Source: YY Inc.

YY Reports Fourth Quarter and Full Year 2017 Unaudited Financial Results

GUANGZHOU, China, March 06, 2018 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ:YY) ("YY" or the "Company"), a leading live streaming social media platform in China, today announced its unaudited financial results for the fourth quarter and full year of 2017.

Fourth Quarter 2017 Highlights

  • Net revenues increased by 46.0% to RMB3,626.5 million (US$557.4 million) from RMB2,484.2 million in the corresponding period of 2016.
  • Net income attributable to YY increased by 29.4% to RMB740.4 million (US$113.8 million) from RMB572.3 million in the corresponding period of 2016.
  • Non-GAAP net income attributable to YY1 increased by 58.5% to RMB 948.9 million (US$145.8 million) from RMB598.6 million in the corresponding period of 2016.

Full Year 2017 Highlights

  • Net revenues increased by 41.3% to RMB11,594.8 million (US$1,782.1 million) from RMB8,204.1 million in 2016.
  • Net income attributable to YY increased by 63.6% to RMB2,493.2 million (US$383.2 million) from RMB1,523.9 million in 2016.
  • Non-GAAP net income attributable to YY increased by 63.6% to RMB2,750.9 million (US$422.8 million) from RMB1,681.2 million in 2016.

“We are delighted to conclude 2017 with robust growth momentum in both operating and financial performance,” stated Mr. David Xueling Li, Chairman and acting Chief Executive Officer of YY, “In the fourth quarter of 2017, driven by both YY Live and Huya, our mobile live streaming monthly active users (MAU) increased by 36.6% year over year to 76.5 million, and our total live streaming paying users increased by 25.0% year over year to 6.5 million. This further demonstrates the effectiveness and efficiency of our operational capabilities in our live streaming business. For YY Live in particular, we continued our efforts in content enrichment and product innovation by incorporating additional live streaming content and continuously launching new features on our platform, such as a series of casual games. Looking ahead, we will continue to further expand our product offerings and solidify our market leading position to capture the opportunities in China’s rapid growing live streaming industry.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “We are pleased to once again deliver strong financial results in the fourth quarter of 2017. Our total net revenues increased by 46.0% year over year to RMB3,626.5 million, exceeding both our previous guidance and street consensus. Our revenue growth was primarily driven by the robust growth of our live streaming revenues, which increased by 51.9% year over year to RMB3,368.5 million with RMB2,675.8 million coming from YY Live. Huya recently submitted a draft registration statement on a confidential basis to the U.S. Securities and Exchange Committee for a possible initial public offering in the U.S. to attain its own group of investors to fund its long-term growth. We remain confident that we have the right strategy in place to drive our financial performance and sustain our rapid growth for the coming quarters and years.”

Fourth Quarter 2017 Financial Results

NET REVENUES
Net revenues increased by 46.0% to RMB3,626.5 million (US$557.4 million) in the fourth quarter of 2017 from RMB2,484.2 million in the corresponding period of 2016, primarily driven by the increase in live streaming revenues. Live streaming revenues increased by 51.9% to RMB3,368.5 million (US$517.7 million) in the fourth quarter of 2017 from RMB2,218.2 million in the corresponding period of 2016. Live streaming revenues from the YY Live segment were RMB2,675.8 million (US$411.3 million) and from the Huya segment were RMB692.7 million (US$106.4 million) in the fourth quarter of 2017. 

Revenues from online games were RMB128.1 million (US$19.7 million) in the fourth quarter of 2017 as compared to RMB125.4 million in the corresponding period of 2016.

Revenues from memberships were RMB50.5 million (US$7.8 million) in the fourth quarter of 2017 as compared to RMB74.7 million in the corresponding period of 2016.

Other revenues, mainly representing revenues from the Company's online advertising revenues, were RMB79.5 million (US$12.2 million) in the fourth quarter of 2017 as compared to RMB65.9 million in the corresponding period of 2016.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues increased by 40.8% to RMB2,196.6 million (US$337.6 million) in the fourth quarter of 2017 from RMB1,559.6 million in the corresponding period of 2016, primarily attributable to an increase in revenue-sharing fees and content costs to RMB 1,828.0 million (US$281.0 million) in the fourth quarter of 2017 from RMB1,222.2 million in the corresponding period of 2016. The increase in revenue-sharing fees and content costs paid to performers, guilds, and content providers was in line with the increase in revenues. In addition, bandwidth costs increased to RMB 181.2 million (US$27.8 million) in the fourth quarter of 2017 from RMB168.9 million in the corresponding period of 2016, primarily reflecting continued user base expansion and live streaming quality improvements but largely offset by the Company’s improved efficiency and pricing terms.

Gross profit increased by 54.7% to RMB1,429.9 million (US$219.8 million) in the fourth quarter of 2017 from RMB924.6 million in the corresponding period of 2016. Gross margin increased to 39.4% in the fourth quarter of 2017 from 37.2% in the corresponding period of 2016.

OPERATING INCOME
Operating expenses in the fourth quarter of 2017 increased by 31.8% to RMB652.9 million (US$100.3 million) from RMB495.5 million in the corresponding period of 2016.

Operating income in the fourth quarter of 2017 increased by 32.2% to RMB821.5 million (US$126.3 million) from RMB621.5 million in the corresponding period of 2016. Operating margin in the fourth quarter of 2017 was 22.7% as compared to 25.0% in the corresponding period of 2016, primarily due to the increase in newly issued share-based compensation in the fourth quarter of 2017.

Non-GAAP operating income2 increased by 59.0% to RMB1,030.0 million (US$158.3 million) in the fourth quarter of 2017 from RMB647.9 million in the corresponding period of 2016. Non-GAAP operating margin3 increased to 28.4% in the fourth quarter of 2017 from 26.1% in the corresponding period of 2016.

NET INCOME
Net income attributable to YY Inc. increased by 29.4% to RMB740.4 million (US$113.8 million) in the fourth quarter of 2017 from RMB572.3 million in the corresponding period of 2016. Net margin in the fourth quarter of 2017 was 20.4% as compared to 23.0% in the corresponding period of 2016, primarily due to the increase in newly issued share-based compensation in the fourth quarter of 2017.

Non-GAAP net income attributable to YY Inc. increased by 58.5% to RMB948.9 million (US$145.8 million) from RMB598.6 million in the corresponding period of 2016. Non-GAAP net margin in the fourth quarter of 2017 increased to 26.2% from 24.1% in the corresponding period of 2016.

NET INCOME PER ADS
Diluted net income per ADS4 increased by 18.4% to RMB11.53 (US$1.77) in the fourth quarter of 2017 from RMB9.74 in the corresponding period of 2016.

Non-GAAP diluted net income per ADS5 increased by 45.2% to RMB14.77 (US$2.27) in the fourth quarter of 2017 from RMB10.17 in the corresponding period of 2016.

BALANCE SHEET AND CASH FLOWS
As of December 31, 2017, the Company had cash and cash equivalents of RMB2,617.4 million (US$402.3 million), short-term deposits of RMB6,000.1 million (US$922.2 million), and restricted short-term deposits of RMB1,000.0 million (US$153.7 million). For the fourth quarter of 2017, net cash from operating activities was RMB1,392.0 million (US$213.9 million).

SHARES OUTSTANDING
As of December 31, 2017, the Company had a total of 1,263.2 million common shares, or the equivalent of 63.2 million ADSs, outstanding.

Full Year 2017 Financial Results

For the full year of 2017, net revenues increased by 41.3% to RMB11,594.8 million (US$1,782.1 million) from RMB8,204.1 million in 2016, primarily driven by a 51.9% year-over-year increase in live streaming revenues.

Net income attributable to YY Inc. for the full year of 2017 increased by 63.6% to RMB2,493.2million (US$383.2 million) from RMB1,523.9 million in 2016. Net margin for the full year of 2017 increased to 21.5% from 18.6% in 2016.

Non-GAAP net income attributable to YY Inc. for the full year of 2017 increased by 63.6% to RMB2,750.9 (US$422.8 million) from RMB1,681.2 million in 2016. Non-GAAP net margin for the full year of 2017 increased to 23.7% from 20.5% in 2016.

Diluted net income per ADS for the full year of 2017 increased by 56.6% to RMB41.33 (US$6.35) from RMB26.40 in 2016. Non-GAAP diluted net income per ADS for the full year of 2017 increased by 57.2% to RMB45.56 (US$7.00) from RMB28.98 in 2016.

For the full year of 2017, net cash from operating activities was RMB3,718.5 million (US$559.1 million).

Business Outlook
For the first quarter of 2018, the Company expects net revenues to be between RMB3.00 billion and RMB3.15 billion, representing a year-over-year growth of 32.3% to 39.0%. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Recent Development
HUYA Inc. (“Huya”), a Cayman Islands company, which is controlled by YY and primarily operates game live streaming business, has submitted a draft registration statement on Form F-1 on a confidential basis to the U.S. Securities and Exchange Commission (the “SEC”)  for a possible initial public offering (the “Proposed IPO”) of American depositary shares (“ADSs”) representing ordinary shares of Huya.

The number of ADSs proposed to be offered and sold and the dollar amount proposed to be raised in the Proposed IPO have not yet been determined. The Proposed IPO is expected to commence after the SEC completes its review process, subject to market and other conditions. However, there can be no assurances as to the timing or completion of the Proposed IPO.

This announcement is being made pursuant to and in accordance with Rule 135 under the U.S. Securities Act of 1933, as amended, and does not constitute an offer to sell or a solicitation of an offer to purchase any securities, in the United States or elsewhere, and it is not intended to, and does not, constitute an offer, solicitation or sale of any securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or the selling security holder and that will contain detailed information about the issuer and management, as well as financial statements.

Conference Call Information
The Company will hold a conference call on Monday, March 5, 2018 at 8:00 pm Eastern Time, or Tuesday, March 6, 2018 at 9:00 am Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:    +1-845-675-0438
International:    +65-6713-5440
China Domestic:  400-1200-654
Hong Kong:  +852-3018-6776
Conference ID:  # 2199901

The replay will be accessible through March 13, 2018 by dialing the following numbers:

United States Toll Free:  +1-855-452-5696
International:    +61-2-9003-4211 
Conference ID: # 2199901

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.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 RMB 6.5063 to US$1.00, the noon buying rate in effect on December 31, 2017 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 leading live streaming social media platform in China. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real-time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY Inc. was listed on the NASDAQ in November 2012.

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  active users, especially paying users; YY’s ability to monetize the user base; 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.

Investor Relations Contact
YY Inc.
Matthew Zhao
Tel: +86 (20) 8212-0000
Email: IR@YY.com 

ICR, Inc.
Jack Wang
Tel: +1 (646) 915-1611
Email: IR@YY.com 

                                                             

1 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. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.
2 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details. 
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. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details.
4 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.
5 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. Please refer to the section titled "Reconciliation of GAAP and Non-GAAP Results" for details).

 

YY INC.
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share, ADS and per ADS data)

 December 31,
 
2016 
 December 31,
 
2017
 December 31,
 
2017
 RMB RMB US$
Assets     
Current assets     
Cash and cash equivalents1,579,743  2,617,432 402,292
Short-term deposits3,751,519  6,000,104 922,199
Restricted short-term deposits- 1,000,000 153,697
Short-term investment- 124,550 19,143
Accounts receivable, net169,571  153,944 23,661
Inventory2,266  315 48
Amount due from related parties135,245  11,190 1,720
Prepayments and other current assets224,732 221,939 34,111
      
Total current assets5,863,076 10,129,474 1,556,871
      
Non-current assets     
Deferred tax assets(1)117,811 113,017 17,370
Investments918,602  1,153,019 177,216
Property and equipment, net838,750  1,016,998 156,310
Land use rights, net1,872,394  1,832,739 281,687
Intangible assets, net58,926  37,481 5,761
Goodwill14,300 11,716 1,801
Amount due from related parties- 20,000 3,074
Other non-current assets101,933  144,275 22,175
      
Total non-current assets3,922,716 4,329,245 665,394
      
Total assets9,785,792 14,458,719 2,222,265
      
Liabilities, mezzanine equity and shareholders’ equity     
Current liabilities     
Convertible bonds2,768,469  - -
Accounts payable137,107  76,351 11,735
Deferred revenue430,683  758,044 116,509
Advances from customers56,152  80,406 12,358
Income taxes payable140,754 146,298 22,485
Accrued liabilities and other current liabilities1,066,038 1,465,963 225,314
Amounts due to related parties91,245 30,502 4,688
Short-term loan- 588,235 90,410
      
Total current liabilities4,690,448 3,145,799 483,499
      
Non-current liabilities     
Convertible bonds- 6,536 1,005
Deferred revenue25,459  57,718 8,871
Deferred tax liabilities8,058  10,810 1,661
      
Total non-current liabilities33,517 75,064 11,537
        
Total liabilities4,723,965 3,220,863 495,036
      

YY INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)

 December 31,
2016
 December 31,
2017
  December 31,
2017
 
 RMB RMB  US$ 
        
Mezzanine equity9,272 524,997  80,691 
     
Shareholders’ equity    
Class A common shares (US$0.00001 par value; 10,000,000,000
      and 10,000,000,000 shares authorized, 750,115,028 and
      945,245,908 shares issued and outstanding as of
      December 31, 2016 and December 31, 2017, respectively)
44  57  9 
Class B common shares (US$0.00001 par value; 1,000,000,000
      and 1,000,000,000 shares authorized, 359,557,976 and
      317,982,976 shares issued and outstanding as of
      December 31, 2016 and December 31, 2017, respectively)
26  23  4 
Additional paid-in capital2,165,766 5,339,844  820,719 
Statutory reserves58,857 62,718   9,640 
Retained earnings2,728,736 5,218,110  802,009 
Accumulated other comprehensive income (loss)93,066  (9,597)  (1,475) 
        
Total YY Inc.’s shareholders’ equity5,046,495 10,611,155  1,630,906 
        
Non-controlling interests6,060 101,704  15,632 
     
Total shareholders’ equity5,052,555 10,712,859  1,646,538 
        
Total liabilities, mezzanine equity and    
shareholders’ equity9,785,792 14,458,719  2,222,265 
        
     


(1) Effectively January 2017, ASU 2015-17 issued by FASB requires entities to reclassify deferred tax assets and liabilities as non-current in the balance sheet. Accordingly, the Company retrospectively reclassified RMB107.3 million of deferred tax assets from current assets into non-current assets as of December 31, 2016.


YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended Twelve Months Ended
 December 31,
2016
  September 30,
2017
  December 31,
2017
  December 31,
2017
  December 31,
2016
  December 31,
2017
  December 31,
2017
 
 RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
               
Net revenues              
Live streaming2,218,190    2,871,610   3,368,520  517,732  7,027,227   10,670,954  1,640,096 
Online games125,424    122,035   128,113  19,691  634,325   543,855  83,589 
Membership74,650    49,486   50,450  7,754  284,860   197,561  30,365 
Others65,886    49,174   79,455  12,212  257,638     182,422  28,038 
               
Total net revenue2,484,150   3,092,305  3,626,538  557,389  8,204,050  11,594,792  1,782,088 
                   
Cost of revenues(1)(1,559,557)  (1,889,313)  (2,196,649)  (337,619)  (5,103,430 )  (7,026,402)  (1,079,938) 
                   
Gross profit924,593  1,202,992  1,429,889  219,770  3,100,620   4,568,390  702,150 
                     
Operating expenses(1)              
Research and development
  expenses
(160,118)  (166,139)  (282,827)  (43,470)  (675,230 )  (781,886)  (120,174) 
Sales and marketing expenses(111,533 )  (249,480)  (148,765)  (22,865)  (387,268 )  (691,281)  (106,248) 
General and administrative
  expenses
(206,192)  (144,678)  (218,766)  (33,624)  (482,437 )  (544,641)  (83,710) 
Goodwill impairment(17,665)  -  (2,527)  (388)  (17,665)  (2,527)  (388) 
                   
Total operating expenses(495,508)  (560,297)  (652,885)  (100,347)  (1,562,600)  (2,020,335)  (310,520) 
               
Gain on deconsolidation and
  disposal of  subsidiaries
127,434   -  -  -  103,960  37,989  5,839 
Other income65,027  18,667  44,534  6,845  129,504   113,187  17,397 
                     
Operating income621,546  661,362  821,538  126,268  1,771,484  2,699,231  414,866 
                     
Gain on partial disposal of
  investments
25,061  -  -  -  25,061  45,861  7,049 
Interest expense(20,758)  (3,651)  (3,744)  (575)  (81,085 )  (32,122)  (4,937) 
Interest income26,480   47,505  74,531  11,455  67,193    180,384  27,725 
Foreign currency exchange gains (losses), net385   (251)  (351)  (54)  1,158   (2,176)  (334) 
                   
Income before income tax
  expenses
652,714  704,965  891,974  137,094  1,783,811  2,891,178  444,369 
                     
Income tax expenses(85,804)  (74,684)  (151,523)  (23,289)  (280,514)  (415,811)  (63,909) 
                     
Income before share of income in
  equity method investments,
  net of income taxes
566,910  630,281  740,451  113,805  1,503,297  2,475,367  380,460 
                     
Share of income in equity method
  investments, net of income
  taxes
4,400  6,806  17,557  2,698  8,279  33,024  5,076 
                   
Net Income571,310  637,087  758,008  116,503  1,511,576   2,508,391   385,536 
               
Less: Net (loss)/income attributable
  to the non-controlling interest
  shareholders and the
  mezzanine classified non-
  controlling interest
  shareholders
(944)  1,120  17,602  2,705  (12,342)  15,156  2,329 
               
Net income attributable to YY Inc.572,254  635,967  740,406  113,798  1,523,918  2,493,235  383,207 


YY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended Twelve Months Ended
 December 31,
2016
  September 30,
2017
  December 31,
2017
  December 31,
2017
  December 31,
2016
  December 31,
2017
  December 31,
2017
 
 RMB
  RMB
  RMB
  US$  RMB
  RMB
  US$
 
         
Net income attributable to YY Inc.572,254  635,967  740,406  113,798  1,523,918  2,493,235  383,207 
         
Other comprehensive income (loss):        
Unrealized (loss)/gain of available-
  for-sales securities, net of nil
  tax
(55,738)  (22,128)  (21,440)  (3,295)  134,768  (41,150)  (6,325) 
Foreign currency translation
  adjustments, net of nil tax
(3,646)  (12,592)  (48,828)  (7,505)  (5,317)  (61,513)  (9,454) 
                     
Comprehensive income
  attributable to YY Inc.
512,870  601,247  670,138  102,998  1,653,369  2,390,572  367,428 
                     
 

Net income per ADS
        
—Basic10.11  10.60  11.63  1.79  27.04    42.03  6.46 
—Diluted9.74  10.51  11.53  1.77  26.40    41.33  6.35 
Weighted average number of ADS
  used in calculating net income
  per ADS
        
—Basic56,613,257  60,008,235  63,686,056  63,686,056  56,367,166   59,323,007  59,323,007 
—Diluted60,914,063  60,503,529  64,224,006  64,224,006  60,805,566   60,831,887  60,831,887 

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

 Three Months Ended Twelve Months Ended
 December 31,
2016
 September 30,
2017
  December 31,
2017
 December 31,
2017
 December 31,
2016
 December 31,
2017
 December 31,
2017
 
 RMB RMB
  RMB US$ RMB RMB US$ 
              
Cost of revenues3,440  (434)  36,549 5,617 15,894  42,759 6,572 
Research and development expenses13,923  (6,049)  106,501 16,369 78,816  122,348 18,805 
Sales and marketing expenses715  (74)  3,679 565 3,107  4,417 679 
General and administrative expenses8,270   9,700   61,731 9,488 59,469  88,137 13,546 

YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended Twelve Months Ended
 December 31,
2016
 September 30,
2017
 December 31,
2017
 December 31,
2017
 December 31,
2016
 December 31,
2017
 December 31,
2017
 
 RMB RMB RMB US$ RMB RMB US$ 
               
Operating income621,546 661,362  821,538 126,268 1,771,484 2,699,231  414,866 
Share-based compensation expenses26,348   3,143 208,460 32,039 157,286  257,661 39,602 
               
Non-GAAP operating income647,894 664,505 1,029,998 158,307 1,928,770 2,956,892 454,468 
               
Net income attributable to YY Inc.572,254    635,967  740,406 113,798 1,523,918 2,493,235 383,207 
Share-based compensation expenses26,348   3,143  208,460 32,039 157,286  257,661 39,602 
               
Non-GAAP net income
  attributable to YY Inc.
598,602   639,110 948,866 145,837 1,681,204 2,750,896 422,809 
               
Non-GAAP net income per ADS              
—Basic10.57  10.65  14.90 2.29 29.83 46.37 7.13 
—Diluted10.17    10.56  14.77 2.27 28.98 45.56 7.00 
Weighted average number of ADS
  used in calculating Non-GAAP
  net income per ADS
              
—Basic56,613,257  60,008,235  63,686,056 63,686,056 56,367,166  59,323,007 59,323,007 
—Diluted60,914,063  60,503,529  64,224,006 64,224,006 60,805,566  60,831,887 60,831,887 
               

YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended
 December 31, 2017
     
 YY Live(2)
  Huya(2)
  Total
  Total
 
 RMB
  RMB
  RMB
  US$
 
     
Net revenues    
Live streaming2,675,812  692,708  3,368,520  517,732 
Online games117,246  10,867  128,113  19,691 
Membership49,560  890  50,450  7,754 
Others42,901  36,554  79,455  12,212 
            
Total net revenue2,885,519  741,019  3,626,538  557,389 
            
Cost of revenues(1)(1,563,735)  (632,914)  (2,196,649)  (337,619) 
            
Gross profit 1,321,784  108,105  1,429,889  219,770 
            
Operating expenses(1)           
Research and development expenses(239,103)  (43,724)  (282,827)  (43,470) 
Sales and marketing expenses(119,181)  (29,584)  (148,765)  (22,865) 
General and administrative expenses(182,164)  (36,602)  (218,766)  (33,624) 
Goodwill impairment(2,527)  -  (2,527)  (388) 
            
Total operating expenses (542,975)  (109,910)  (652,885)   (100,347) 
Other income44,534  -  44,534  6,845 
            
Operating income (loss)823,343  (1,805)  821,538  126,268 
            
Interest expense(3,744)  -  (3,744)  (575) 
Interest income67,597  6,934  74,531  11,455 
Foreign currency exchange losses, net(351)  -  (351)  (54) 
            
 

Income before income tax expenses
886,845  5,129  891,974  137,094 
            
Income tax expenses(151,523)  -  (151,523)  (23,289) 
            
Income before share of income (loss) in equity method investments, net of income taxes735,322  5,129   740,451  113,805 
            
Share of income (loss) in equity method investments, net of income taxes17,708   (151)   17,557  2,698 
            
Net Income(4) 753,030  4,978   758,008  116,503 


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

 

 Three Months Ended
 December 31, 2017
         
 YY Live Huya Total Total 
 RMB RMB   RMB   US$ 
         
Cost of revenues36,320 229 36,549 5,617 
Research and development expenses104,569 1,932 106,501 16,369 
Sales and marketing expenses3,145 534 3,679 565 
General and administrative expenses40,958 20,773 61,731 9,488 


(2) The Company revamped its internal organization and one sub-business stream previously presented and reviewed under YY Live was changed to be presented and reviewed under Huya from the first quarter of 2017. Segment information for the 3 months ended 31 December 2016 has been restated accordingly.
(3)  As the Company has disposed of a great majority of its online education business before the end of 2016 and disposed of the remaining portion of its online education business in the beginning of 2017, 100 Education ceased to be an operating segment starting from the first quarter of 2017.
(4) Starting from the three months ended December 31, 2017, the Company reviews the financial performance of the operating segments up to the net income of each segment. Segment information for comparative periods has been revised to be presented on the same basis as the three months ended December 31, 2017.

YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)

  Three Months Ended
  December 31, 2017
         
  YY Live Huya
  Total Total 
  RMB RMB
  RMB US$ 
        
Operating income (loss)823,343 (1,805)  821,538 126,268 
Share-based compensation expenses184,992 23,468  208,460 32,039 
          
Non-GAAP operating income1,008,335 21,663  1,029,998 158,307 
          

YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended
 September 30, 2017
     
 YY Live
  Huya
  Total
  Total
  
 RMB
  RMB
  RMB
  US$
  
       
Net revenues      
Live streaming2,319,251   552,359    2,871,610    431,607   
Online games113,188   8,847    122,035    18,342   
Membership46,139   3,347    49,486    7,438   
Others30,193  18,981  49,174  7,391  
             
Total net revenue2,508,771  583,534  3,092,305  464,778  
             
Cost of revenues(1)(1,379,016)  (510,297)  (1,889,313)  (283,966)  
             
Gross profit 1,129,755  73,237  1,202,992  180,812  
             
Operating expenses(1)      
Research and development expenses(117,231)   (48,908)   (166,139)   (24,971)  
Sales and marketing expenses(228,318)   (21,162)   (249,480)   (37,497)  
General and administrative expenses(2)(107,342)  (37,336)   (144,678)   (21,745)  
             
Total operating expenses(452,891)  (107,406)  (560,297)  (84,213)  
       
Other income18,569  98  18,667  2,806  
             
Operating income (loss)695,433  (34,071)  661,362  99,405  
             
Interest expense(3,651)  -  (3,651)  (549)  
Interest income42,738  4,767  47,505  7,140  
Foreign currency exchange losses,  net(251)  -  (251)  (38)  
             
Income (loss) before income tax expenses734,269   (29,304)  704,965  105,958  
             
Income tax expenses(74,684)  -  (74,684)  (11,225)  
       
Income (loss) before share of income in equity method investments, net of income taxes659,585   (29,304)  630,281  94,733  
             
Share of income in equity method investments, net of income taxes6,806  -  6,806  1,023  
       
 

Net income (loss)
 666,391  (29,304)  637,087  95,756  


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

 

 Three Months Ended
 September 30, 2017
      
 YY Live
  Huya Total
  Total
 
 RMB
  RMB   RMB
    US$
 
        
Cost of revenues(1,190) 756 (434) (65)
Research and development expenses(7,973) 1,924 (6,049) (909)
Sales and marketing expenses(106) 32 (74) (11)
General and administrative expenses8,473  1,227 9,700  1,458 


(2) For the three months ended September 30, 2017, the Company reclassified general and administrative expenses of RMB20 million in relation to the loss contingencies recognized against a legal proceeding from YY Live segment to Huya segment.

 

YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)

   Three Months Ended
   September 30, 2017
         
   YY Live
  Huya
  Total Total 
   RMB
  RMB
  RMB US$ 
        
Operating income (loss) 695,433  (34,071)  661,362 99,405 
Share-based compensation expenses (796)  3,939  3,143 473 
            
Non-GAAP operating income (loss) 694,637  (30,132)  664,505 99,878 
            


YY INC.
UNAUDITED SEGMENT REPORT
(All amounts in thousands, except share, ADS and per ADS data)

 Three Months Ended 
 December 31, 2016
  
 YY Live
  Huya
  100 Education
  Total
  Total
 
 RMB
  RMB
  RMB
  RMB
  US$
 
      
Net revenues     
Live streaming1,883,841  334,349  -  2,218,190  319,486 
Online games125,424  -  -  125,424  18,065 
Membership74,650  -  -  74,650  10,752 
Others12,952  4,926  48,008  65,886  9,490 
                
Total net revenue2,096,867  339,275  48,008  2,484,150  357,793 
              
Cost of revenues(1)(1,147,010)  (387,252)  (25,295)  (1,559,557)  (224,623)
              
Gross profit (loss)949,857  (47,977)  22,713  924,593  133,170 
              
Operating expenses(1)     
Research and development expenses(102,992)  (53,082)  (4,044)  (160,118)  (23,062)
Sales and marketing expenses(79,594)  (19,014)  (12,925)  (111,533)  (16,064)
General and administrative expenses(179,867)  (18,070)  (8,255)  (206,192)  (29,698)
Goodwill impairment(3,861)  -  (13,804)  (17,665)  (2,544) 
              
Total operating expenses(366,314)  (90,166)  (39,028)  (495,508)  (71,368) 
      
Gain on deconsolidation and disposal of
 subsidiaries
127,434  -  -  127,434  18,354 
Other income65,027  -  -  65,027  9,366 
              
Operating income (loss)776,004  (138,143)  (16,315)  621,546  89,522 
              
Gain on partial disposal of investments25,061  -  -  25,061  3,610 
Interest expense(20,758)  -  -  (20,758)  (2,990) 
Interest income25,951  518  11  26,480  3,814 
Foreign currency exchange gains, net385  -  -  385  55 
              
Income (loss) before income tax expenses806,643   (137,625)  (16,304)  652,714  94,011 
              
Income tax expenses(98,992)  -  13,188  (85,804)  (12,358) 
      
Income (loss) before share of income in equity
  method investments, net of income taxes
707,651  (137,625)   (3,116)   566,910   81,653 
              
Share of income in equity method investments,
  net of income taxes
4,400  -  -  4,400  634 
      
 

Net income (loss)
712,051  (137,625)   (3,116)  571,310   82,287 


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


 Three Months Ended
 December 31, 2016
          
 YY Live Huya 100 Education Total Total 
 RMB RMB  RMB   RMB   US$ 
           
Cost of revenues 1,977  1,399  64   3,440   495  
Research and development expenses 9,385  3,535 1,003   13,923   2,005  
Sales and marketing expenses 699  16  -    715   103  
General and administrative expenses 2,671  5,591  8   8,270   1,191  

YY INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS OF UNAUDITED SEGMENT REPORT
 (All amounts in thousands, except share, ADS and per ADS data)

  Three Months Ended
  December 31, 2016
          
  YY Live Huya
  100 Education
  Total Total 
  RMB RMB
  RMB
  RMB US$ 
         
Operating income (loss)776,004 (138,143)  (16,315)  621,546 89,522 
Share-based compensation expenses14,732 10,541  1,075  26,348 3,794 
             
Non-GAAP operating income (loss)790,736 (127,602)  (15,240)  647,894 93,316