Joyy Inc: Undervalued social media11.12.2022

Time of purchase: 21/04/2022

As of 21/04/2022

Market cap: $2,656,500,000

Net debt: - $3,718,000,000

Enterprise value: - $1,061,150,000

Share price at time of purchase: $37.50

Share price as of 07/07/2023: $31.00

JOYY Inc is a social media company operating apps like Bigo Live, which allows users to live stream specific moments, such as showcase talents, socialize and connect with other users worldwide. This Bigo Live is JOYY’s biggest asset with average mobile monthly active users (MAUs) of 35.4 million. It also owns Likee, a short form video platform which has average MAUs of 50 million, and Hago a casual game orientated social media platform with instant messaging features and video calls. This app has MAUs of 7.6 million.

JOYY is extremely undervalued if you just look at the items on its balance sheet.

As of September 2022, JOYY had a net asset value of $5.8 billion with $4.2 in cash and a cash - total liabilities of $1 billion.

Revenues for the Bigo Live business in year-end 2021 was $2.4 billion with a GAAP net loss of 80 million.

For reference, internet companies operating in the entertainment space often are valued at 1x - 5x revenues and at least 2x net asset value.

If we take into consideration that the company is selling at ~0.5x of net asset value, the massive cash cushion it has and the fact that it’s valued at the lower end of the industry from a revenues perspective, then we can see that this business is being undervalued by the market. Management seems to agree with this assessment as they’ve announced a $1 billion dollar buyback program in November 2021. Which is approximately 38% of the value of the company. In September 2019 JOYY also announced a $300 million buyback program, which was completed as planned a year later. As well as this, on the 27th of August 2021 Reuters reported an exclusive article saying that management had intentions of taking the company private at a valuation of $8 billion, as the market price is undervaluing JOYY. Although this was taken from a private source , it still reinforces the valuation we’ve done today.

If we take a look at financial valuations and actions that management has taken, then we can come to a conclusion that the market is undervaluing the fair value of this business