Goldman Sachs Double owngrades YY Inc, (YY) to Sell

Goldman Sachs analyst Piyush Mubayi downgraded YY Inc, (NASDAQ: YY) from Buy to Sell with a price target of $57.00 (from $99.00).

The analyst comments "JOYY, the early mover in China live steaming that went international with BIGO Live in search for growth, is likely to see its growth rate fall sharply into the low double digits starting 3Q21E from 140% five quarters ago. This raises concerns of BIGO Live's long-term growth runway, foreshadowed by its lukewarm MAU expansion and stretched monetization. We reckon the cause of BIGO Live's slowdown is a combination of factors including i) relaxation of Covid restrictions, and ii) TikTok, whose live streaming revenue has been consistently outperforming BIGO Live since April 2021. Meanwhile, the sale of YY Live for US$3.6bn to Baidu announced in Nov 2020 is still under antitrust investigation by SAMR as of Sept. 2021. We expect mobile MAU of BIGO's two key apps, BIGO Live + Likee, to be under pressure on the user mix shift away from developing regions and steady improvement in user penetration in developed regions. We expect BIGO's revenue growth to decelerate to 33%/16%/12% over 2021-23E, from 142% yoy in 2020. Likee's contribution will be from its more diverse monetization channels (live streaming, advertising) that earn a lower ARPPU relative to BIGO Live. Operating leverage improvement is likely to be gradual, leading to rising non-GAAP operating margin (-7%/0%/4%) and net margin (-3%/0%/4%) over 2021-23E. Our revised SOTP-based 12m TP of US$57 (US$99 prior), which implies a 12x mid-22/23E P/E multiple, is based on i) 1x 2022-23E P/S for the slowing international business, ii) 10x 2022-23E P/E for China live streaming operations, and iii) 30% holdco discount. If SAMR approves the sale of the asset, then 63% of the value pre-holdco discount will be cash, suggesting a higher holdco discount of ~50% and a 18x mid-22/23E P/E multiple. Downgrade to Sell (from Buy)."

For an analyst ratings summary and ratings history on YY Inc, click here. For more ratings news on YY Inc, click here.

Shares of YY Inc, closed at $51.71 yesterday.

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