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source from：barron's
INVESTING IDEAS
China’s Live Streaming Stocks Have Room to Run
Half of China’s netizens live-stream, putting YY and Momo in a winning position as the industry consolidates.
By ISABELLA ZHONG
May 11, 2017 8:52 p.m. ET
PHOTO: MENGLIN HUANG/THE WALL STREET JOURNAL
China’s live streaming stocks have enjoyed a red-hot rally, with YY’s strong first quarter numbers likely to embolden bulls who see further upside for the stock and its major rival Momo.
YY (YY) and Momo (MOMO) have rallied 39% and 108% respectively this year as Chinese netizens have flocked to live streaming thanks to faster and cheaper broadband, and more powerful camera resolutions. Around 47% of Chinese netizens now take part in live streaming. But analysts are expecting the industry to consolidate as the pace of growth slows, with the elimination of smaller rivals likely to cement Momo and YY as leaders in the industry. Jefferies analyst Karen Chan says only 150 of the 200-plus live streaming platforms that existed a year ago are still around today.
Market leader Momo is the analyst favorite among Chinese live streaming platforms. Nearly all of the analysts who cover the stock have a buy rating. What makes Momo stand out is its social network attributes. While some analysts have argued Momo’s structure as a video-based social network could limit user growth, others see it as a competitive advantage as industry growth slows. Jefferies’ Chan argues strong social attributes enhance user stickiness and willingness to pay for a live streaming platform.
Momo has been gaining market share. HSBC analyst Terry Chen notes Momo has significantly outpaced competitors in growing users and revenues. That superior growth has been reflected in a 192% surge in its shares over the past year. Chen expects Momo’s monthly active user growth to accelerate to 20% annually this year as it rolls out new features to improve user engagement. Chen has a buy rating on the stock with a $43 a share target price, which implies 13% upside. Momo’s speedy growth means valuations for its shares also don’t look too expensive. It trades at 25 times forward earnings, which is below a five year average of 37 times.
YY is a cheaper option among leading live streaming platforms. While the stock has gained 30% this year, it trades at a slim 11 times forward earnings, which is below a five year average of 19 times. YY has been improving content quality to grow paying users as the live streaming market slows. The company has four new specialized outdoor live content verticals over the past seven months. Its nascent Huya platform – which specializes in the live streaming of online games – grew users by 30% quarter-on-quarter in the first quarter.
YY’s revenues are rising thanks to its Huya platform. YY’s first quarter revenue grew 37% year-on-year thanks to stronger than expected live streaming revenue of CNY2 billion. Huya’s live streaming revenue surged 225% year-on-year. Credit Suisse analyst Zoe Zhao lifted her price target to $64 from $60, implying 17% upside. The new price target is based on a price-earnings multiple of 13 times forecast 2017 earnings. She argues the stock is cheap but says the market is yet to be convinced by its user growth, which will derive any rerating. She says Huya needs to drive user growth and monetize through game advertising. She has an outperform rating on YY.
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