I have had a extra close eye on YY for a while now. The reason is that it had surpassed my conservative valuation in my analysis (YY Full analysis) of 56 USD. Actually I still wanted to squeeze out some more of the juice and believed we could see the stock trading up towards 70-80 USD. Especially considering how well other tech stocks are doing. But one of the concerns that I listed was a potential government crackdown on live-streaming. This is also something mainland Chinese people have warned me about when I have discussed the YY investment case. As an investor in China I have the fullest respect for what the government says and plans to do, in-fact many of my investment has China’s long term plans as a nice tailwind for the investment case.
On the 22 June a State administration announced it had requested to suspend several video portals due to lack of licenses. The largest company affected was Weibo and two others, this was not at all related to YY. Later on information came out that the number of services that had been named was larger than the initial 3. Today before opening the market realized this crackdown is more serious than initially expected. I haven’t myself managed to get to the bottom of this, just reading news articles like these ones:
SCMP – Weibo disables video uploads longer than 15 minutes, amid regulator scrutiny
Chinese authorities put the brakes on a surge in live streaming
Quite often these things just blow over, forgotten in 3 months and everything is back to normal. But sometimes it’s the real deal and nothing will be the same again. Given that I reached my target price and YY has not traded down drastically on this, I take it as an opportunity to both further reduce my China exposure and sell my holding close to my base-case target price, and a very healthy profit.
Solid trade — I really like the sell discipline here. Most folks would keep trying to ride that horse no matter the eventual outcome.