yy research notes

8/18/2019 YY Research Notes

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decided to publish my 2014 Research Notes on YY. Here you can find the reaso

why I was bearish on the Name. Maybe my methodology was/is flat wrong ... may

not. Do not trade on "my opinion(s)". Do your own Due Diligence. Hopefully t

Document might offer a new perspective on how to look at YY and on how

nvestigate it. Consider this Educational Material ... aimed at fostering Effective a

Unbiased Discussion around YY.


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– Notes on YY, Inc. (NasdaqGS: YY) –

Executive Summary

• Data collected over a period of [9 months] suggests that YY has overstated their users in both gaming and

music/entertainment channels. Implications of fictitious users are numerous:

o For YY as an internet company, user base and user growth are paramount in the success of thecompany. The market and sell-side analysts make revenue predictions based on user growth.

Slower user growth can suggest several issues such as limited market size and opportunity, slower

adoption rate, or increasing competition from similar service providers

o An inflated reported user base also implies that the true Average Revenue per User ( ARPU) is

much higher than the number reported in the Company’s SEC filings. Furthermore, for YY to hit

its revenue projections, they would have to grow ARPU much faster, which is not that simple as

the current ARPU is already very high.

• As an example, in the F-1/A filed on November 16, 2012 (page 131, Line 10) YY reported “9.3 million

peak concurrent users on YY Client in September 2012”. Our data show that during the Month of May

2014, the maximum number of concurrent users1 at any given time never exceeded 1.6 million. Once we

clean our dataset for fake users ( BOTs generated users), the number did never clear the 1.0 million users

threshold (see Thesis 1). YY claims that its user base is growing. However, our lastest data in May

suggests usage is far below market expectations.

• Furthermore, during the sample period of May 2014, our proprietary dataset suggests total users accounted

for approximately 32 billion voice minutes. However, in the F-1/A filed on November 16, 2012 (page 131,

Line 10), YY claimed that users were “consuming” > 43.6 billion voice minutes per month2. Given the fact

that reported monthly active users ( MAU ) between August 2012 and March 2014 increased by 35.46% 3, it

would be fair to assume a similar development for voice minutes usage. But even if voice usage stayed flat

yoy, our data suggests YY may have overstated voice usage by a substantial factor (43.6b/32b=44.68%) in

its F-1/A filing dated November 16, 2012

o If we take into consideration the presence of BOTs 4, it follows that the voice minutes consumed

by real users during the month of May 2014 amounted to approximately 16.4 billion, namely

62.38% lower than the number reported in the F-1/A filing dated November 16, 2012

1 The company itself places a great emphasis on the importance of peak concurrent users to measure its success (F-1/A filing

dated November 16, 2012, page 126): “…was primarily because of an increase in our ability to generate cash, substantially

driven by: 1. the increasing popularity of YY & 2. the growth of our peak concurrent users and our monthly active users”.

Or also (F-1/A filing dated November 16, 2012, page 106): “During the year 2010, we mainly focused on raising peak concurrent

user levels and exploring new revenue sources related”.2 “We had 9.3 million peak concurrent users on YY Client in September 2012 , and our users spent an aggregate of 294.3 billion

voice minutes on YY Client in the first nine months in 2011 and 393.0 billion voice minutes in the first nine months of 2012.”3 “70.5 million monthly active users on YY in August 2012” (F-1/A filed on November 16, 2012) vs. “average monthly active

users to reach 95.5 million in the first quarter of 2014” (6-K Ex-99.1 Q1 2014 Unaudited Financial results (page 1)) 35.46%

increase 4 The peculiarity of fake users created by BOTs consists in the fact that such users do not actually “watch” the Channel and do

therefore only consume a fractional amount of bandwidth real users would otherwise do. As presented in Appendix II , it is not

uncommon to have as many as 200 fake users originating from a single IP address.

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• Observed real concurrent number of users online casts doubts on the ability of YY to plausibly generate

the reported revenue over the past year, especially in the Entertainment Sector (See Thesis 2).

o While the data reported by YY for the Gaming Segment of the business might potentially be in

line with the real achieved number, as far as the numbers concerning the Entertainment and Music

categories might point to fraudulent reporting by the Company (See Thesis 2)

• We believe that YY could have overstated its bandwidth costs5 to keep up with the pretense of increasing

users, when in fact user count is significantly lower (See Thesis 3). If the actual costs are significantly

lower, this would beg the question why are they doing this?

o They have to increase the bandwidth costs to show, lock-step, increasing users. We have shown

that user count is a lot lower, and thus we would expect a lower bandwidth cost.

o Bandwidth cost might was overstated by 300% or close to $6M+

o So where did this money go? We can let the reader speculate, but kick-backs and fraud are very

common in China

• User count and usage on YY.com is infested with BOTs. While other authors have brought to investors’

attention the existence of such a claim has been difficult to prove so far. By looking at YY architecture, in

the source code used by channel indexing, we discover two different variables to denote the number of

users online on a given channel, namely users and ipUsers. It is our belief that ipUser represents the real

user count, whereas users is the number that is presented on YY.com and is used to potentially inflate the

true usage

o YY may argue that many of its users use its services from internet cafes and thus users share one

IP address. As we are going to illustrate in APPENDIX III , this logic does make little sense when

compared with the actual data observed on channels where the presence of BOTs is minimal

o Furthermore, internet cafes have been declining at a rapid pace (here), while YY is showing

dramatic increases in ipUsers, which go against common sense and market realities

• We have also been collecting data on the total number of Concurrent Users Online for two Chinese

competitors of YY, namely 6.CN and KUWO. Both competitors seem to attract more users than YY at any

given time (other than during Bejing night hours which are peak times). See APPENDIX IV.

o Interesting is the fact that the % of BOTs on YY is at its highest levels at night. If we clean YY

Data for bots, then 6.CN and KUWO do have more users online also during night hours.

o

YY has claimed to be one of the biggest providers of online Entainment services. However, thereare private companies that seem to have larger user bases

• For an overview of the older educational portal (http://edu.yy.com/), please refer to APPENDIX V . Simply

put, it was a JOKE in terms of usage. Our data analysis suggests that education platform has minimal

adoption. The new educational website is now http://www.100.com/. We have not analyzed it yet.

5 For now this is only a working hypothesis, which in reality it might turn out to be difficult to prove. For more details on the

hypothesis, please see Thesis 3.

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http://seekingalpha.com/article/1593492-yy-do-you-know-what-you-ownhttp://seekingalpha.com/article/1593492-yy-do-you-know-what-you-ownhttp://seekingalpha.com/article/1593492-yy-do-you-know-what-you-ownhttp://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131128000046&cid=1202http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131128000046&cid=1202http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131128000046&cid=1202http://www.6.cn/http://www.6.cn/http://www.6.cn/http://x.kuwo.cn/http://x.kuwo.cn/http://x.kuwo.cn/http://www.6.cn/http://www.6.cn/http://www.6.cn/http://x.kuwo.cn/http://x.kuwo.cn/http://x.kuwo.cn/http://edu.yy.com/http://edu.yy.com/http://edu.yy.com/http://www.100.com/http://www.100.com/http://www.100.com/http://www.100.com/http://edu.yy.com/http://x.kuwo.cn/http://www.6.cn/http://x.kuwo.cn/http://www.6.cn/http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20131128000046&cid=1202http://seekingalpha.com/article/1593492-yy-do-you-know-what-you-own


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• Some additional Interesting Statistics about YY Channels (See APPENDIX VI )

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TABLE OF CONTENT

1. YY REVENUE GENERATION PROCESS: AN OVERVIEW. ............................................................. - 6 -

2. ROBUST AND ACCURATE DATA POINTS ........................................................................................ - 8 -

3. THESIS 1: THE REAL NUMBER OF USERS USING YY IS SIGNIFICANTLY LOWER THAN THENUMBER DISCLOSED BY COMPANY TO ITS INVESTORS. .......................................................... - 9 -

3.1 T HE NUMBER OF P EAK C ONCURRENT USERS ( SEE NOTE 1) WE OBSERVED ( EVEN IF INCLUDING BOTS ) DURING THE MONTH OF M AY 2014 IS >80% SMALLER THAN THE NUMBER YY DISCLOSED TO REGULARLY HAD ACHIEVED DURING 2012. ....................................................................................................................................... - 9 - 3.2 T HE NUMBER OF REAL M ONTHLY ACTIVE U SERS (MAU) DOES PROBABLY NOT EXCEED THE 5.5 MILLIONUSERS . - 10 - 3.3 T HE NUMBER OF REAL D AILY ACTIVE U SERS (DAU) DOES PROBABLY NOT EXCEED THE 5.5 MILLIONUSERS . - 11 -

4. THESIS 2: OBSERVED REAL CONCURRENT NUMBER OF USERS ONLINE CASTS DOUBTS ONTHE ABILITY OF YY TO PLAUSIBLY GENERATE THE REPORTED REVENUES. .................. - 12 -

4.1 2014 Q1 U SERS C ONVERSION R ATE ON ONLINE MUSIC AND ENTERTAINMENT C HANNELS LOOKS LIKE“M ISSION I MPOSSIBLE” ...................................................................................................................................... - 12 -

4.1.1 Proving the ridiculousness of the YY disclosed Revenues from online music and entertainment for Q12014 (Data not cleaned for BOTs): ............................................................................................................... - 13 - 4.1.2 Proving the ridiculousness of the YY disclosed Revenues from online music and entertainment forQ1 2014 (Data cleaned for BOTs): ............................................................................................................... - 14 -

4.2 A NALYZING 2014 Q1 R EVENUE FROM THE ONLINE GAMES BUSINESS ................................................... - 15 -

5 THESIS 3: YY COULD HAVE OVERSTATED ITS BANDWIDTH COSTS TO KEEP UP WITH THEPRETENSE OF INCREASING USERS, WHEN IN FACT USER COUNT IS SIGNIFICANTLYLOWER (TENTATIVE / DIFFICULT TO PROVE) .............................................................................. - 16 -

5.1 D ATA N OT C LEANED FOR BOT S ............................................................................................................ - 16 -

5.2 D ATA C LEANED FOR BOT S .................................................................................................................... - 17 -

5.3 D ETECTING THE STREAMING S PEED TO COMPUTE THE REQUIRED BANDWIDTH USAGE ........................ - 18 -

6 APPENDIX I: INTEGRITY CHECK – ARE WE SCRAPING ALL THE LIVE CHANNELS? ......... - 22 -

7 APPENDIX II: HYPOTHESIS: THE IPUSERS VARIABLE – DENOTES THE NUMBER OFUNIQUE IPS CONNECTED TO THE CHANNEL (TRIAL&ERROR VALIDATION). ...................... - 24 -

8 APPENDIX III: HAVING MULTIPLE REAL USERS USING THE SAME IP IS NOT COMMON - ASSOME POPULAR CHANNELS HELP US TO DEMONSTRATE. ..................................................... - 31 -

9 APPENDIX IV: 6.CN, KUWO AND YY – A COMPARISON ............................................................. - 32 -

10 APPENDIX V: YY EDUCATION - THE OLD VERSION WAS … NOTHING MORE THAN A JOKE! -

33 -

11 APPENDIX V: SOME ADDITIONAL STATISTICS. .......................................................................... - 35 -

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1. YY Revenue Generation Process: An Overview.

Per F-1 (Oct 15, 2013 p. 1) YY platform consist of YY Client , the YY.COM and Duowan.com web portals

and Mobile YY. YY Client , YY core product, was launched in China in July 2008, has attracted 400.5

million registered user accounts as of September 30, 2012. To increase the accessibility and usage of YY

Client, we introduced our mobile application, Mobile YY, in September 2010.

“While the basic use of our platform is currently free, we monetize our user base through internet value-

added services, or IVAS , and online advertising. Currently, revenues from IVAS are primarily generated

through sales of virtual items and game tokens that our users may purchase for use in online activities

on our platform, including online games , which are all web games , and YY Music , our music channels on

YY Client .” Per F-1 (Oct 15, 2013 p. 2)

“In the years ended December 31, 2011, 2012 and 2013, we had derived our revenues from IVAS and

online advertising. Our IVAS revenues are primarily comprised of revenues from the paying users of

online music and entertainment , online games and, to a lesser degree, our membership subscriptions

and live game broadcasting.” Per 20-F (Mar 17, 2014 p. 99)

“The majority of online games revenues … {is} derived from third parties developed games.” Per 20-F

(Mar 17, 2014 F-25)

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In the table below you can see a break-down of YY revenue per operating segment:

6

- Music and Entertainment is clearly the main driver of YY growth. Over the last 6 quarters

revenue grew by 262% while the number of Paying Users increased by 195%.

- On the other hand, Games revenue increased by approximately 84% while the number of Paying

Users growth was 25.27%.

-

Others revenue mainly represents membership subscription revenue, revenue from sales of virtual

items in various channels in YY platform, such as live game broadcasting channels etc. and other

miscellaneous product sales in YY platform.

While investigating the revenue generated in the Game Segment of YY Business might be a difficult

task 7, we believe to be able to prove that YY has been exaggerating the popularity of its Music Service.

According to the data we collected over an extensive period of time, the reported numbers for YY Music

and Entertainment seem unlikely. This is the segment where YY growth mainly stems from.

6 Please note that the sum of reported revenues differ from the Total Revenue reported by the company. We should verify why.7 Research on the Game Segment of YY could consist in interviews with the third parties game Developers. Looking at game

developers’ financials might also be useful to assess if they received payments from YY. The only insight YY financial

statement gives on the Game Segment, is an above average APPUR (Average Per Paying User Revenue)

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2. Robust and Accurate Data Points

• Two teams located in two different continents independently ran tools to track usage on the YY platform

(Matlab and Python)

•

Tester 1 and Tester 2 were tracking at different times with no knowledge of the other

• Both sets of data were very similar suggesting the data is representative of YY usage and users

(Note: Earlier on in the data set, Tester 1 had technical issue which caused it to miss some datapoints thus resulting in

a shift. Later on this was resolved)

• We have been tracking all the Channels streaming live on the YY platform in 15 minute increments. For

additional information please refer to the Integrity Check performed by Tester 1 and presented in

APPENDIXY I.

• Channels reported on the http://www.yy.com/ website are also the same accessible from the Downloadable

YY Desktop Client. For additional information please refer to APPENDIXY II .

o We are indeed getting statistics on all the Channels streaming live at the time of our observation.

• For an overview of the data we have been retrieving (and have ad disposal for further analysis) please refer

to APPENDIX IV

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3. Thesis 1: The real number of users using YY is significantly lower than the numberdisclosed by Company to its investors.

3.1 The number of Peak Concurrent users8 (see note 1) we observed (even if including bots) during the

month of May 2014 is >80% smaller than the number YY disclosed to regularly had achieved during

2012.

F-1/A filing dated November 16, 2012, page 129: “We achieved approximately 10.0 million peak concurrent users

and approximately 70.5 million monthly active users on YY in August 2012.”

F-1/A filing dated November 16, 2012, page 129: “We had 9.3 million peak concurrent users on YY Client in

September 2012”

During the month of May 2014, however, the peak of concurrent users online never exceeded 1.6m, see figure

below (we did not cleat the data for BOTs):

If what we believe to be BOTs are removed, during the month of May 2014, the peak of real concurrent users

online never exceeded 0.96m, see figure below (BOTs have been removed):

8 “concurrent users” for any point in time means the total number of YY users that are simultaneously logged onto YY Client in

a given time (F-1/A filing dated November 16, 2012, page 64). Please note that this definition is misleading, since YY only

generates revenue on users that are signed in and viewing a particular Channel. Also for users, logged onto the YY client and not

entering as channel makes little sense (although this could happen, we believe it occurs infrequently). For the reported statistics

to be true, it would mean that 90% of the people who access the YY client do not join any channel. Such a high number seems

implausible.

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Interesting is that, as disclosed in the 20-F filed for the Fiscal Year ending December 31, 2014 (page F-61), the

“CEO's and the Chairman's shares {were} subject to a performance condition which relates to the number of peak

concurrent users on the YY Client. Such performance condition was met as of December 31, 2010.” Since we are

talking about 43,048,296 restricted shares … this offers a possible explanation on why YY might have had an

incentive to inflate the number of concurrent users in the past. It’s worth noting that, after the F-1/A filing dated

November 16, 2012, the company has never ever disclosed any details about the number of Peak Concurrent Users.

3.2 The number of real Monthly Active Users (MAU) does probably not exceed the 5.5 million users.

Per 20-F filed for the Fiscal Year ending December 31, 2012 (page 73), “The number of our monthly active users

increased by 18.0 million from 35.4 million as of December 31, 2010 to 53.4 million as of December 31, 2011,

representing a 50.8% growth, and further increased to 69.7 million as of December 31, 2012”.

According to the Company, “…average monthly active users to reach 95.5 million in the first quarter of 2014”. (6-

K Ex-99.1 Q1 2014 Unaudited Financial results (page 1)).

•

According to our dataset, during the month of May 2014, the average number of concurrent users online for the period was approx. 0.759m9 (0.380m if number cleaned for BOTs) If we take for valid the reported

time spent monthly by the average users on the YY platform (51.7 hours), we can infer the number of

Monthly users:

o As per F-1/A filing dated November 16, 2012, “On average, each active user spent

approximately 51.7 hours on YY Client in September 2012”

9 Computed by taking the average of all the observation we had during the sample period (May 2014)

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o It follows that the AMU implied by our dataset (no cleaned for BOTs) is 10.57m users

0.759m * 24 hours * 30 days / 51.7 hours/month = 10.57m MAU

o It follows that the DAU implied by our dataset (cleaned for BOTs) is 10.57m users

0.380m * 24 hours * 30 days / 51.7 hours/month day = 5.29m MAU

For our data to be “compatible” with the statistics disclosed by YY, we should have had a daily average daily

number of Concurrent Users Online of approximately 2.5 million10 (vs. 750,000 thousand observed / Not cleaned

For BOTs)

3.3

The number of real Daily Active Users (DAU) does probably not exceed the 5.5 million users.

Per 20-F filed for the Fiscal Year ending December 31, 2012 (page 73), YY “had 10.3 million, 13.5 million and

19.1 million average daily active (DAU) users on YY Client in December 2010, 2011 and 2012”, representing a yoy

growth rate of 31% and 41% respectively. At such a pace of growth, we can assume the average DAU11

on the YYClient in May 2014 were at least 35 million.

• According to our dataset, during the month of May 2014, the average number of concurrent users online

for the period was approx. 0.759m12 (0.380m if number cleaned for BOTs). With this statistic at hand and

making an assumption on the time an average users spends online during the day, we can compute the real

DAU.


approximately 51.7 hours (103.4 minutes/day13

) on YY Client in September 2012”

o It follows that the MAU implied by our dataset (no cleaned for BOTs) is < 10.57m users

0.759m * 60 minutes * 24 hours / 103.4 minutes/day = 10.57m MAU

o It follows that the DAU implied by our dataset (cleaned for BOTs) is < 5.29m users

0.380m * 60 minutes * 24 hours / 103.4 minutes/day = 5.29m DAU

As you have probably noticed, the 10.57m and 5.29m computed here for DAU correspond also to the Average

Monthly Users (AMU) implied by our dataset. In this section we just shows that the reported DAU is misleading

since it cannot be > than the true/real AMU (Number analyzed in the Section before).

For our data to be “compatible” with the statistics disclosed by YY, we should have had a daily average daily

number of Concurrent Users Online of approximately 2.5 million14 (vs. 750,000 thousand observed / Not

cleaned For BOTs)

10 Number computed as following: 35m DAU * 103.4 minutes/day / 60 minutes / 24 hours = 2.51m 11 please note that the Company did not report this statistic for FY 201312 Computed by taking the average of all the observation we had during the sample period (May 2014) 13 Converting Average time spent per month to average time spent per day, does probably result in overstating the number of

DAU , because it is likely that people use YY for let’s say 4 hours during one day while some other days they do not use it at all.

When a user uses YY therefore, the average daily time he spends on the channel is likely > than 103.4 minutes.14 Number computed as following: 35m DAU * 103.4 minutes/day / 60 minutes / 24 hours = 2.51m

- 11 -

http://www.sec.gov/Archives/edgar/data/1530238/000119312513175559/d465806d20f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312513175559/d465806d20f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312513175559/d465806d20f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312513175559/d465806d20f.htm


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4. Thesis 2: Observed real concurrent number of users online casts doubts on the abilityof YY to plausibly generate the reported Revenues.

2013, IVAS revenues accounted for 91% of YY’s total revenue and are primarily comprised of revenues from the

paying users of online music and entertainment , online games and, to a lesser degree, our membership subscriptions

and live game broadcasting. During the same period, IVAS revenues from online music and entertainment (99.46m

USD) and online games (33.899m USD) accounted for 79.8% of YY’s total revenue. (20-F filed for the Fiscal Year

ending December 31, 2013 (page 85)). YY webgames and entertainment are based on the freemium model.

Monetization is via the sale of virtual items or value added services.

4.1

2014 Q1 Users Conversion Rate on online music and entertainment Channels looks like “Mission

Impossible”

During the Q1 of 2014, “ Revenues from online music and entertainment increased by 228.0% to RMB383.1

million (US$61.6 million) … This increase primarily reflected a 103.2% year-over-year increase in the number of paying users to 1,006,000 and an increase in ARPU of 61.4% to RMB381 in the first quarter of 2014” (6-K Ex-99.1

Q1 2014 Unaudited Financial results (page 2))

Presented in the image below is the number of concurrent online users we observed during the Month of May 2014

for online music (TabID_1005) and entertainment (TabID_1001) - (Not cleaned for BOTs):

As you can see, in these two categories we never observed more than 0.657m concurrent online users during the

month of May 2014. According to our dataset, during the month of May 2014, the average number of concurrent

users online on online music and entertainment channels for the period was approx. 0.265m. The number cleaned

for BOTs is 0.142m

- 12 -

http://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000110465914035425/a14-11939_1ex99d1.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000110465914035425/a14-11939_1ex99d1.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000110465914035425/a14-11939_1ex99d1.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000110465914035425/a14-11939_1ex99d1.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000110465914035425/a14-11939_1ex99d1.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000104746914002498/a2219031z20-f.htm


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4.1.1 Proving the ridiculousness of the YY disclosed Revenues from online music andentertainment for Q1 2014 (Data not cleaned for BOTs):



) on YY Client in September 2012”. For

simplicity, we assume that this number has remained constant over the years. Because YY is

pitched as a “highly engaging” social media platform (as described by the Company), itseems plausible that the average user (mostly teenagers) can spend approximately 51.7 hours

online per month.

o It follows that the MAU (on online music an entertainment channels) implied by our dataset

(no cleaned for BOTs) is 3.69m users


o Assuming the 1,006,000 paying users were equally distributed over the 3 months of the

quarter, it follows that the average monthly paying users are 335,333.33

o It follows that 9.08% of the monthly users during a month use the YY Entertainment and

music channels are turned into paying users for that month.

o If you compute it on a quarterly basis, assuming the average YY Entertainment and Music

users spend on average 1 hour on the platform, the percentage of paying users becomes

15.72%16

Quite high statistics if you consider that for the U.S. SuperData estimates conversion rates (i.e. the ratio of paying

users to total users) for social gaming platforms17 rose at 2.3% in April 2014 (up from 1.9% six months earlier). If

you take Zynga, Inc. for example: “that percentage has stuck right around 2% since 2011.” (Link )

The story gets worse if you clean for BOTs the concurrent users online on online music and entertainment

channels (next page).

15 Converting Average time spent per month to average time spent per day, does probably result in overstating the number of


When a user uses YY therefore, the average daily time he spends on the channel is likely > than 103.4 minutes.16 Computed as follow: (1.006m paying users per quarter) / ((0.265m * 24 hours * 30 days * 3 quarter) / (1 hour per day * 90

days per quarter))17 We assume that for Karaoke platforms such as YY Music and Entertainment channels, conversion rates should not differ much

than on Social Gaming Platforms (to be confirmed)

- 13 -

http://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.superdataresearch.com/blog/us-digital-games-market/http://www.superdataresearch.com/blog/us-digital-games-market/http://www.superdataresearch.com/blog/us-digital-games-market/http://finance.yahoo.com/q?s=ZNGAhttp://finance.yahoo.com/q?s=ZNGAhttp://finance.yahoo.com/q?s=ZNGAhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://finance.yahoo.com/q?s=ZNGAhttp://www.superdataresearch.com/blog/us-digital-games-market/http://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htm


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4.1.2

Proving the ridiculousness of the YY disclosed Revenues from online music and

entertainment for Q1 2014 (Data cleaned for BOTs):



) on YY Client in September 2012”. We

assume that this number has remained constant over the years. Being YY a high engagement

social media (as described by the Company), it seems plausible that the average user (mostly

teenagers) spend 51.7 hours online per month.

o It follows that the MAU (on online music an entertainment channels) implied by our dataset

(not cleaned for BOTs) is 1.98m users


o Assuming the 1,006,000 paying users were equally distributed over the 3 months of the

quarter, it follows that the average monthly paying users are 335,333.33

o It follows that 16.93% of the monthly users during a month use the YY Entertainment and

music channels are turned into paying users for that month.

o If you compute it on a quarterly basis, assuming the average YY Entertainment and Music

users spend on average 1 hour on the platform, the percentage of paying users becomes

29.34%19


users to total users) for social gaming platforms rose at 2.3% in April 2014 (up from 1.9% six months earlier).

18 Converting Average time spent per month to average time spent per day, does probably result in overstating the number of


When a user uses YY therefore, the average daily time he spends on the channel is likely > than 103.4 minutes.19

Computed as follow: (1.006m paying users per quarter) / ((0.142m * 24 hours * 30 days * 3 quarter) / (1 hour per day * 90

days per quarter))

- 14 -

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Key conclusions from this data are as follows:

1) YY generates a majority of its revenues from “whales.” Given the high revenue concentration amongst its

paying user base, there is significant risk to future revenues should these “whales” churn off the platform;

2)

High paying ratios suggest that future revenue growth maybe limited given paying users are fully saturated

in terms of numbers and ability to pay more;

3) If we believe conversions are around 2.3%, than YY is significantly overstating their revenues.

4.2

Analyzing 2014 Q1 Revenue from the online games business


users to total users) for social gaming platforms rose at 2.3% in April 2014 (up from 1.9% six months earlier).

If you take Zynga, Inc. for example: “{this} percentage has stuck right around 2% since 2011.” (Link )

Similar to Music and Entertainment, key conclusions from this data are as follows:

1)

YY generates a majority of its revenues from “whales.” Given the high revenue concentration amongst its

paying user base, there is significant risk to future revenues should these “whales” churn off the platform;

2) High paying ratios suggest that future revenue growth maybe limited given paying users are fully saturated

in terms of numbers and ability to pay more;

3)

If we believe conversions are around 2%, than YY is significantly overstating their revenues.

Below chart shows that reported ARPU continues to grow. Given our data analysis, this calls into question the

validity of the reported numbers.

- 15 -

http://www.superdataresearch.com/blog/us-digital-games-market/http://www.superdataresearch.com/blog/us-digital-games-market/http://www.superdataresearch.com/blog/us-digital-games-market/http://finance.yahoo.com/q?s=ZNGAhttp://finance.yahoo.com/q?s=ZNGAhttp://finance.yahoo.com/q?s=ZNGAhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://www.fool.com/investing/general/2014/02/10/how-many-zynga-players-pay-to-play.aspxhttp://finance.yahoo.com/q?s=ZNGAhttp://www.superdataresearch.com/blog/us-digital-games-market/


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5 Thesis 3: YY could have overstated its bandwidth costs to keep up with the pretense ofincreasing users, when in fact user count is significantly lower ( Tentative / difficult to prove )

YY is overstating its bandwidth costs. Why? In order to match booming user growth, they need to grow

bandwidth costs as well. If they overstates in one area they must overstate in others to make the “lie” seem

real

5.1 Data Not Cleaned for BOTs

• May 2014, our proprietary dataset suggests total users accounted for approximately 32 billion voice

minutes. –> Therefore, we assume 98 billion voice minutes per quarter. Assumption for Q1 2014 is that the

average monthly contribution is around 32.7 billion voice minutes. We computed the May 2014 voice

minutes spent on YY channels as follows:

o

Computation: = 32.7 b {Voice Minute} =(759,000 Average Concurrent Users Online over themonth period {Month * Voice Minute / Minute }) * 60 {Minute/hour} * 24 {hours/day} *30

{day/month)

• 6-K Ex-99.1 Q1 2014 Unaudited Financial results (page 2) states YY bandwidth costs increased by 44.7%

to RMB63.1 million (US$10.1 million) in the Q1 2014.

• We can back out the average bandwidth requirements in Gigabytes by opening Internet Explorer (or any

other web browser) and run the YY.com in the URL. Alternatively, as we will show, we can observed the

required bandwidth also by watching a channel on the YY Desktop Client itself.

o Per our Internet Explorer the typical bandwidth requirement for running YY.com (or “Streaming

Speed”) is < 40 KB/S (=download + upload rate. we have test in other browsers and speeds are

similar)

o 32.7 billion Monthly Voice Minutes at an average bandwidth usage of 40 KBps corresponds to a

235.44 million GB streamed per quarter

o at a price of $0.025 USD/GB

o The total Bandwidth cost for YY should amount to ~$5.8 million.

o The Quarterly bandwidth cost reported by YY is ~$10.1 million20.

• Even if we ignore BOTs, we believe YY might be overstating Bandwidth costs by ~74%.

20 Please note that we estimated the Bandwidth cost for YY based on usage data observed in May 2014, while the reported costs

for Q1 2014 were based on usage from January to March 2014. If we assume an increasing usage of YY in Chinas (as the

Company is reporting), we have probably underestimated the difference between the real bandwidth costs and those reported by

YY in its SEC Filings.

- 16 -

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*. Assuming price is 50% of the rates publicly offered by Amazon for much lower Data volumes (refer to

economy of scale): http://calculator.s3.amazonaws.com/index.html

*. Volume Streamed in GB = 1620b seconds (s) * Streaming Speed (kbps) / 1.00E-06 (kbps/gbps)

0.025 USD/GB seems also to be in line with statistics previously reported by the Company in its F-1/A

filing dated November 16, 2012:

5.2 Data Cleaned for BOTs

• May 2014, our proprietary dataset suggests real total users (excluding BOTs) accounted for approximately

32 billion voice minutes. –> Therefore, we assume 98 billion voice minutes per quarter. Assumption for

Q1 2014 is that the average monthly contribution is around 32.7 billion voice minutes. We computed the

May 2014 voice minutes spent on YY channels as follows:

o Computation: = 16.4 b {Voice Minute} =(380,000 Average Concurrent Users Online over the

month period {Month * Voice Minute / Minute }) * 60 {Minute/hour} * 24 {hours/day} *30

{day/month)

o 16.4 billion Monthly Voice Minutes at an average bandwidth usage of 40 KBps corresponds to a

1180.08 million GB streamed per quarter

- 17 -

http://calculator.s3.amazonaws.com/index.htmlhttp://calculator.s3.amazonaws.com/index.htmlhttp://calculator.s3.amazonaws.com/index.htmlhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://www.sec.gov/Archives/edgar/data/1530238/000119312512473659/d222007df1a.htmhttp://calculator.s3.amazonaws.com/index.html


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o at a price of $0.025 USD/GB

o The total Bandwidth cost for YY should amount to ~$2.95 million.

o The Quarterly bandwidth cost reported by YY is ~$10.1 million21.

• When BOTs are taken into consideration, YY might be overstating their Bandwidth costs by ~242%.

5.3 Detecting the Streaming Speed to compute the required bandwidth usage

To detect the required bandwidth for YY users (and YY itself) we connect to a channel FOR 15 minutes and observe

how much data this task causes us to download.

21 Please note that we estimated the Bandwidth cost for YY based on usage data observed in May 2014, while the reported costs

for Q1 2014 were based on usage from January to March 2014. If we assume an increasing usage of YY in Chinas (as the

Company is reporting), we have probably underestimated the difference between the real bandwidth costs and those reported by

YY in its SEC Filings.

- 18 -


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After 15 minutes on the website, the amount of data downloaded was 35.7 MB, representing download rate of 39.66

KB/s:

For the YY Desktop client the bandwidth requirements are (as expected ) similar. After 15 minute on the following

Channel, the amount of data downloaded was 27.2 MB, representing download rate of 30.20 KB/s:

- 19 -

http://www.yy.com/yy6/http://www.yy.com/yy6/http://www.yy.com/yy6/http://www.yy.com/yy6/


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On Channels where there is no video streaming (but only image streaming = images/pics + audio) as in the

following example, the bandwidth requirements are substantially lower. After 15 minute on the following Channel,

the amount of data downloaded was 3.46 MB, representing download rate of 3.84 KB/s:

- 20 -


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- 21 -


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6 APPENDIX I: Integrity Check – Are we Scraping all the live Channels?

Both, the YY webpage as well as the YY web-based-client, retrieve the live/streaming channels indexes from the

following source:

http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-

cn&startIndex=0&count=50&sortType=1&tabId=XXXX

, where XXXX denotes the Channels category/group.

XXXX = 1001 -> Entertainment

XXXX = 1002 -> Games

…. and so on …

In order to detect all the active categories on YY, we decided to test the hyperlink reported above for all the possible

XXXX combinations (TabId(s)). When non assigned TabId(s) are entered into the link, the following “empty”

index page is returned:

On the other hand, when a TabId corresponds indeed to a YY Channel Category, a list of all the live streaming

Channels belonging this Category is returned (inclusive of various statistics):

We performed this task for 10998 possible XXXX combinations. Results (for 2014/05/26) have been uploaded to

the following Excel File.

(2014/05/26) Out of the 10998 possible XXXX combinations, only 8 TabId(s) resulted to be active (Excel File),

namely:

To validate our Scraping methodology, we performed the integrity check on multiple dates, with results being the

same each time. Testing Dates: 2014/05/17 – 2014/05/24 – 2014/05/26 – 2014/06/08.

- 22 -

http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttps://www.dropbox.com/s/oio5gxj95swutnu/TabsScraping.xlshttps://www.dropbox.com/s/oio5gxj95swutnu/TabsScraping.xlshttps://www.dropbox.com/s/oio5gxj95swutnu/TabsScraping.xlshttps://www.dropbox.com/s/0wm5sfr7dzkaq00/WorkingTabs.xlshttps://www.dropbox.com/s/0wm5sfr7dzkaq00/WorkingTabs.xlshttps://www.dropbox.com/s/0wm5sfr7dzkaq00/WorkingTabs.xlshttps://www.dropbox.com/s/0wm5sfr7dzkaq00/WorkingTabs.xlshttps://www.dropbox.com/s/oio5gxj95swutnu/TabsScraping.xlshttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXXhttp://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=50&sortType=1&tabId=XXXX


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The following Matlab Script was used to perform the integrity check :

Since we have been scraping data for TabId(s) 1001 / 1002 / 1005 / 1006 / 1008 / 1010 / 1014 / 1016 , the results

yielded by the integrity check presented above, do confirm the completeness and validity of our database.

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7 APPENDIX II: Hypothesis: The ipUsers Variable – denotes the number of Unique IPs

connected to the Channel (Trial&Error validation).

What are ipUsers versus Users. Embedded deep in the YY.com source code shows the count for both. We believe

ipUsers represent the actual number of users (number of unique IPs) whereas users is an inflated count (most likely

by BOTS) – users are shown directly on the website. Hence the true number of users is dramatically overstated by

YY.

• Deep in the YY.com source code, one can see that the YY developer has delineated users from ipUsers

• In every case users > ipUsers. These figures and the delta can dramatically vary over time,

• By conducting a Google search on ipUsers is often used to provide a list of users from a specified IP

address

o For non-tech savvy folks, each computer has a single IP address

o Hence it is fair to assume that a single user can be represented by a single IP address

o Even if the user opens multiple YY.com instances on multiple web browsers and the YY.com

client s/w, that computer will be counted as a single IP

• We believe that users are shown on the website and the number of users is inflated by BOTS. The true

number of users is sensibly lower, which is represented by ipUsers

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Testing the Hypothesis:

1.

We choose an Entertainment Channel (Tab1001) on which we test our hypothesis. The Channels SID is

27911725:

The number of users on the Channels is reported to be 5. The variable ipUsers also reports the value of 5,

and, per our hypothesis, it does indicate that 5 unique IP addresses are connected to the Channel.

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2. As soon as we open the channel in Google Chrome (http://www.yy.com/27911725/), the number of online

users is reported to be 6 (since we entered the Channel):

3. The source for the indexes

(http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-

cn&startIndex=0&count=1500&sortType=1&tabId=1001), does take approximately 60 seconds to update.

In the meantime, apparently another user (in addition to us) joined the Channel. The reported number of

users on the Channel is therefore now 7.

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http://www.yy.com/27911725/http://www.yy.com/27911725/http://www.yy.com/27911725/http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://live.yyembed.yy.com/live/liveList?from=pc&uid=2124835362&version=1&lang=zh-cn&startIndex=0&count=1500&sortType=1&tabId=1001http://www.yy.com/27911725/


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The number of users on the Channels is reported to be 7. The variable ipUsers is 7.

4. We now open the Channel with IE from the same computer where we already have the Channel open (in

Chrome). This means that we are twice on the Channel while accessing it with/from only 1 unique IP

Address. According to our hypothesis, since ipUsers reports the number of unique IPs Addresses connected

to the Channel, we now should observe a difference of 1 unit between the value reported for users and the

value reported for ipUsers:

As expected, now the value of ipUsers (5) is smaller by 1 unit than the value shown for users (6). This is in

line with the fact the we are twice online on the Channel from the same Computer (i.e. Same IP Addres).

The perfomed experiment seems indeed to validate our hypothesis, namely that the variable ipUsers does

report the number of Users connected from an unique IP Addres.

Per definition, BOTs are artificial fake mass users automatically generated and therefore connected

from a single IP Address.

Here the test performed on another Channel, still validates our hypothesis:

Let’s see how the use of BOTs does Work:

After 19 minutes since the start of the streaming, you can see boots in action:

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After 29 minutes since the start of the streaming, you can see boots in action (before this observation quite the

Channel you can see that ipUsers dropped to 2 (from 3)):

AFTER 29 Minutes we had a total of 219 users Online connecting from only 2 IPs. This is Clearly

BOTs at work! during the first 30 minutes of the Streaming!

I now did re-enter the Channel: After 33 minutes from the start of the streaming, you can see that now

that I am re-connected the ipUsers variable has increased by 1 again (to 3):

After 37 minutes the first real (other than me) user probably entered the Channel: you can see the ipUsers

Variable increasing to 4. Fake Users Bot Creation seems to have ceased once the 220 fake online users was

reached.

You can see that the 99% of the 221 users displayed online are fake users also from the lack of activity on the

Chat-window of the Channel:

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Over a period of 7 minutes (see following 2 screenshots), only 5 messages were posted in the Chat-box. 2 of

the messages were written by the Anchor of the Channel, while the other 3 were posted by another user. Not

the kind of activity you would expect on a channel with 220 users online.

Here is another Example of how BOTs distort reality.

The following Channel is reported to have >3,800 online users, when in fact … the true is … that only 56 IPs

(ipUsers) are connected to the website:

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You can also see that most of the Users Online are fake users … by the lack of activity in the Chat-room: 4

message per minute on a chat with >3,800 users? … Are you kidding … right?

Next Test could be to … perform the Test from the same Network (IP Address) but on different Devices

(i.e. 4 Desktops).

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8 APPENDIX III: Having Multiple Real users using the Same IP is not common - Assome popular channels help us to demonstrate.

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9 APPENDIX IV: 6.CN, KUWO and YY – A comparison22

22 Please, note that 6.cn and KUWO are mainly only Music and Entertainment. Total Concurrent Online users for YY presented

in these two charts are however inclusive of all the eight YY categories.

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10 APPENDIX V: YY Education - The Old Version was … nothing more than a JOKE!

To access the Educational area of YY, users need to open the following website: http://edu.yy.com/

A complete list of the Courses offered on YY is available at this link: http://edu.yy.com/course Please note that

there are many Pages. Starting Date and Price of the Course are also indicated.

By clicking on a channel, you will be directed to the main page of the specific channel where more details are

presented. Among other details, you can find the number of users that bought the course as well as the price/fee for

the course (again).

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http://edu.yy.com/http://edu.yy.com/http://edu.yy.com/http://edu.yy.com/coursehttp://edu.yy.com/coursehttp://edu.yy.com/coursehttp://edu.yy.com/coursehttp://edu.yy.com/


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05/24/2014 there was a total of 858 courses in the YY Directory. Please note we discovered that some of the courses

displayed in the Directory/Index are no longer online (i.e. the link to the course is not working 23). The total number

of courses with a broken link was 31. We therefore removed these Courses from our Dataset. Accordingly, the totalnumber of “real” courses “offered” is considered to be 827. On the website there are Courses already started (as old

as 1 year) and course yet to start (as far in the future as 2020).

Some Statistics

• The total Purchases among all the 827 courses have been 14,669 (times)

• The total amount of money spent on all the 827 courses has been RMB 4,355,398 (approx. USD 698,370)

• 475 of the 827 courses have already started. The total number of purchases for these courses has been

10,233 for a total gross revenue of RMB 3,057,339 (approx. USD 490,232)

• Interesting is that 276 of the 475 channels have been purchases 0 times.

• On average, the 475 course have started 110 days ago!

The Fact that 475 Courses with an average life of 110 days has been able to generate only USD 490,232 in

Gross Revenue JUST shows us … how ridiculous is the EDUCATIONAL SEGMENT of YY!

IN 48 Hours Education Channels generated only RMB 138,776 in gross subscriptions/purchases (about

$22k)!

… Only 12 Channels were added.

23 To verify it yourself, please go to http://edu.yy.com/course?type=0&listType=1&priceDesc=2&pageNumber=36 and try to click on

some course. As you can see, some of the link are simply not working / down.

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http://edu.yy.com/course?type=0&listType=1&priceDesc=2&pageNumber=36http://edu.yy.com/course?type=0&listType=1&priceDesc=2&pageNumber=36http://edu.yy.com/course?type=0&listType=1&priceDesc=2&pageNumber=36http://edu.yy.com/course?type=0&listType=1&priceDesc=2&pageNumber=36


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11 APPENDIX V: Some additional Statistics.

YY has stated that it has millions of concurrent users in a single channel. We will show you that during the period

from November 26 to December 9, 2013 no single channel had the capacity to host more than 50,000 concurrent

users!

• “We believe that our proprietary technology infrastructure was the first to develop the capacity to support

simultaneous communications among millions of concurrent users in a single channel.”

• In the data we observed, every channel on YY had a limit to the maximum number of users allowed to be

online. We believe that the limit is put in

• During the Observation Period, on no Gaming Channel more than 200,000 users were allowed. The

average number of user allowed per Gaming Channel was slightly below 10,000.

• Here is the Distribution for a Specific observation during peak hours:

• As one can see, less than 5% of the Gaming Channels was allowed to host more than 100,000 users, while

more than 68% of the Channels could host no more than 300 users. Total Channels 1159.

• More Problematic is the number of users allowed to join a single Entertainment Channel. No

Entertainment Channel (during the 2 weeks observation Period) was allowed to host more than 10,000

users. 10,000 users was the standers limit for 99.9% of the Entertainment Channels.

Gaming and Entertainment are the biggest segments with many channels. Even when aggregating these

channels over time, we can never get close to millions of concurrent users. Per YY, “Each of our channels can

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support millions of people concurrently, and to date, the largest online event we hosted attracted approximately

1.4 million peak concurrent users in a single channel.”

Tester 1

• Maximum number of users we observed in a single Channel is not as high as the company wants investors

to believe:

• Per tester 1, the average number of Users Online per Game Channel is: 190.331

• The average number of Users Online per Entertainment Channel is: 364.47

• Games Channels rarely do have more than 100k users online. Here is the number of users online for the

Gaming Channel with most users at each observation point:

• We never observed an Entertainment Channel with more than 14,000 users online. Here is the number of

users online for the Entertainment Channel with most users at each observation point:

• The company Claims to be able to Monetize only on Channels with more than 1000 users online. The

problem is that … very few channels do have such a user base. During Peak hours, no more than 70

Entertainment Channels do have > 1000 users online.

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YY itself … seems to be a little bit confused about its own statistics!

In its F-1 Filing dated October 15, 2012 YY disclosed that users spent a total of 393.0 billion voice minutes on the

YY Client (Where “Voice Minute” means a minute in which the user is using our voice- or video-enabled services,

such as listening to or talking on YY channels) . … to be continued

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Tester 2 has been scraping the number of concurrent online users (not cleaned for BOTs) for Entertainment

(TabID_1001) and Games (TabID_1002) since October 2013, confirming the findings of Tester 1

• Ran data analysis from October 2013 to February 2014 and never observed concurrent users greater than

1.4M concurrent users in any given channel

• Scraped for Entertainment and Gaming, the biggest segments with the most channels, and the maximum

concurrent users for Entertainment and Gaming around 800K and 350K. This occurred during News Years

• However this occurred only once during the entire period of analysis

• Per our data, Entertainment and Gaming account for approximately 80% of all users on YY platform

Tester 2: Data of concurrent users, aggregated for Entertainment and Gaming Channels

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Tester 2’s take on YY Reported APRU

• YY Gaming ARPU as reported is significantly higher than incumbents such as Giant and Tencent

• Tencent MMORPG and Giant monetization is provided above. Giant is a large distributed of MMORPG

games. MMORPG games monetize approximately 100% to 200% more than casual games. MMORPG

games are must more advanced, higher production value, and immersive so makes sense that it monetizes

higher (think games such as World of Warcraft etc)

• However Duowan.com platform distributes all times of games from MMORPG to causal games. ARPU

should not be higher than Tencent MMORPG or Giant

• Highly possible that YY Gaming is overstated

Source: Giant Filings and Tencent filings
http://www.duowan.com/http://www.duowan.com/http://www.duowan.com/http://online.wsj.com/article/PR-CO-20140521-917114.htmlhttp://online.wsj.com/article/PR-CO-20140521-917114.htmlhttp://online.wsj.com/article/PR-CO-20140521-917114.htmlhttp://www.tencent.com/zh-cn/content/ir/fs/attachments/TencentHistoricalOperatingMetrics.xlshttp://www.tencent.com/zh-cn/content/ir/fs/attachments/TencentHistoricalOperatingMetrics.xlshttp://www.tencent.com/zh-cn/content/ir/fs/attachments/TencentHistoricalOperatingMetrics.xlshttp://www.tencent.com/zh-cn/content/ir/fs/attachments/TencentHistoricalOperatingMetrics.xlshttp://online.wsj.com/article/PR-CO-20140521-917114.htmlhttp://www.duowan.com/

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