JPMorgan (NYSE:JPM) has made an adjustment to the price target on shares of YY Inc (NASDAQ: YY), increasing it to $35.00 from the previous $30.00, while keeping a Neutral rating on the stock.
The firm cited the company's substantial net cash position and the execution of its share repurchase program as factors supporting the price target increase.
The firm noted that despite YY Inc's reasonable valuation, with its end of the second quarter 2024 net cash of $1.3 billion accounting for 65% of its market capitalization, there are no clear catalysts to drive a significant recovery in revenue.
The recovery is seen as essential for a structural improvement in investor sentiment. According to JPMorgan, the third quarter 2024 guidance indicates revenues of $557 million, a decrease both year-over-year and sequentially, underperforming typical seasonal trends.
The analysis pointed out that the weaker guidance is largely due to declining live streaming revenue, which is expected to be $442 million, down 11% year-over-year and 4% quarter-over-quarter. This decline is attributed to adjustments in YY Inc's domestic Hello business, competitive challenges in the Middle East, and changes in revenue sharing that have affected growth in Europe.
For the third quarter of 2024, JPMorgan forecasts an adjusted net profit of $56 million for YY Inc., which would be a 32% decline year-over-year, with an adjusted net profit margin of 10%. The lower gross margin, driven by the expansion of a low-margin third-party ads business, is anticipated to be the main reason for this decrease in profitability.
Despite these challenges, JPMorgan suggests that YY Inc.'s share price may find some support from the consistent execution of its share repurchase program. Additionally, progress on resolving the YY Live deal is seen as a potential catalyst for the stock.
In other recent news, JOYY (NASDAQ:YY) reported a steady growth in its financial results for the second quarter of 2024. The company's group revenue has seen a 3.3% year-over-year increase, totaling $565.1 million, with its core business segment, BIGO, showing a 7.7% rise in revenue, reaching $507.2 million. Alongside these financial developments, JOYY Inc. has also undergone a leadership transition, with Ting Li taking over as the new Chairperson and CEO, succeeding David Xueling Li.
The company's gross profit stood at $198.9 million, reflecting a gross margin of 35.2%. Moreover, JOYY Inc. highlighted strong cash inflows from operating activities, amounting to $71.1 million. Looking ahead, the company projects net revenues for the third quarter to range between $555 million and $569 million.
InvestingPro Insights
Following JPMorgan's updated price target for YY Inc, InvestingPro data reveals a nuanced picture of the company's financial health and market performance. With a market capitalization of $1.96 billion and a relatively low Price/Book multiple of 0.38 as of the last twelve months leading up to Q2 2024, the company presents an interesting value proposition. This is further underscored by a Price/Earnings (P/E) ratio of 8.63, suggesting that the stock may be undervalued when considering its earnings capacity.
InvestingPro Tips highlight that YY Inc holds more cash than debt on its balance sheet, which provides a strong liquidity position. Additionally, the company has a high shareholder yield, which could be attractive to investors seeking income in addition to growth potential. While the company's net income is expected to drop this year, analysts predict YY Inc will remain profitable, with a strong return over the last three months, indicating resilience amidst challenging market conditions. For those interested in a deeper analysis, InvestingPro offers additional tips on YY Inc at https://www.investing.com/pro/YY.
These insights, particularly the company's strong cash position and shareholder yield, may provide investors with a more comprehensive understanding of YY Inc's investment profile and could potentially align with JPMorgan's neutral stance, considering the lack of immediate revenue recovery catalysts.
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