 26,901
Deferred tax assets 116,921 92,645 13,940
Total current assets 3,629,880 4,272,029 642,806
Non-current assets
Deferred tax assets 3,363 5,547 835
Investments 567,557 806,018 121,280
Property and equipment, net 843,449 834,632 125,586
Land use rights, net - 1,896,348 285,341
Intangible assets, net 146,437 111,313 16,749
Goodwill 151,638 132,304 19,908
Other non-current assets 1,960,430 87,495 13,165
Total non-current assets 3,672,874 3,873,657 582,864
Total assets 7,302,754 8,145,686 1,225,670
Liabilities ,mezzanine equity and shareholders’ equity
Current liabilities
Accounts payable 129,819 122,286 18,400
Deferred revenue 385,300 394,680 59,387
Advances from customers 55,086 77,074 11,597
Income taxes payable 107,403 94,688 14,248
Accrued liabilities and other current liabilities 681,889 635,195 95,577
Amounts due to related parties 24,917 27,313 4,110
Total current liabilities 1,384,414 1,351,236 203,319
Non-current liabilities
Convertible bonds* 2,572,119 2,636,867 396,766
Deferred revenue 20,752 26,045 3,919
Deferred tax liabilities 16,817 15,162 2,281
Total non-current liabilities 2,609,688 2,678,074 402,966
Total liabilities 3,994,102 4,029,310 606,285


YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
December 31,
2015
June 30,
2016
June 30,
2016
RMB RMB US$
Mezzanine equity 61,833 43,390 6,529
Shareholders’ equity
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 728,227,848 and 732,331,788 shares issued and outstanding as of December 31, 2015 and June 30, 2016, respectively) 43 43 6
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 369,557,976 and 369,557,976 shares issued and outstanding as of December 31, 2015 and June 30, 2016, respectively) 27 27 4
Additional paid-in capital 2,011,799 2,107,329 317,087
Statutory reserves 56,507 56,507 8,503
Retained earnings 1,207,168 1,758,793 264,643
Accumulated other comprehensive (losses) income (36,385) 139,658 21,014
Non-controlling interests 7,660 10,629 1,599
Total shareholders’ equity 3,246,819 4,072,986 612,856
Total liabilities, mezzanine equity and shareholders’ equity 7,302,754 8,145,686 1,225,670

* Effectively January 2016, ASU 2015-3 issued by FASB requires entities to present the issuance costs of bonds in the balance sheet as a direct deduction from the related bonds rather than assets. Accordingly, the Company retrospectively reclassified RMB25.3 million of issuance cost of bonds from other non-current assets into convertible bonds as of December 31, 2015.


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 Six Months Ended
June 30,
2015
March 31,
2016
June 30,
2016
June 30,
2016
June 30,
2015
June 30,
2016
June 30,
2016
RMBRMBRMBUS$ RMBRMBUS$
Net revenues
Internet value-added service
—Online music and entertainment 730,693 919,084 1,098,311 165,261 1,320,748 2,017,395 303,555
—Online dating 157,348 211,226 271,116 40,794 289,184 482,342 72,577
—Online games 199,404 171,110 188,261 28,327 431,152 359,371 54,074
—Other IVAS 212,585 310,428 375,321 56,474 369,782 685,749 103,184
Other revenues 57,151 37,470 47,768 7,188 96,577 85,238 12,826
Total net revenue 1,357,181 1,649,318 1,980,777 298,044 2,507,443 3,630,095 546,216
Cost of revenues(1) (833,281) (1,060,531) (1,208,340) (181,817) (1,506,016) (2,268,871) (341,394)
Gross profit 523,900 588,787 772,437 116,227 1,001,427 1,361,224 204,822
Operating expenses(1)
Research and development expenses (120,125) (179,648) (172,228) (25,915) (243,113) (351,876) (52,946)
Sales and marketing expenses (63,079) (77,961) (88,699) (13,346) (114,622) (166,660) (25,077)
General and administrative expenses (63,843) (83,407) (90,155) (13,566) (123,374) (173,562) (26,116)
Goodwill impairment (110,699) - - - (110,699) - -
Fair value change of contingent consideration 109,995 - - - 109,995 - -
Total operating expenses (247,751) (341,016) (351,082) (52,827) (481,813) (692,098) (104,139)
Other income 31,570 8,905 22,507 3,387 32,330 31,412 4,727
Operating income 307,719 256,676 443,862 66,787 551,944 700,538 105,410
Foreign currency exchange gains (losses), net 3,917 237 552 83 (1,167) 789 119
Interest expense (21,941) (20,394) (19,576) (2,946) (40,126) (39,970) (6,014)
Interest income 33,884 13,649 9,902 1,490 81,152 23,551 3,544
Other non-operating expense - - (23,474) (3,532) (2,165) (23,474) (3,532)
Income before income tax expenses 323,579 250,168 411,266 61,882 589,638 661,434 99,527
Income tax expenses (36,430) (49,622) (75,179) (11,312) (80,904) (124,801) (18,779)
Income before share of income (loss) in equity method investments, net of income taxes 287,149 200,546 336,087 50,570 508,734 536,633 80,748
Share of income (loss) in equity method investments, net of income taxes 2,319 5,774 (28) (4) 7,320 5,746 865
Net Income 289,468 206,320 336,059 50,566 516,054 542,379 81,613
Less: Net loss attributable to the non-controlling interest shareholders and the mezzanine classified non-controlling interest shareholders (1,223) (2,019) (7,227) (1,087) (1,599) (9,246) (1,391)
Net income attributable to YY Inc. 290,691 208,339 343,286 51,653 517,653 551,625 83,004


YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended Six Months Ended
June 30,
2015
March 31,
2016
June 30,
2016
June 30,
2016
June 30,
2015
June 30,
2016
June 30,
2016
RMB RMBRMBUS$ RMBRMBUS$
Net income attributable to YY Inc. 290,691 208,339 343,286 51,653 517,653 551,625 83,004
Other comprehensive income:
Unrealized gain of available-for-sales securities - - 177,152 26,656 - 177,152 26,656
Foreign currency translation adjustments, net of nil tax 30 350 (1,459) (220) 4,101 (1,109) (167)
Comprehensive income attributable to YY Inc. 290,721 208,689 518,979 78,089 521,754 727,668 109,493
Net income per ADS
—Basic 5.23 3.72 6.10 0.92 9.15 9.82 1.48
—Diluted 5.10 3.65 5.97 0.90 8.91 9.65 1.45
Weighted average number of ADS used in calculating net income per ADS
—Basic 55,629,042 56,063,449 56,244,094 56,244,094 56,603,338 56,153,766 56,153,766
—Diluted 60,544,579 57,137,915 60,761,097 60,761,097 58,106,597 57,141,627 57,141,627


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

Three Months Ended Six Months Ended
June 30,
2015
March 31,
2016
June 30,
2016
June 30,
2016
June 30,
2015
June 30,
2016
June 30,
2016
RMBRMBRMBUS$ RMBRMBUS$
Cost of revenues 1,9378,61214121 6,3698,7531,317
Research and development expenses 2,65027,30026,4733,983 14,59053,7738,091
Sales and marketing expenses 260839941142 1,0031,780268
General and administrative expenses 6,74217,17913,9342,097 21,47131,1134,682


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,
2015
March 31,
2016
June 30,
2016
June 30,
2016
June 30,
2015
June 30,
2016
June 30,
2016
RMB RMB RMB US$ RMB RMB US$
Operating income 307,719 256,676 443,862 66,787 551,944 700,538 105,410
Share-based compensation expenses 11,589 53,930 41,489 6,243 43,433 95,419 14,358
Non-GAAP operating income 319,308 310,606 485,351 73,030 595,377 795,957 119,768
Net income attributable to YY Inc. 290,691 208,339 343,286 51,653 517,653 551,625 83,004
Share-based compensation expenses 11,589 53,930 41,489 6,243 43,433 95,419 14,358
Non-GAAP net income attributable to YY Inc. 302,280 262,269 384,775 57,896 561,086 647,044 97,362
Non-GAAP net income per ADS
—Basic 5.43 4.68 6.84 1.03 9.91 11.52 1.73
—Diluted 5.29 4.59 6.65 1.00 9.66 11.32 1.70
Weighted average number of ADS used in calculating Non-GAAP net income per ADS
—Basic 55,629,042 56,063,449 56,244,094 56,244,094 56,603,338 56,153,766 56,153,766
—Diluted 60,544,579 57,137,915 60,761,097 60,761,097 58,106,597 57,141,627 57,141,627


YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended
June 30, 2016
YY IVAS Others YY IVAS
and others
Huya
broadcasting
100
Education
TotalTotal
RMB RMBRMBRMBRMBRMBUS$
Net revenues
Internet value-added service
—Online music and entertainment 1,098,311 - 1,098,311 - - 1,098,311 165,261
—Online dating 271,116 - 271,116 - - 271,116 40,794
—Online games 188,261 - 188,261 - - 188,261 28,327
—Other IVAS 232,244 - 232,244 143,077 - 375,321 56,474
Other revenues - 17,131 17,131 - 30,637 47,768 7,188
Total net revenue 1,789,932 17,131 1,807,063 143,077 30,637 1,980,777 298,044
Cost of revenues(1) (965,291) (216,606) (26,443) (1,208,340) (181,817)
Gross profit (loss) 841,772 (73,529) 4,194 772,437 116,227
Operating expenses(1)
Research and development expenses (130,170) (33,811) (8,247) (172,228) (25,915)
Sales and marketing expenses (63,038) (12,247) (13,414) (88,699) (13,346)
General and administrative expenses (76,169) (11,115) (2,871) (90,155) (13,566)
Total operating expenses (269,377) (57,173) (24,532) (351,082) (52,827)
Other income 22,507 - - 22,507 3,387
Operating income (loss) 594,902 (130,702) (20,338) 443,862 66,787


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

Three Months Ended
June 30, 2016
YY IVAS
and others
Huya
broadcasting
100
Education
Total Total
RMBRMB RMB RMB US$
Cost of revenues (1,432)1,441 132 141 21
Research and development expenses 17,976 6,501 1,996 26,473 3,983
Sales and marketing expenses 729 212 - 941 142
General and administrative expenses 10,227 3,807 (100) 13,934 2,097


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, 2016
YY IVAS
and others
Huya
broadcasting
100
Education
Total Total
RMBRMBRMB RMB US$
Operating income (loss) 594,902 (130,702) (20,338) 443,862 66,787
Share-based compensation expenses 27,500 11,961 2,028 41,489 6,243
Non-GAAP operating income (loss) 622,402 (118,741) (18,310) 485,351 73,030


YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended
March 31, 2016
YY IVAS Others YY IVAS
and others
Huya
broadcasting
100
Education
TotalTotal
RMB RMBRMBRMBRMBRMBUS$
Net revenues
Internet value-added service
—Online music and entertainment 919,084 - 919,084 - - 919,084 142,538
—Online dating 211,226 - 211,226 - - 211,226 32,758
—Online games 171,110 - 171,110 - - 171,110 26,537
—Other IVAS 192,754 - 192,754 117,674 - 310,428 48,143
Other revenues - 16,282 16,282 - 21,188 37,470 5,811
Total net revenue 1,494,174 16,282 1,510,456 117,674 21,188 1,649,318 255,787
Cost of revenues(1) (844,273) (193,066) (23,192) (1,060,531) (164,474)
Gross profit (loss) 666,183 (75,392) (2,004) 588,787 91,313
Operating expenses(1)
Research and development expenses (143,351) (24,257) (12,040) (179,648) (27,861)
Sales and marketing expenses (52,558) (10,788) (14,615) (77,961) (12,091)
General and administrative expenses (68,658) (11,333) (3,416) (83,407) (12,935)
Total operating expenses (264,567) (46,378) (30,071) (341,016) (52,887)
Other income 8,905 - - 8,905 1,381
Operating income (loss) 410,521 (121,770) (32,075) 256,676 39,807


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

Three Months Ended
March 31, 2016
YY IVAS
and others
Huya
broadcasting
100
Education
Total Total
RMB RMB RMB RMB US$
Cost of revenues 7,802 723 87 8,612 1,336
Research and development expenses 22,008 2,876 2,416 27,300 4,234
Sales and marketing expenses 803 36 - 839 130
General and administrative expenses 13,015 4,157 7 17,179 2,664


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, 2016
YY IVAS
and others
Huya
broadcasting
100
Education
TotalTotal
RMBRMBRMBRMBUS$
Operating income (loss) 410,521 (121,770) (32,075)256,676 39,807
Share-based compensation expenses 43,628 7,792 2,510 53,930 8,364
Non-GAAP operating income (loss) 454,149 (113,978) (29,565)310,606 48,171


YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)
Three Months Ended
June 30, 2015
YY IVAS Others YY IVAS
and others
Huya
broadcasting
100
Education
TotalTotal
RMB RMBRMBRMBRMBRMBUS$
Net revenues
Internet value-added service
—Online music and entertainment 730,693 - 730,693 - - 730,693 117,854
—Online dating 157,348 - 157,348 - - 157,348 25,379
—Online games 199,404 - 199,404 - - 199,404 32,162
—Other IVAS 127,260 - 127,260 85,325 - 212,585 34,288
Other revenues - 31,977 31,977 25,174 57,151 9,218
Total net revenue 1,214,705 31,977 1,246,682 85,325 25,174 1,357,181 218,901
Cost of revenues(1) (646,399) (157,638) (29,244) (833,281) (134,400)
Gross profit (loss) 600,283 (72,313) (4,070) 523,900 84,501
Operating expenses(1)
Research and development expenses (97,301) (14,644) (8,180) (120,125) (19,375)
Sales and marketing expenses (51,623) (2,460) (8,996) (63,079) (10,174)
General and administrative expenses (47,546) (4,372) (11,925) (63,843) (10,297)
Goodwill impairment - - (110,699) (110,699) (17,855)
Fair value change of contingent consideration (1,552) - 111,547 109,995 17,741
Total operating expenses (198,022) (21,476) (28,253) (247,751) (39,960)
Other income 31,570 - - 31,570 5,092
Operating income (loss) 433,831 (93,789) (32,323) 307,719 49,633


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

Three Months Ended
June 30, 2015
YY IVAS
and others
Huya
broadcasting
100
Education
Total Total
RMBRMB RMB RMB US$
Cost of revenues 1,935 (22) 24 1,937 312
Research and development expenses 2,051 10 589 2,650 427
Sales and marketing expenses 263 (3) - 260 42
General and administrative expenses 6,565 195 (18) 6,742 1,087


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, 2015
YY IVAS
and others
Huya
broadcasting
100
Education
Total Total
RMBRMBRMB RMB US$
Operating income (loss) 433,831 (93,789) (32,323) 307,719 49,633
Share-based compensation expenses 10,814 180 595 11,589 1,868
Non-GAAP operating income (loss) 444,645 (93,609) (31,728) 319,308 51,501


Investor Relations Contact YY Inc. Yuffie Fu Tel: +86 (20) 2916-2000 Email:IR@YY.com ICR, Inc. Jessie Fan Tel: +1 (646) 915-1611 Email:IR@YY.com

Source:YY Inc.