Overvaluation Assumptions Will Crumble Amid Regulatory And Geopolitical Challenges

Key Takeaways

• Aggressive growth and valuation expectations may be challenged by regulatory risks, global competition, and shifting user preferences toward decentralized platforms.
  
• Sustained earnings and profitability are vulnerable to intensifying compliance costs, potential declines in ad monetization, and overreliance on virtual economies.
  
• Diversification beyond livestreaming, international expansion, efficient operations, and strong capital management together provide resilience and multiple drivers for future growth and margin expansion.

Catalysts

Engages in the provision of social product matrix and communication technology.

• There is a risk that investor expectations are too aggressive regarding JOYY's ability to further penetrate international markets, especially as increasing global data privacy regulations and ongoing geopolitical tensions could limit user acquisition, growth, and cross-border revenue streams, which may weigh on future revenue and user expansion.
  
• Current valuations may overstate the durability of JOYY's advertising revenue growth, despite recent acceleration, as data privacy reforms and rising scrutiny over online platforms could reduce the efficacy of user targeting and personalization, ultimately pressuring monetization, ARPU, and top-line growth.
  
• Despite strong short-term margin expansion and improving contribution from non-livestreaming businesses, earnings growth could face long-term headwinds if compliance costs rise due to intensifying demands for content moderation and misinformation control, which would compress operating and net margins.
  
• The platform's increasing reliance on the success of virtual economies (e.g., live-streaming gifts, digital goods) may be overvalued if secular shifts drive users and creators toward newer decentralized or web3 platforms, challenging JOYY's ability to maintain its take-rate and impacting both revenue and profitability.
  
• The recent strong buybacks and dividends increase near-term EPS and support the stock price, but if significant margin improvement and sustainable new revenue streams fail to materialize in the face of intensifying global competition, longer-term earnings and returns could fall short of expectations driving potential downside to the current valuation.

JOYY Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JOYY's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 79.7% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $305.7 million (and earnings per share of $5.12) by about July 2028, down from $1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $233.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.9x on those 2028 earnings, up from 1.6x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

JOYY Future Earnings Per Share Growth

Risks

• JOYY has successfully diversified beyond livestreaming, with non-livestreaming revenue (notably advertising) growing over 25% year-over-year and now contributing a record 25% of total revenue, supporting long-term topline growth resilience even if core livestreaming faces headwinds.
  
• Their BIGO Ads advertising platform leverages a 260 million global user base and advanced AI-driven targeting, enabling rapid advertiser and publisher adoption, which improves platform-scale economics and offers a structural tailwind to future revenue growth and net margin expansion.
  
• The company demonstrated strong operating efficiency, with operating expenses declining despite revenue growth and non-GAAP operating profit rising 25% year-over-year, showing discipline in cost controls and a pathway for continued margin improvement.
  
• Strategic international focus, particularly in developed markets and the Middle East, has resulted in resilient user growth and ARPU expansion, diversifying geographic risk and providing new sources of top-line and bottom-line growth.
  
• Robust capital allocation (including dividends, share repurchases, and a $3.4 billion net cash position) positions JOYY to support further investment, innovation, and shareholder returns, underpinning longer-term earnings stability and potential share price appreciation.

Valuation

• The analysts have a consensus price target of $53.333 for JOYY based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $305.7 million, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $53.91, the analyst price target of $53.33 is 1.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.