Yalla Group Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 12, 2024

There are 8 speakers on the call.

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded.

Operator

Now, I would like to turn the call over to your speaker host today, Mr. Logan Yee, IR Manager of the company. Please go ahead, sir.

Speaker 1

Hello, everyone, and welcome to Yalla's 2nd quarter 20 24 earnings conference call. We released our earnings press release earlier today, and the release is now available on our IR website as well as on newswire outlets. Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor provision of the U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in our earnings release and our annual report filed with the SEC. Yalla does not assume any obligation to update any forward looking statements, except as required by law. Please also note that Yalla's earnings release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non GAAP financial measures.

Speaker 1

Yalla's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. Officer, who will provide an overview of our latest achievements and growth strategy. He will be followed by Mr. Saifu Ismail, the company's President, who will briefly review our recent business developments. Mrs.

Speaker 1

Karen Ku, our Chief Financial Officer, will then provide additional detail on the company's financial results and discuss our outlook. Following management's prepared remarks, we'll open the call to questions. Mr. Jeff Xu, our Chief Operating Officer, will join the Q and A session. With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr.

Speaker 1

Tao Yang. Please go ahead, sir.

Speaker 2

Thank you, everyone, for joining our Q2 2024 earnings conference call. We are pleased to report strong Q2 results even with the impact of lockdown which lasted from March 11 through April 9 this year. Our 2nd quarter revenues reached RMB81.2 million beating the upper end of our guidance. This outstanding performance underscores the remarkable clarity of our flagship applications, Yalla and YallaLunio, as well as our effective strategy for high quality growth. Our operating efficiency improvements are also yielding positive results, elevating our net margin to 38.6% in the second quarter.

Speaker 2

Throughout the Q2, we remained dedicated to enhancing our operational procedures, boosting user engagement, optimizing technology utilization to improve efficiency, and refining our user acquisition strategy. This effort has empowered us to build a more engaged community of users who activate high risk to spend on our content and services. Supported by our solid business fundamentals and dedicated team, we remain proud to capture new business opportunities and fulfill MENA users' evolving online social networking needs. The ongoing digital transformation in the Middle East continues to attract attention globally in this year, with international tech companies keen to explore opportunities in the region. 2024 marks Yalla's 8th year in the Middle East and the 8th anniversary of our flagship product, Yalla.

Speaker 2

Over those years, Yalla has grown from our group's first watch chat product into the world's most downloaded watch chat app for 2023 based on deadhead.ai's research with a highly engaged and loyal user community. Keeping our user first leadership in mind, we have consistently created memorable experiences and forged deep connections with our users by iterating and upgrading our product to meet their evolving needs. Meanwhile, as an industry pioneer, we have helped propel the evolution and development of Internet products and the broader Internet sector in the Middle East region. We will remain committed to driving the Middle East digital transformation, seizing emerging opportunities and growing with our users and the industry as we lead the region development trends. Turning to Yalla Games development and future strategy.

Speaker 2

The gaming sector continues to demonstrate immense growth potential with the need MENA's thriving digital transformation. Yalla is capturing that potential with consistent investment in Mina's mid core and hardcore game market, attracting Mina users with a wider range of game options tailored to their unique preferences. This year, we have focused on the exploration and development of Midco and Asco games, where we can leverage the extensive exercise, talented workforce and abundant resources we have accumulated in the casual gaming sector. Our product teams are currently developing and refining a strong pipeline of self developed games that you expect throughout 2025. On a related note, we are proactively exploring AI technology applications to optimize our team's productivity, particularly in UI design, which has high requirements for detailed, time consuming artistic work.

Speaker 2

By harnessing the power of efficiency leading to substantial improvement in the team's capacity and facilitating faster innovation in product features and gameplay. We are excited about AI's transformative potential and we will continue to seek creative applications to close our business to drive product iteration and operational upgrades. As we mentioned on every call, our vision is for Yela to become the largest online social networking and entertainment company in MENA. This quarter represented another solid stress toward our region. I'm proud of the many first we have achieved in this region and its Internet industry, creating a better digital life for our loyal users in the Yalla community.

Speaker 2

Our commitment to MENA, its people and its rich culture is unwavering inspiring our team's ongoing generation of new ideas and new products to meet Minus users evolving needs and facilitate digitalization throughout the region. Now, I will turn this call over to our President, Mr. Saipi Espayil, for a closer look at our recent development.

Speaker 3

Community. Our average monthly active users increased by 14.1% year over year to 39,000,000 dollars Our 8th anniversary new users and loyal fans, alike with our Explore the World of Yalla event. This iconic online festival featured on the Apple Store and Google Store, boosting average daily consumption of gold coin games currency to our record highs for our investor event. We are also leveraging offline events to strengthen our product and brand awareness, including our global champion off line tournament series. The 2 tournaments we have thus far in Riyadh

Operator

Pardon me, we are having difficulties with the speaker line. Please stand by for just a moment while we reconnect Southeast line. Okay. One moment. Thank you.

Operator

Ladies and gentlemen, thank you for standing by. Thank you for your patience at this time. I will ask the President, Mr. Safi Ismail to continue. Just one moment.

Operator

Please proceed, Safi.

Speaker 3

Thank you. Hi, everyone. Our average EPS included by $1,000,000 reflecting our projects in Europe appeal. For example, The tournaments we held thus far in Riyadh and Bordeaux were match hits attracting over 150,000 registered players and garnering over winning positive feedback from participants. At Jour, we celebrated the success with a magnificent club show and push fine events like these, then gamers engagement with our products and enhance our brand influence locally.

Speaker 3

Further unlocking the region's potential. We also still announced that the Allah partnered with the Dubai Department of Economy and Tourism, DAT, the third Dubai sport and games festival DES in Hebron. As part of the collaboration, Yaluru hosted an online tournament game battle with DEF, attracting over 4,000,000 participants. We incorporated IH Dubai Landmarks and Temple and Toledo's interface, including theme sites, board teams and other frames, providing players an immersive gaming experience celebrating Dubai's vibrant culture. This collaboration underscores our commitment to innovation and promoting user experience.

Speaker 3

Finally, we're extremely honored to receive a prestigious Dubai Games Award at the MENA's Industry Awards 2024, held at the World renowned to be its World Summit. These awards celebrate the region's top talent in the game development, publishing and support services. Yellow Group was selected by a panel of 80 industry experts for the top spot in the Dubai Games superstar category, a testament to our remarkable success, influence and innovation in gaming as well as our commitment to fostering growth across in and gaming industry. I'm grateful to MENA Games Industry, of course, organization for their recognition and look forward to further shaping the industry future as the largest online social networking and gaming platform in the MENA region. In conclusion, throughout the past 8 years, we have established a strong presence in MENA by creating innovative products that allow local users to have it and references.

Speaker 3

We also consistently started extensive collaboration with local and with communities in the growth in the digital economy and the domestic industry. As seasoned leaders in online social networking and games, we are proud to play a key role in the MENA digital transformation. Always our vision is to become number 1 online social networking and entertainment platform in Sabina. With that, I will now turn the call over to to discuss our key financial and operational results.

Speaker 4

Thank you, Cecilia. Hello, everyone. Thank you for joining us today. Our financial performance remained robust through the Q2 of 2024. Our top line again exceeded our expectations and sustained our year over year revenue growth momentum as we strove for high quality development and user growth.

Speaker 4

Our consistent operating efficiency enhancements also continued to yield positive results. Our net income our net margin rose by 2.9 percentage points year over year to 38.6%, while net income increased by 10.9 percent to US31.4 million dollars By leveraging our solid business fundamentals, we will remain primed to capture new business opportunities and deliver sustainable value to our all stakeholders in the long run. Let's move on to our detailed financials for the Q2 of 2024. Our revenues were US81.2 $1,000,000 in the Q2 of 2024, a 2.5% increase from US79.2 million dollars in the Q2 of last year. The increase was primarily driven by the broadening of our user base and our enhanced monetization capability.

Speaker 4

Our solid revenue growth was also partially attributable to the significant increase in ARPU, which grew from US5.8 dollars in the Q2 of 2023 to US6.6 dollars in the Q2 of 2024. Now let's take a look at our costs and expenses. Our total costs and expenses were US51.6 million dollars in the Q2 of 2024, a 6.8% decrease from US55.3 million dollars in the same period of last year. Our cost and revenues increased by 2.5 percent to US29 million dollars in the Q2 of 2024 from US28.3 million dollars in the same period of last year, primarily due to higher commission fees paid to third party payment platforms as a result of increasing revenue generated. Cost of revenues as a percentage of total revenues remained relatively stable at 35,700,000 percent in the second quarter of 2024.

Speaker 4

Our selling and marketing expenses were US8.5 million dollars in the Q2 of 2024, a 31.4 percent decrease from US12.4 million

Operator

dollars in

Speaker 4

the same period of last year, primarily driven by our more disciplined advertising and promotion approach. Selling and marketing expenses as a percentage of total revenues decreased from 15.6% in the Q2 of 2023 to 10.5% in the Q2 of 2024. Our general and administrative expenses was CNY7.6 million in the Q2 of 2024, a 5.5 percent decrease from US8 $1,000,000 in the same period of last year, primarily driven by lower share based compensation expenses recognized in the Q2 of 2024. General and administrative expenses as a percentage of total revenues decreased from 10.1% in the second quarter of 2023 to 9.3% in the Q2 of 2024. Our technology and the project development expenses was US6.5 million dollars in the Q2 of 2024, a 1.6% decrease from US6.6 million dollars in the same period of last year, primarily driven by lower share based compensation expenses recognized in the Q2 of this year.

Speaker 4

Technology and product development expenses as a percentage of total revenue decreased from 8.3% in the Q2 of 23 to 8% in the Q2 of 2024. As such, our operating income was US29.6 million dollars in the Q2 of 2024, a 23.8% increase from US23.9 million dollars in the 2nd period in the same period of last year. Excluding share based compensation expenses, our non GAAP operating income in the Q2 of 2024 was US33.5 1,000,000 up 13.9 percent year over year. Our interest income was USD 7,100,000 dollars in the Q2 of 2024 compared with US4.6 million dollars in the same period of 2023, primarily due to an increase in the interest rates applicable to the company's bank deposits. Our income tax expenses was US5.8 million dollars in the Q2 of 2024 compared with US821000 dollars in the same period of last year.

Speaker 4

The increase was primarily due to implementation of UE corporate tax law, which is effective for the financial years starting on or after June 1, 2023. Moving to our bottom line. Our net income increased by 10.9% to US31.4 million dollars in the Q2 of 2024 compared with US28.3 million dollars in the same period of last year. Next, I would like to briefly review our liquidity and capital resources. Our cash position remains solid.

Speaker 4

As of June 30, 2024, we had cash and cash equivalents, restricted cash, term deposits and short term investments of US528.7 million dollars compared with US535.7 million dollars as of December 31, 2023. Under our USD150 1,000,000 share repurchase program that began on May 21, 2021, and has since been extended by our Board through May 21, 2020 5, we have accumulatively repurchased 3,972,876 ADS or Class A ordinary shares in open market cash repurchases, totaling approximately US35 point $5,000,000 as of June 30, 2024. Moving to our outlook. For the Q3 of 2024, we expect our revenues to be between US75 $1,000,000 US82 $1,000,000 The above outlook is based on the current market conditions and reflects company's management's current and preliminary estimates of the markets and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks for today.

Speaker 4

Operator, we are now ready to take questions.

Operator

Thank you. We will now begin the question and answer session. From Haitong International. Please go ahead.

Speaker 5

Thank you, management, for taking my questions and congratulations on a solid quarter. So could management elaborate more on the sales and marketing strategy and trends in 2024? Thank you.

Speaker 6

Hi, Sarah. Thank you for your question. We have insisted on quality growth strategy in 2024, which consistently optimizing our sales and marketing strategy and efficiency. This includes more detailed budget management, a focus on ROI and diversifying user acquisition channels online and offline among other things. As you can see from the financial report, our efforts have resulted in a solid improvement in our sales and marketing efficiency over the past 2 quarters.

Speaker 6

We think our sales and marketing expenses will remain at a similar level for the second half of twenty twenty four. Though we may launch new products for testing Q4, the feedback indicates we need to increase our sales and marketing budget to promote these products. We will adjust our guidance accordingly. Thank you.

Speaker 5

Thank you.

Operator

Our next question today will come from Xuqing Zhang of CICC. Please go ahead with your question.

Speaker 5

Hey, thanks management for taking my question. Congratulations on the solid quarter.

Speaker 4

You did well in the first half of this year. So how are the company's key products for me in Q3 and what's the management outlook for the full year in 2024? Thank you.

Speaker 2

Hi, Xuqing. Good morning. This is Yao. Thank you for your question. For 3Q 2024 according to what we have observed over the past month and a half, YEAH and YEAH Ludo, our flagship applications are performing well and stable as we continue to roll out new features and operating events.

Speaker 2

And you can also see the chat from the guidance we provided earlier. We think Q3 is likely to outperform Q2 at this point. On the margin side, the Yellow Lidl team is organizing a series of offline tournament across different cities in MENA to increase our brand's local impact, efficiently penetrate the market and reach more users through offline channels with higher ROI. So you can see that our operating efficiency is consistently improving. For the rest of 2024, I think we will maintain this solid and stable churn with improved efficiency.

Speaker 2

Hope this answers your question. Thank you.

Operator

Our next question will come from Shanghai Lee of CICC. Please go ahead.

Speaker 7

Hi, management. Thanks for taking my question and congratulations on a solid quarter. My question is about our game business. How should we view Yala Games strategy and could management share more color on your games' test feedback and the launch timeline? Thank you.

Speaker 6

Hi, Chunghao. Thank you for your question. For YOLA Games, this year we are allocating more resources to our in house teams to self develop products, mainly focusing on mid core games. We are accumulating valuable experience and broadening our team's expertise through this process, which will empower us to move forward with confidence in the future. We currently have 3 self development core games in our pipeline and plan to start testing by the end of this year.

Speaker 6

There we need some time to work on iterations based on the feedback we receive from the users before we start on scale promotions. Meanwhile, we are also proactively discussing collaborations with potential partners in the game industry. We let you know once there is anything we can share publicly. Thank you.

Operator

Our next question today will come from Kaifeng Jia of Citi. Please go ahead.

Speaker 7

Hi, management. Thanks for taking my question. I have a question about your overseas market. So would the company consider furthering your company's scope outside of the Mideast? Thank you.

Speaker 2

Hi, good morning, Kai Fueng. Thank you for the question. As always, we will remain dedicated to the Middle East market, while also keeping an eye on opportunities in other markets. For instance, we currently have patches which focuses on the South American market, which is one of our tasks to explore the overseas markets. Going forward, if we see that new products have popularization potential, not only in MENA, but also in other markets, we may consider conducting global promotions.

Speaker 2

However, our main focus is undoubtedly on the Middle East market where we have unique advantages and can continue to leverage our core capabilities to unlock our growth potential. Thank you very much.

Operator

Our next question today will come from Lincoln Kang of Goldman Sachs. Please go ahead.

Speaker 7

Thank you management for taking my question. So my question is about capital allocation. So how does company view in terms of the increase in the shareholder return versus continuing investing into any new initiatives or R and D process? Thank you.

Speaker 4

Hi, Lincoln. This is Karen. Thank you for your question. Yalla is dedicated to return value to shareholders through our share repurchase program. As of June 30, 2024, we have deployed a total of US35.5 million dollars for share repurchases.

Speaker 4

Given our solid fundamentals, we will continue to conduct our share repurchase program while considering cash dividend payments in due course. We will keep you posted if we have anything new to report. In terms of new initiatives, our strategy team is proactively looking into opportunities that may have synergies with our current businesses and fit with MENA culture and local users' needs, and we remain open to these possibilities. In short, we believe strongly in Yalla's long term potential and dedicated to generating value for all parties involved. I hope that this answers your question.

Speaker 4

Thanks.

Operator

The next question will come from Rachel Gao of Nomura. Please go ahead. And Rachel, your line is open.

Speaker 7

Hello. Good morning. Since management for taking my question, And can management please share with us any further plans in the future about this? Thank you.

Speaker 6

Hi, Rachel. Thank you very much for your question. Since the end of last year, our team has been hosting a series of online and offline NUDA tournaments with our local and global partners across several cities in MENA. We believe this move enhances our brand's local impact, helps penetrate the local market and further expands our user base. We have received a very good feedback on the tournament series so far from both local users and our partners and we are receiving more invitations from potential partners conducted similar tournaments in different cities and different countries across MENA.

Speaker 6

So far, we have 2 more tournaments scheduled for the second half of the year to engage more users in different countries and we plan to keep building on this momentum. Thank you.

Operator

As there are no further questions now, I'd like to turn the conference back over to management for closing remarks.

Speaker 1

Thank you once again for joining us today. We look forward to speak with you in the next quarter. If you have further questions, please feel free to contact Yalla's Investor Relations or Piacente Financial Communications. Both parties' contact information is available in today's press release as well as on our company's website.

Operator

The conference has now concluded. We thank you for attending the presentation and you may now disconnect your

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Earnings Conference Call
Yalla Group Q2 2024
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