YY May Not Continue To Sustain This Growth

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About: YY Inc. (YY)
by: The Freedonia Cooperative
Summary

Despite strong growth in 2019, the time may be up for YY to maintain its social standing as the "YouTube of China"

Technicals and analysts all show YY moving toward bearish territory in the mid and long term as it's already grown 30% so far in 2019.

Support near the $70 mark could mean that a drop below that may see YY free fall into the mid $60 territory quickly.

YY Inc. (YY) was incorporated in July 2011. The company provides a social platform that allows users to engage in real-time online activities, where they can share videos, audios, texts and music on their computer devices. Segments of the company include YY IVAS, Huya broadcasting, and 100 Education.

The platform enables users to organize online gaming events, hold discussions on different topics, dating shows, share music and engage in other social community activities.

According to the historical index in the US Stock market, YY is not a good long-term investment. This website conducts regular updates of stock prices every 5 minutes. According to this analysis, YY is a bad, high-risk investment. The stock’s price is expected to fall in the coming months.

Further, Wall Street & Finance report shows that the market environment for this stock has been bearish for the last one year. At present, it seems that technology stocks have lost their popularity. The analysis added that these are some clear signs that YY's stock price has a high probability of falling as we move into Q3 of 2019.

Such negative predictions may deter investors from buying the stock. As such, let’s look at some reasons why YY's stock will fall.

A Failing Trend

Before Q4 of 2018, analysts had predicted $7.22 per share in earnings, and forecast 9.6% growth for the same year, and 20% for this year.

Nonetheless, despite these positive metrics, the stock’s price has been trading near 52-week lows. The stock also lost more than half of its value and has found itself being victimized by the U.S.-China trade war. Even though most companies do not enjoy an American customer base, this stock failed nonetheless.

Additionally, the stock is expected to suffer another trend. The stock once thrived on keeping consumers on its platform for hours per day. Nonetheless, trends have moved toward much shorter video clips, as people began to consider live streaming too time-consuming. As a result, YY, the so-called "YouTube of China" fell out of favor.

To be sure, if the U.S. social media market offers any indication, investing in this industry can become difficult. Social media platforms such as YY Inc. may achieve a following and sometimes stock investors, based on the number of users. But as losses mount and its competitive advantages become more apparent, these companies have continued to fall.

As such, investors may continue avoiding this stock, which is expected to continue its bearish trend in the coming months.

Clear Negative Price Signals

In a recent trading session for the stock, the firm witnessed their stock drop by negative $10.93 over a week and tumble down negative $18.56 from the price about two weeks before. When compared with its established 52-week high of $125.84, the high that had been recorded during the recent session happened to be lower.

Looking at the current price readings, its 4-week RSI stands at 23.23. As such, the stock is clearly overbought, meaning that the shares are not stable in terms of price movement.

According to the technical chart, the YY stock could settle between $74.49/share to $77.03/share level. However, if the stock price goes below the $70.21 mark, then the market for the stock becomes much weaker. If this happens, the stock price might even plunge as low as $68.47 for its downside target. In the last few weeks, the stock’s price had not been in a positive zone.

These negative signs may send a wave of panic across the market, sending investors away, which may cause the stock’s price to drop in the coming months.

Negative Analyst Ratings

Despite analysts at JP Morgan raising their recommendation on shares of YY from neutral to overweight in their opinion released this year, analysts at Nomura lowered their rating of the stock’s price from buy to neutral on a separate flash note issued to investors on January 29 this year.

The YY equity has an average rating of 1.65, with the figure leaning towards a bullish end. 26 analysts who tracked the company were contacted by Reuters. Amongst them, 3 rated the stock as a hold, while the remaining 23 were split even though not equally. However, most rated the stock as a neutral, some rated as a sell and a few rated as a buy.

Conclusion

YY is up nearly 30% YTD but there may not be enough user growth to sustain that growth as we head into the second part of the year. Tougher competition and technicals on YY growth show that we could see a correction coming in the next months. Short term, YY may be a "sell," even if trade tensions between the U.S. and China subside.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.