YY - JOYY Is A Buy Despite YY Live Deal Cancelation

2024-01-23 03:40:29 ET

Summary

• JOYY should get a payout from Baidu for YY Live's profits while it was in Baidu's control. That could be $700 million. JOYY could spin off YY Live for $500 million.
• The vast majority of JOYY's business is outside of China. BIGO is generating cash offshore and growing. Bigo Live has been adding users steadily.
• Shopline is a hidden venture investment JOYY made 4 years ago and last year. JOYY's stake is worth $800 million based on my estimate.
• My sum of the parts valuation gives JOYY stock over 150% upside.

Introduction

In the last 7 months of 2023, JOYY ( YY ) stock increased 60%. It was fueled by JOYY's strong buyback and increased net income margins despite declining sales. Despite being a Singapore-domiciled company with most of its sales outside of mainland China, JOYY has historically been correlated to the Chinese market. Therefore, the rising stock during this Chinese bear market was notable. 2024 has been a different story for JOYY because, at the start of the year, Baidu ( BIDU ) canceled its deal to buy YY Live. This sent JOYY stock down 25% year to date. The deal was agreed to in November 2020, but it never closed because the Chinese State Administration for Market Regulation (SAMR) wouldn't approve it.

This was a $3.6 billion acquisition. Most investors knew by the start of 2024 that the deal wouldn't go through because of news reports and the length of time it had been in purgatory. The market cap of JOYY was $2.4 billion at the beginning of the year which is far below $3.6 billion; that's not even counting the value of the current profitable business....

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