AI-Powered Real-Time Caption Translation Will Increase User Engagement In Developed Markets

Key Takeaways

• JOYY's globalization strategy and user interaction enhancements aim to drive growth and revenue in developed markets, focusing on efficiency and premium users.
  
• Diversification of revenue streams, share repurchase programs, and strategic cost adjustments target increased profitability and shareholder value.
  
• Declines in revenue growth and user metrics, currency fluctuations, and product adjustments indicate potential volatility and challenges for JOYY's earnings stability.

Catalysts

Operates social media platforms that offer users engaging and experience across various video-based social platforms.

• JOYY Inc.'s globalization strategy and enhancements in user interactions and content offerings, including AI-powered real-time caption translation, are expected to drive user growth in developed markets, potentially boosting revenue.
  
• The focus on operational efficiency and resource allocation towards developed countries and premium users aims to enhance monetization potential and net margins by reducing total user acquisition spending.
  
• Growth in non-live streaming revenue, especially from advertising in markets such as Europe and North America, highlights a diversification of revenue streams, enhancing overall earnings stability.
  
• Share repurchase programs are actively being executed to return value to shareholders, which can positively impact earnings per share (EPS) and stock valuation.
  
• Strategic adjustments to content costs and non-core products are expected to stabilize and potentially increase profit margins, contributing to sustainable long-term growth in profitability.

JOYY Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JOYY's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 12.0% in 3 years time.
• Analysts expect earnings to reach $304.5 million (and earnings per share of $3.82) by about December 2027, up from $202.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2027 earnings, up from 10.4x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 13.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

JOYY Future Earnings Per Share Growth

Risks

• There is a year-over-year decline in Bigo Live's live streaming revenue due to adjustments in content costs and user acquisition strategies, which might indicate a risk of reduced future revenue growth.
  
• Adjustments to BIGO's non-core audio live streaming product could negatively impact overall growth rates and potentially decrease revenue from this segment, affecting overall earnings.
  
• Foreign currency exchange losses have impacted GAAP net income and margins, indicating potential volatility in international earnings and net margins due to currency fluctuations.
  
• The realignment of operational resources may lead to declines in Likee's user metrics in the short term, potentially impacting user-related revenue streams temporarily.
  
• The company has noted that adjustments could negatively affect BIGO's top line in the upcoming quarter, raising concerns about stable revenue streams and potential net margin impacts if growth does not rebound.

Valuation

• The analysts have a consensus price target of $41.49 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 $50.0, 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 2027, revenues will be $2.5 billion, earnings will come to $304.5 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of $39.18, the analyst's price target of $41.49 is 5.6% higher. 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.