One thing we could say about the analysts on JOYY Inc. (NASDAQ:YY) – they aren’t optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the latest consensus from JOYY’s 17 analysts is for revenues of CN¥19b in 2021, which would reflect a substantial 45% improvement in sales compared to the last 12 months. Losses are supposed to balloon 410% to CN¥15.32 per share. Before this latest update, the analysts had been forecasting revenues of CN¥29b and earnings per share (EPS) of CN¥19.49 in 2021. There looks to have been a major change in sentiment regarding JOYY’s prospects, with a pretty serious reduction to revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target was broadly unchanged at US$134, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic JOYY analyst has a price target of US$166 per share, while the most pessimistic values it at US$97.40. This shows there is still some diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting JOYY’s growth to accelerate, with the forecast 45% annualised growth to the end of 2021 ranking favourably alongside historical growth of 29% per annum over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 16% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect JOYY to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts are expecting JOYY to become unprofitable this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn’t be surprised if investors were a bit wary of JOYY.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. We have estimates – from multiple JOYY analysts – going out to 2024, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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