YY Inc. (YY) is trading lower despite reporting a strong Q2 earnings result this morning. Since you're probably not familiar, a little background would help. YY is a China-based live streaming platform that enables users to interact in live online group activities through voice, text and video. YY also helps users create groups of varying sizes to participate in a wide range of online activities, including music shows, online games, dating shows, live game broadcasting and e-learning.
YY generates revenue from live streaming, online games and membership services. The company started with online games in 2005, but has gradually expanded into music and entertainment, live game broadcasting and online dating. It also operates in non-entertainment categories such as education and finance.
Users host and participate in these channels, creating their own content to share with other users. Almost all content on the YY platform is user-generated. User behavior evolves and new trends emerge over time. Many users use YY to socialize and make friends, while some have turned YY into a virtual stage to showcase their singing talent or share their knowledge and expertise. Its primary live streaming platforms are YY Live and Huya broadcasting. In June 2016, the company revamped its online music and entertainment live streaming services to YY Live.
Turning to the Q2 results, non-GAAP earnings per ADS grew by 56% YoY to US$1.53, which was well ahead of market expectations. Revenue rose 31.7% year/year to $384.85 mln, which also was ahead of market expectations. For Q3, YY guided to revenue of RMB 2.75-2.85 bln, which also was better than expected.
Its live streaming business, including YY Live and Huya broadcasting, maintained rapid growth in Q2. Its mobile live streaming monthly active users (MAU) increased by 27.1% year/year to over 66.1 mln, and its total live streaming paying users increased by 46.1% to over 5.7 mln.
In particular, on YY Live, its new strategic initiatives have generated good results. In April 2017, YY launched Happy Werewolf Kill, a small-room online social game. Since inception, it has gained exceptional popularity and quickly become a leading social game on mobile devices. In Q2, YY also introduced the short-form video services in YY Live with more diverse content and social features, which further enhanced user engagement and stickiness on the platform. In addition to YY Live, Huya continued to deliver impressive results in both user growth and revenue generation.
In sum, it's a bit puzzling as to why the stock is trading lower despite what looks to be an upside quarter. It could just be a sell-the-news reaction. Also, the stock has run up about 33% over the last five weeks or so heading into this report. So maybe investors are just looking for a reason to lock in profits.