YY Reports Fourth Quarter and Full Year 2016 Unaudited

GUANGZHOU, China, March 14, 2017 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ: YY ) ("YY" or the "Company"), a live streaming platform, today announced its unaudited financial results for the fourth quarter and full year 2016.

Fourth Quarter 2016 Highlights

• Net revenues increased by 30.8% to RMB2,484.2 million (US$357.8 million) from RMB1,899.8 million in the corresponding period of 2015.
• Net income attributable to YY increased by 59.3% to RMB572.3 million (US$82.4 million) from RMB359.2 million in the corresponding period of 2015.
• Non-GAAP net income attributable to YY increased by 42.4% to RMB598.6 million (US$86.2 million) from RMB420.4 million in the corresponding period of 2015.

Full Year 2016 Highlights

• Net revenues increased by 39.1% to RMB8,204.1 million (US$1,181.6 million) from RMB5,897.2 million in 2015.
• Net income attributable to YY increased by 47.5% to RMB1,523.9 million (US$219.5 million) from RMB1,033.2 million in 2015.
• Non-GAAP net income attributable to YY increased by 38.0% to RMB1,681.2 million (US$242.1 million) from RMB1,218.6 million in 2015.

“We are delighted to have delivered another quarter of solid results in the fourth quarter of 2016,” said Mr. Zhou Chen, Chief Executive Officer of YY. “In addition to our robust financial performance in the fourth quarter, our mobile MAU reached 56.0 million, representing a 4.8% increase from the previous quarter, and our PC MAU was stable at 96.1 million. Our solid financial results and user numbers are due to the continued strengthening of our product and content offerings and our dedication to the development of new and diverse market content. For example, the introduction of new vertical content like YY Live’s outdoor and travel and the expansion of our mobile game live broadcasting content for the Huya broadcasting platform are key components for expanding our content offering. Additionally, in order to further strengthen user stickiness across our platform, we began to encourage more users from both YY Live and Huya broadcasting to share more live broadcasting sessions based on social relationships and locations. Going forward, we will introduce even more content verticals to YY, and in turn, we are confident that we can further expand our market share and maintain our leading position in this massive growth industry.”

Mr. Eric He, Chief Financial Officer of YY, further commented, “In the fourth quarter of 2016, we continued to see strong growth momentum in our revenues, with total net revenues increasing by 30.8% year over year to RMB2.5 billion, primarily attributable to the healthy growth in our total number of live streaming paying users which grew by 91.9% year over year to 5.2 million. Importantly, despite the intense competitive landscape in the live streaming industry, our live streaming revenues for the full year of 2016 witnessed a remarkable 54.8% year over year growth to over seven billion, and our Non-GAAP profit margin for the year exceeded 20%, which is a testament to the solid strength and long-term competitiveness of both of our platforms. As Huya broadcasting’s revenue growth continues to accelerate, its margins continue to improve, which ultimately strengthens our long-term profitability.”

Fourth Quarter 2016 Financial Results

NET REVENUES ¹ Net revenues increased by 30.8% to RMB2,484.2 million (US$357.8 million) in the fourth quarter of 2016 from RMB1,899.8 million in the corresponding period of 2015, primarily driven by the increase in live streaming revenues. Live streaming revenues increased by 41.7% to RMB2,218.2 million (US$319.5 million) in the fourth quarter of 2016 from RMB1,565.2 million in the corresponding period of 2015. Live streaming revenues from the YY Live segment in the fourth quarter of 2016 was RMB1,883.8 million (US$271.3 million) and live streaming revenues from the Huya segment in the fourth quarter of 2016 was RMB334.3 million (US$48.2 million).

Revenues from online games were RMB125.4 million (US$18.1 million) in the fourth quarter of 2016, as compared to RMB172.4 million in the corresponding period of 2015, which primarily reflected the continued softness in China’s web game market.

Revenues from membership were RMB74.7 million (US$10.8 million) in the fourth quarter of 2016, as compared to RMB80.8 million in the corresponding period of 2015.

Other revenues, mainly including revenues from the Company's online education platform and online advertising revenues, were RMB65.9 million (US$9.5 million) in the fourth quarter of 2016, compared with RMB81.4 million in the corresponding period of 2015.

COST OF REVENUES AND GROSS PROFIT Cost of revenues increased by 33.5% to RMB1,559.6 million (US$224.6 million) in the fourth quarter of 2016 from RMB1,168.2 million in the corresponding period of 2015, primarily attributable to an increase in revenue-sharing fees and content costs to RMB1,222.2 million (US$176.0 million) in the fourth quarter of 2016 from RMB807.3 million in the corresponding period of 2015. The increase in revenue-sharing fees and content costs paid to performers, channel owners and content providers was slightly higher than the increase in live streaming revenues due to more diverse content offerings in the fourth quarter. In addition, bandwidth costs slightly increased to RMB168.9 million (US$24.3 million) in the fourth quarter of 2016 from RMB161.1 million in the corresponding period of 2015, primarily reflecting the continued user base expansion and video quality improvements, but partially offset by the Company’s improved efficiency and pricing terms.

Gross profit increased by 26.4% to RMB924.6 million (US$133.2 million) in the fourth quarter of 2016 from RMB731.6 million in the corresponding period of 2015. Gross margin was 37.2% in the fourth quarter of 2016, as compared to 38.5% in the corresponding period of 2015.

OPERATING INCOME Operating expenses for the fourth quarter of 2016 were RMB495.5 million (US$71.4 million), as compared to RMB354.6 million in the corresponding period of 2015.

Operating income in the fourth quarter of 2016 increased by 51.7% to RMB621.5 million (US$89.5 million) from RMB409.8 million in the corresponding period of 2015. Operating margin in the fourth quarter of 2016 was 25.0%, as compare to 21.6% in the corresponding period of 2015.

Non-GAAP operating income ²  increased by 37.6% to RMB647.9 million (US$93.3 million) in the fourth quarter of 2016 from RMB471.0 million in the corresponding period of 2015. Non-GAAP operating margin ³  was 26.1% in the fourth quarter of 2016, as compared to 24.8% in the corresponding period of 2015.

NET INCOME Net income attributable to YY Inc. increased by 59.3% to RMB572.3 million (US$82.4 million) in the fourth quarter of 2016 from RMB359.2 million in the corresponding period of 2015. Net margin in the fourth quarter of 2016 increased to 23.0% from 18.9% in the corresponding period of 2015.

Non-GAAP net income attributable to YY Inc. ⁴  increased by 42.4% to RMB598.6 million (US$86.2 million) from RMB420.4 million in the corresponding period of 2015. Non-GAAP net margin ⁵  in the fourth quarter of 2016 increased to 24.1% from 22.1% in the corresponding period of 2015.

NET INCOME PER ADS Diluted net income per ADS ⁶  increased by 56.1% to RMB9.74 (US$1.40) in the fourth quarter of 2016 from RMB6.24 in the corresponding period of 2015.

Non-GAAP diluted net income per ADS ⁷  increased by 40.3% to RMB10.17 (US$1.46) in the fourth quarter of 2016 from RMB7.25 in the corresponding period of 2015.

BALANCE SHEET AND CASH FLOWS As of December 31, 2016, the Company had cash and cash equivalents of RMB1,579.7 million (US$227.5 million) and short-term deposits of RMB3,751.5 million (US$540.3 million). For the fourth quarter of 2016, net cash from operating activities was RMB996.5 million (US$143.5 million).

SHARES OUTSTANDING As of December 31, 2016, the Company had a total of 1,109.7 million common shares outstanding, or the equivalent of 55.5 million ADSs outstanding.

FULL YEAR 2016 FINANCIAL RESULTS For the full year of 2016, net revenues increased by 39.1% to RMB8,204.1 million (US$1,181.6 million) from RMB5,897.2 million in 2015, primarily driven by a 54.8% year-over-year increase in live streaming revenues.

Net income attributable to YY Inc. for the full year of 2016 increased by 47.5% to RMB1,523.9 million (US$219.5 million) from RMB1,033.2 million in 2015. Net margin for the full year of 2016 increased to 18.6% from 17.5% in 2015.

Non-GAAP net income attributable to YY Inc. for the full year of 2016 increased by 38.0% to RMB1,681.2 million (US$242.1 million) from RMB1,218.6 million in 2015. Non-GAAP net margin was 20.5% for the full year of 2016, as compared to 20.7% for the full year of 2015.

Diluted net income per ADS for the full year of 2016 increased to RMB26.40 (US$3.80) from RMB17.96 in the prior year. Non-GAAP diluted net income per ADS for the full year of 2016 increased to RMB28.98 (US$4.17) from RMB21.18 in the prior year.

For the full year of 2016, net cash from operating activities was RMB2,421.1 million (US$348.7 million).

Business Outlook For the first quarter of 2017, the Company expects its net revenues to be between RMB2.2 billion and RMB2.3 billion, representing a year-over-year growth of approximately 33.4% to 39.5%. These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

Conference Call Information The Company will hold a conference call on March 14, 2017 at 8:00 am Eastern Time or 8:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

The replay will be accessible through March 22, 2017 by dialing the following numbers:

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://investors.yy.com/ .

Exchange Rate This press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB6.9430 to US$1.00, the noon buying rate in effect on December 31, 2016 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About YY Inc. YY Inc. (“YY” or the “Company”) is a live streaming platform that enables users to interact in live online group activities through voice, text and video. Launched in July 2008, YY Client, the Company’s core product, empowers users to create and organize groups of varying sizes to discover and participate in a wide range of activities, including online music and entertainment, online games, online dating, live game broadcasting and education. YY Inc. was listed on NASDAQ in November 2012 and generated revenues of US$910 million in the fiscal year 2015.

Safe Harbor Statement This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY's strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY’s goals and strategies; YY's future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain registered user accounts, active users, especially paying users; YY’s ability to monetize the user base; YY’s ability to continue attracting advertisers and offering popular online games; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial Measures The unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except that the consolidated statement of changes in shareholders’ equity, consolidated statements of cash flows, and the detailed notes have not been presented. YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to YY Inc . , non-GAAP net margin, non-GAAP net income attributable to common shareholders, and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income attributable to YY Inc. is net income attributable to YY Inc. excluding share-based compensation expenses. Non-GAAP net margin is non-GAAP net income attributable to YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders is net income attributable to common shareholders excluding share-based compensation expenses. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation expenses, which have been and will continue to be significant recurring expenses in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.

¹ From the third quarter of 2016, the Company changed revenue segmenting to live streaming, online games, membership and others. The Company believes this new method better captures the way it generates revenues and is more transparent and reliable than breaking down revenues by business lines as previously presented.

² Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses.

³ Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues.

⁴ Non-GAAP net income attributable to YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to YY Inc. excluding share-based compensation expenses.

⁵ Non-GAAP net margin is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to YY Inc. as a percentage of net revenues.

⁶ ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to common shareholders divided by weighted average number of diluted ADS.

⁷ Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders divided by weighted average number of ADS used in the calculation of diluted net income per ADS.

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⁽¹⁾  Convertible bonds represent Convertible Senior Notes which may be redeemed within one year. ⁽²⁾ Effectively January 2016, ASU 2015-3 issued by FASB requires entities to present the issuance costs of bonds in the balance sheet as a direct deduction from the related bonds rather than assets. Accordingly, the Company retrospectively reclassified RMB25.3 million of issuance cost of bonds from other non-current assets into convertible bonds as of December 31, 2015.

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

Investor Relations Contact YY Inc. Yuffie Fu Tel: +86 (20) 8212-0000 Email: IR@YY.com ICR, Inc. Jessie Fan Tel: +1 (646) 915-1611 Email: IR@YY.com