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Will Investments in Content & Technology Aid YY Q4 Earnings?

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YY Inc. (YY - Free Report) is set to report fourth-quarter 2018 results on Mar 4.

The company’s earnings beat the Zack Consensus Estimate in all the trailing four quarters, delivering average positive surprise of 12.2%.

In the last reported quarter, YY posted non-GAAP earnings of $1.76 per American depositary shares (ADS), which beat the Zacks Consensus Estimate by 3 cents. Revenues totaled $597 million, which surpassed the Zacks Consensus Estimate of $590 million.

Moreover, earnings increased 11.1% in domestic currency to RMB 12.07 per share on revenues of RMB 4.10 billion, which jumped 32.6% from the prior-year quarter.

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $641.7 million, which indicates year-over-year growth of 15%. The consensus mark for earnings has been steady at $1.86 per share over the past seven days.

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

Key Factors to Consider

YY’s focus on live streaming services monetization is expected to aid fourth-quarter revenues. Additionally, the company is looking to boost user base and engagement levels, with content enrichment of its live streaming platform and cross-channel promotions. Notably, live streaming revenues (95% of total net revenues), which jumped 35.6% year over year to RMB 3.89 billion, was the main contributor to top-line growth in third-quarter 2018.

This apart, YY is leveraging Xiaomi's live streaming user base to generate additional revenue streams, which is a positive. Notably, in third-quarter 2018, the company entered into a strategic cooperation with Xiaomi to provide exclusive entertainment live streaming services on Xiaomi Live.

YY’s Mobile live streaming Monthly Active Users (MAU) increased 20.7% year over year to 88.1 million in third-quarter 2018. The growth was due to innovative products developed for its audio live streaming segment, in order to target mobile users in China. We expect this trend to continue in the soon-to-be reported quarter as well, owing to the company’s ongoing efforts and investments in the mobile platform.

This, in turn, is expected to boost its fourth-quarter 2018 revenues, as Mobile contributed 62.4% to YY’s live streaming revenues in third-quarter 2018. Notably, Mobile paying users constituted 73.9% of the total live streaming paying users in the last reported quarter.

Its ability to use artificial intelligence (AI) technology to curate content based on user preferences is expected to increase users’ time spent on the platform. This is likely to aid monetization opportunities for the company.

Markedly, macroeconomic uncertainty is likely to have persisted in fourth-quarter 2018. This may hamper its growth objectives. Moreover, YY’s increasing investments in content and technology to gain a competitive edge may prove to be a drag on margins.

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.

Currently, YY has a Zacks Rank #2 and an Earnings ESP of -4.84%. 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:

Strategic Education Inc. (STRA - Free Report) has a Zacks Rank #1 and an Earnings ESP of +13.66%. You can see the complete list of today’s Zacks #1 Rank stocks here.

PlayAGS, Inc. (AGS - Free Report) has a Zacks Rank #1 and an Earnings ESP of +42.86%.

Momo Inc. (MOMO - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.55%.

Zacks' Top 10 Stocks for 2019

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