JOYY Inc.'s Q2 2025 Earnings: Navigating a Strategic Shift in a Maturing Market

JOYY Inc.'s Q2 2025 earnings report paints a complex picture of a company in transition. While live-streaming revenue—a once-dominant pillar of its business—declined by 10.1% year-over-year to $375.4 million, the firm's non-livestreaming segment, primarily driven by advertising, surged by 25.6% to $132.4 million. This shift underscores a strategic pivot toward ad tech as a counterbalance to the secular decline in its core livestreaming business. However, the sustainability of this pivot hinges on two critical questions: Can JOYY's advertising business scale to offset shrinking user engagement? And in a maturing user base, can it maintain profitability while competing with global ad-tech giants like Meta and Google?

The Dual-Engine Strategy: Profitability Gains, but Revenue Pressures Loom

JOYY's Q2 results highlight a disciplined approach to cost management and margin expansion. Operating income jumped 155.4% to $5.8 million, while non-GAAP operating margins improved to 7.5% from 5.3% in Q2 2024. These gains were driven by a 9.5% reduction in operating expenses, particularly in sales and marketing ($71.9 million vs. $88.1 million) and R&D ($60.1 million vs. $69.9 million). Gross margins also rose to 36.5%, reflecting lower content costs and revenue-sharing fees.

Yet, the company's reliance on cost discipline to mask underlying revenue challenges is a double-edged sword. Live-streaming revenue, which accounted for 74% of total revenue in Q2 2025, continues to erode due to declining paying users (down to 1.45 million in Q1 2025 from 1.67 million in Q1 2024) and falling average revenue per paying user (ARPPU). This trend is exacerbated by regulatory adjustments in non-core audio livestreaming products and a strategic shift toward ROI-focused marketing. While these moves have improved profitability, they signal a maturing user base that is no longer expanding at the same pace.

Ad-Tech as a Lifeline: Growth, but Structural Risks Remain

JOYY's BIGO Ads platform has emerged as a bright spot, growing 29% year-over-year to $132.4 million in Q2. This growth is fueled by AI-driven ad targeting, which enhances advertiser ROI and creates a flywheel effect: better performance attracts more advertisers, which in turn refines algorithms further. The company's 262.5 million mobile monthly active users (MAUs) provide a substantial inventory base, albeit one that has declined 4.7% year-over-year.

However, the ad-tech market is fiercely competitive. Meta and Google, with their massive user bases and AI-driven ad ecosystems, dominate the space. In Q2 2025, Meta's ad revenue hit $46.6 billion (up 21% YoY), while Google's ad revenue reached $71 billion (up 10% YoY). Both companies leverage AI to optimize ad performance, with Meta's Andromeda system boosting Instagram and Facebook conversions by 5% and 3%, respectively. JOYY's ad-tech ambitions must contend with these titans, whose scale and resources dwarf its own.

User Base Maturation: A Double-Edged Sword

JOYY's user base is maturing, with global MAUs for its social entertainment platforms dropping to 260.4 million in Q1 2025 from 277.3 million in Q1 2024. This decline reflects a deliberate shift toward quality over quantity, as the company prioritizes ROI-driven marketing and user retention. For instance, Bigo Live's MAUs fell to 28.9 million from 37.1 million, while Likee's dropped to 30.2 million from 37.5 million. These figures suggest a focus on stabilizing a high-quality user base rather than chasing rapid growth.

Yet, this maturation poses risks. A shrinking user base limits the scalability of ad inventory, even with improved targeting. For example, Hago's MAUs plummeted to 3.3 million from 4.5 million, raising concerns about engagement in its core markets. While JOYY's CEO, Ting Li, emphasizes diversification into AI-driven ad tech, the company's ability to sustain ad revenue growth depends on whether it can reverse user attrition or expand into new markets.

Long-Term Value: Can Ad-Tech Offset Live-Streaming Decline?

JOYY's long-term value proposition rests on its ability to transform from a livestreaming-centric business to a diversified ad-tech player. The company's $3.3 billion in net cash provides flexibility for reinvestment or strategic acquisitions, and its shareholder returns—$98.5 million in dividends and $36.5 million in buybacks in H1 2025—signal confidence in its capital allocation strategy.

However, the path to ad-tech dominance is fraught with challenges. First, the ad-tech market is highly competitive, with Meta and Google dominating programmatic advertising. Second, JOYY's user base is shrinking, which could constrain ad inventory growth. Third, the company's long-term EPS outlook remains bleak, with a projected annual decline of 76.9% unless BIGO Ads becomes a reliable growth engine.

Investment Implications: A Cautious Bull Case

JOYY's strategic shift to ad tech is commendable, but investors must weigh the risks. The company's strong balance sheet and cost discipline are positives, but its ability to scale BIGO Ads in a crowded market remains unproven. A key catalyst will be whether ad revenue can grow at a rate that offsets the decline in live-streaming. If BIGO Ads achieves 30%+ YoY growth for two consecutive quarters, it could signal a viable transition. Conversely, if user attrition accelerates or ad-tech growth stalls, the stock may underperform.

For now, JOYY offers a speculative opportunity for investors willing to bet on its ad-tech pivot. However, given the structural risks in its core business and the dominance of larger rivals, a cautious approach is warranted. Positioning for a long-term hold, with a focus on ad-tech traction and user retention metrics, may be prudent.

In conclusion, JOYY's Q2 2025 results highlight a company in flux. While its ad-tech ambitions and profitability gains are promising, the sustainability of its non-livestreaming growth remains an open question. Investors should monitor user engagement trends, ad-tech scalability, and competitive dynamics before committing capital.