agrobacter
Elevator Pitch
I proceed to award a Maintain ranking to JOYY (NASDAQ:YY). In my prior September 29, 2023 update, I assessed YY’s money pile, shareholder capital return, and monetary outlook.
The main focus of this newest article is JOYY’s new quarterly prime line steering and the corporate’s determination to increase the expiry date of its share buyback program. These needs to be the important thing issues for buyers considering of constructing a place within the inventory.
I nonetheless have a Impartial view of YY as a possible funding candidate and this means that JOYY is worthy of a Maintain funding ranking. The corporate’s shopping for again of its personal shares will restrict the draw back for its share value to some extent. Nonetheless, a significant re-rating of JOYY’s inventory value and valuation multiples for the close to time period is unlikely as the corporate’s gross sales proceed to contract.
JOYY’s This fall 2023 Income Steering Failed To Meet The Market’s Expectations
The corporate outlined its expectations of reaching income of between $551 million and $579 million for the ultimate quarter of this yr when it announced its Q3 2023 financial results in direction of the tip of final month.
YY’s shares corrected by -3.3% within the two buying and selling days (on a cumulative foundation) following its most up-to-date quarterly earnings launch. In accordance with S&P Capital IQ’s consensus information, JOYY’s precise Q3 2023 prime line and normalized earnings per share beat the analysts’ consensus estimates by +0.6% and +149.0%, respectively. As such, it’s clear that buyers are centered on YY’s future monetary efficiency reasonably than its better-than-expected outcomes for the most recent quarter.
JOYY guided for a -6.6% YoY contraction in its prime line from $604.9 million within the fourth quarter of 2022 to $565.0 million (mid-point of steering) for This fall 2023. That is worse than YY’s precise Q3 2023 gross sales decline of -3.4% in YoY phrases. Extra importantly, the $565.0 million fourth quarter income steering was 6% under the promote facet’s consensus prime line projection based mostly on S&P Capital IQ information.
At its Q3 2023 earnings call, YY cautioned that “the pace of recovery across different markets will vary and short-term fluctuations in users’ paying sentiment may persist.” In its fiscal 2022 20-F filing, the corporate disclosed that it generated 35.8% of its income final yr from “developed countries and regions” reminiscent of “the United States of America, the Great Britain, Japan, South Korea and Australia.” For the newest quarter, JOYY’s companies in developed markets have carried out nicely, however the firm’s enterprise operations in different markets have witnessed a comparatively slower restoration. Due to this fact, it’s comprehensible why JOYY has fairly modest expectations of its near-term prime line growth.
To make issues worse, there’s a chance that YY’s precise margins and earnings for the fourth quarter of this yr and 2024 may be disappointing.
JOYY famous on the firm’s third quarter outcomes briefing that the corporate’s “profit potential also depends on the pace of topline recovery” and it additionally pressured that “we aim to strike a balance between scale and efficiency.” Primarily based on my interpretation of YY’s administration commentary, I’m of the view that damaging working leverage and the purpose of balancing each progress and profitability would possibly pose draw back dangers for JOYY’s backside line going ahead.
YY Renews Share Repurchase Plan For An Further 12 months
12 months-to-date, JOYY’s shares have outperformed the Chinese language web sector, and that is largely attributable to the corporate’s willingness to make the most of share buybacks to assist its inventory value.
In 2023 to this point, YY’s share value rose by +7.4%. As a comparability, the KraneShares CSI China Web ETF (KWEB), a proxy for listed China web corporations, fell by -15.2% in the identical time interval.
As per my calculations, JOYY allotted roughly $305 million (about 13% of its present market capitalization) of extra capital to share repurchases within the first 9 months of 2023, which is roughly triple that of what it spent on share buybacks for 9M 2022.
YY nonetheless has round $530 million remaining from its present share repurchase authorization as of September 30, 2023, and the corporate’s buyback plan was speculated to be in impact until late November this yr. It’s encouraging to know that JOYY disclosed that it renewed the corporate’s present share buyback plan for yet one more yr until late November 2024 when it revealed its Q3 2023 monetary efficiency on the finish of final month.
Assuming that JOYY completes half of its remaining buyback authorization of $530 million within the subsequent one yr, this will likely be equal to a really engaging buyback yield of greater than +11%. Individually, YY boasts a fairly respectable consensus ahead dividend yield of +5.0% for each FY 2024 and FY 2025.
Closing Ideas
I do not see any compelling causes to improve or downgrade my ranking for JOYY. There’s a moderately low chance of a considerable drop in YY’s share value, bearing in mind JOYY’s engaging shareholder return (each buybacks and dividends) yield. Alternatively, it’s possible that buyers will demand that JOYY delivers constructive income progress on a constant foundation earlier than the market is prepared to accord a better valuation a number of to YY’s shares.
