JOYY Is A Buy Despite YY Live Deal Cancelation

Core Viewpoint - JOYY's stock experienced a 60% increase in the last seven months of 2023, driven by strong buybacks and improved net income margins despite declining sales. However, the cancellation of Baidu's acquisition of YY Live has led to a 25% decline in JOYY's stock year-to-date in 2024 [1][2]. Group 1: Baidu Deal Cancellation - The $3.6 billion acquisition deal between Baidu and JOYY for YY Live was initially agreed upon in November 2020 but was never finalized due to regulatory issues from the Chinese State Administration for Market Regulation (SAMR) [3][5]. - Baidu had been operating YY Live as if it owned it for nearly three years, but the deal's cancellation has ended the uncertainty surrounding it, potentially allowing JOYY to pursue legal avenues for a cash payout from Baidu [6][10]. - JOYY is expected to receive approximately $700 million in offshore cash from Baidu, which could be used for share buybacks, alongside a potential $500 million from a spinoff of YY Live [12][13]. Group 2: JOYY's Business Segments - Bigo Live, JOYY's primary business, has shown growth with 40.3 million monthly active users, contributing 81% of JOYY's sales and virtually all profits, with 94.5% of livestreaming sales coming from Bigo Live [14][15]. - JOYY's sales from its Chinese business have significantly declined, indicating a strategic shift towards international markets [16]. - Shopline, an e-commerce platform in which JOYY holds a 70.4% stake, is projected to grow sales over 30% per year from 2022 to 2024, although it is still in the early stages of scaling [21][23]. Group 3: Financial Position and Capital Allocation - JOYY has a strong cash position with $3.8 billion on its balance sheet, which will be impacted by the return of $1.9 billion from Baidu due to the deal's cancellation [32]. - The company has returned $1.38 billion to investors through buybacks from 2020 to Q3 2023, with plans to continue enhancing shareholder returns through share buybacks [28][30]. - JOYY's management has indicated a preference for buybacks over dividends, especially given the current low valuation of the stock [30][29]. Group 4: Valuation and Market Outlook - JOYY is currently trading at 10.5 times its 2024 EPS estimates, with potential upside driven by its cash position, expected cash from Baidu, and the valuation of Shopline [33][34]. - The market cap of JOYY could realistically reach $6.3 billion if all cash is offshore, representing over 150% upside from its current valuation [34].