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Will Solid Live Streaming Revenues Boost YY's Q3 Earnings?

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YY Inc. (YY - Free Report) is set to report third-quarter 2018 results on Nov 12.

The company’s earnings beat the Zack Consensus Estimate in all the trailing four quarters, delivering average positive surprise of 12.6%.

In the last reported quarter, YY posted non-GAAP earnings of $2.03 per share, which beat the Zacks Consensus Estimate of $1.81 per share and increased 33% from the year-ago quarter.

Revenues of $570.2 million increased 48% from the year-ago quarter and beat the consensus mark of $538 million.

The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $589.8 million, while that for earnings stands at $1.86 per share.

Let’s see how things are shaping up prior to this announcement.

YY Inc. Price and EPS Surprise

YY Inc. Price and EPS Surprise | YY Inc. Quote

Key Factors to Consider

YY is increasingly focusing on product development and technological improvements to boost user base and engagement levels on the platform.

To further drive user traffic, the company is also promoting top hosts across various short-form video platforms. This is expected to help YY boost its live streaming viewer base in third-quarter 2018 as other platform users are channeled to YY Live.

Live streaming revenues (94.3% of total revenues) was a major contributor to the top line in second-quarter 2018. Notably, live streaming business grew 50% year over year to RMB3.56 billion. Total live streaming paying users increased 21.1% year over year to 6.9 million during the quarter, of which mobile paying users constituted 72.7%.

Moreover, YY’s artificial intelligence (AI) backed technology, which can recommend content based on user preferences, boosted live streaming content on its mobile platform. Mobile contributed 57.2% to live streaming revenues, while mobile live streaming monthly active users (MAUs) increased 21.3% to 80.2 million in second-quarter 2018.

The company rolled out two new games called Happy Chinese Checkers and Happy Sheep in the Host Battalion in the last reported quarter, which boosted host-user interaction. By introducing more games and social features into live streaming, YY expects to boost its active and paying users on the platform in third-quarter 2018.

We expect third-quarter 2018 results to benefit from additional user interest generated from cross promoting top hosts across other video platforms. Moreover, YY’s continued efforts to bring in new features and content on both YY Live and Huya are expected to increase traffic, thereby driving user base.

However, the FIFA World Cup held in July is expected to hurt revenues and the number of paying users for third-quarter 2018.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

YY has a Zacks Rank #2 and an Earnings ESP of -6.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

NetApp, Inc. (NTAP - Free Report) has a Zacks Rank #1 and Earnings ESP of +0.83%. NetApp is set to report second-quarter fiscal 2019 earnings on Nov 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

Himax Technologies, Inc. (HIMX - Free Report) has a Zacks Rank #1 and Earnings ESP of +66.67%. Himax Technologies is set to report third-quarter fiscal 2018 earnings on Nov 8.

The Trade Desk Inc. (TTD - Free Report) has a Zacks Rank #2 and Earnings ESP of +0.29%. Trade Desk is set to report third-quarter fiscal 2018 earnings on Nov 8.

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