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YY (YY) Stock Falls Despite Positive Quarter

Stocks in this article: YY

NEW YORK (TheStreet) -- YY (YY) was falling -5.2% to $89.74 in after-hours trading Monday despite beating analysts' expectations for earnings and revenue in the first quarter.

The company reported earnings of 56 cents a share for the first quarter, beating the Capital IQ Consensus Estimate of 48 cents a share by 8 cents. Revenue grew 111.6% to $107.2 million, while analysts expected revenue of $95.3 million for the quarter.

"We are excited to have achieved robust performance and continued strong momentum heading into 2014, even during our seasonally slow first quarter," CEO David Xueling Li said in a press release. "Once again, online music and entertainment outperformed our expectations, with revenues growing by 228.0% and paying users increasing by over 103.2% year-over-year. In addition, we are very excited about the launch of our online education platform, 100 Education, in February followed by the introduction of the PC and mobile branded client last month."

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TheStreet Ratings team rates YY INC -ADR as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate YY INC -ADR (YY) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we find that the growth in the company's earnings per share has not been good."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to other companies in the Internet Software & Services industry and the overall market, YY INC -ADR's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • YY's very impressive revenue growth greatly exceeded the industry average of 20.6%. Since the same quarter one year prior, revenues leaped by 136.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • YY has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.23, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for YY INC -ADR is rather high; currently it is at 51.53%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 31.19% is above that of the industry average.
  • Powered by its strong earnings growth of 440.00% and other important driving factors, this stock has surged by 241.77% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • You can view the full analysis from the report here: YY Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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