Q4 2022 Yalla Group Ltd Earnings Call

Speaker 2: Good morning and good evening. Ladies and gentlemen, thank you for standing by for YALA Group Limited's fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen only mode.

Speaker 2: After management repair remarks, there will be a question and answer section. Today's conference call is being recorded. Now I'll turn the call also to the speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead.

Speaker 2: Hello everyone and welcome to Yala's fourth quarter and four-year 2022 earnings conference call. We released our earnings earlier today and the release is now available on our IR website as well as on news web services.

Speaker 2: 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 Education Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today.

Speaker 2: Further information regarding these and other risks and uncertainties is included in our earnings release and our annual report filed with the FEC.

Speaker 2: YALA does not assume any obligation to update any forward-looking statements except as required by law. Please also note that YALA's earnings press release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures.

Speaker 2: Yala's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

Speaker 2: Today, you will hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Saifis Mayu, the company's President, who will briefly review our recent business developments.

Speaker 2: Mrs. Karen Hu, our Chief Financial Officer, then will provide additional details on the company's financial results and discuss our financial outlook. Following management's prepared remarks, we will open the call to questions. With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir. Mr. Tao Yang, Chairman and Chief Executive Officer,

Speaker 3: Thank you everyone for joining our conference call.

Speaker 4: 2022 was a challenging year.

Speaker 3: In light of the micro-economics handling, Yalla firmly executed its core strategy, while capability adjusting to the market dynamics and make good progress overall.

Speaker 3: encouragingly we deliver year-over-year growth in revenue.

Speaker 3: and the scoring, the effectiveness.

Speaker 3: of our quality growth strategy.

Speaker 3: We also continue to improve efficiency.

Speaker 3: while maintaining the stable development of our two flagship applications, Yella and Yellaludo.

Speaker 3: At the same time, we continue to invest.

Speaker 3: in new products.

Speaker 3: to explore untapped opportunities in the MENA region's digital market, setting the stage for even better performance in 2023.

Speaker 3: Our revenue is 75.1 million USD.

Speaker 3: reaching the upper end of the guidance we provided.

Speaker 3: Although we did witness a slight downward impact on user-activeness.

Speaker 3: primarily due to the 2022 FIFA World Cup in Qatar, which

Speaker 3: Diverted, our user attention to some degree.

Speaker 3: The event's influence on our results, which should prove to be a one-time effect.

Speaker 3: was consistent with our expectations.

Speaker 3: Never the less.

Speaker 3: The success of the FIFA World Cup in Qatar introduced a modern and open meta with great energy and strength to a global audience.

Speaker 3: We are seeing increasing attention and interest in the opportunities related to Mina's digital transformation from enterprises and investors worldwide.

Speaker 3: Next, I'd like to share some new research from Forest and Sullivan.

Speaker 3: In their recent research report titled Online Social Networking and Gaming Industry-Independent Market Research, Yana has been recognized as the largest media-based online social networking and gaming company in terms of revenue in 2022.

Speaker 3: While our social networking products are already well known throughout the region, we are thrilled to see our game, the rest of the gaming traction.

Speaker 3: over the past few years. This is yet another testament to our strong brand awareness and reputation.

Speaker 3: robust technical capabilities and deep understanding of local culture.

Speaker 3: We believe that as the number one Mina based on large social networking and gaming company, we are uniquely positioned to capitalize on Mina's strong digitalization chance over the next five years, unleashing magic growth potential.

Speaker 3: across yellow groups businesses.

Speaker 3: Now let's take a look at some recent developments of Yella Games, where we were subsequently formed to explore the mid-core and hardcore game business.

Speaker 3: Elaborating our industry leading experience in online social networking and gaming in Mina, we recently launched our first internal game studio.

Speaker 3: making important steps for Yara Group to begin in-house development of hardcore games.

Speaker 3: Going forward, the game development and game distribution business will constitute key strategic pillars.

Speaker 3: So yell again!

Speaker 3: In addition to collaborating with outstanding content providers on game distribution,

Speaker 3: in the future. It's also possible for us to gradually establish more internal game studios to build up our capabilities in the research and development of medical and hardcore games across a broad range of standards.

Speaker 3: More specifically, we have finished the first round of beta testing on both March Kingdom and our RPG game, the first two hardcore games titled...

Speaker 3: we will distribute in minutes.

Speaker 3: And we have been working on product requirements to better address user feedback and improve user experience. We will soon start the second round of testing. And we will keep you posted on our plans for both games' official launch.

Speaker 3: Turning now to YellowChat, we're happy to share with you that we launched the official

Speaker 3: promotion on the other chat for the first time in November 2022.

Speaker 3: In addition to acquiring traffic from general

Speaker 3: in addition to acquiring traffic from general channels.

Speaker 3: We launched campaigns in our Yella community to encourage users of our other apps to try out Yella Chat.

Speaker 3: After two months of testing, we are seeing encouraging results.

Speaker 3: meeting our expectations for Yalache's first stage of development.

Speaker 3: our expectations for Yalache's first stage of development.

Speaker 3: certain localized functions like the SN feature.

Speaker 3: Certain localized functions like the SN feature gain great traction among users.

Speaker 3: We believe this first-stage attempt clearly demonstrates the potential of our Mina-based IM product.

Speaker 3: At the same time, we would like to reiterate.

Speaker 3: that building an AMP product is.

Speaker 3: Never easy.

Speaker 3: And we will continue to explore ways to better serve local users' needs in M products.

Speaker 3: We believe YellowChat will play an important role in our long-term growth map.

Speaker 3: Elevating our value proposition, we will continue to refine the product by catering to Mina users' preferences and conduct further promotional campaigns in an efficient way. In short, the Mina region is developing rapidly.

Speaker 3: We are pleased to see more and more industry professionals and investors.

Speaker 3: from around the world.

Speaker 3: beginning to show interest in Mina, making an acceleration of the region's investment possible.

Speaker 3: making an acceleration of the region's development possible. Meanwhile...

Speaker 3: Mina is also embracing opportunities of collaboration from all over the world.

Speaker 3: As the number one minibase online social networking and gaming company, we are strongly committed to this market and have developed a deeper understanding of its unique advantages and user needs. We continue to steadily expand our investments.

Speaker 3: in research and development to explore new products and workflows.

Speaker 3: while also preparing to see the opportunities arising from the region's digital transformation.

Speaker 3: We will closely monitor market trends and upcoming prospects and continue to leverage

Speaker 3: we will closely monitor market trends and upcoming prospects, and continue to leverage our deep local insights and broaden our

Speaker 3: our business horizons. Once again, our vision is to build the most popular destination for online social networking and entertainment in MENA. And we remain a stepfather.

Speaker 3: in our pursuit of this call. Now I will turn this call over to our present, Mr. Sai Phi Ismail, for a closer look at our recent development.

Speaker 5: Hello everyone, thanks for joining us today.

Speaker 5: I would like to start with a closer look at our fourth quarter operation.

Speaker 5: as well as our product performances.

Speaker 5: We are pleased to have concluded Physical Year 2022 on a high note.

Speaker 5: with 4th quarter total revenue of 75.1 million USD, landing at the high end of the company's guidance.

Speaker 5: As Thao mentioned, we saw a slight impact on our bare hormones from the FIFA World Cup, but we believe this to be a one-time impact and it was in line with our expectations.

Speaker 5: Our monthly active users increased 14% year over year, reaching 32 million. Yellow groups paying users also increased to 12.5 million, demonstrating users' increasing willingness to be on our platform.

Speaker 5: Our team will continue to refine our user acquisition and operational strategies to further improve operating efficiency.

Speaker 5: Next, a brief update on our Cadwad game portfolio, which remains an important component of our overall gaming business.

Speaker 5: Notably, EL Apercis recorded an outstanding performance this quarter.

Speaker 5: We boosted purchase monetization capability by rolling out new features, including more premium rides for VIP users and hosting operating events.

Speaker 5: revealing the game's revenue to $1 million for the fourth quarter.

Speaker 5: For the rest of our casual game portfolio, including Yella Ballute and 101 OK Yella, we will continue to refine these products and see creative ways to increase market penetration.

Speaker 5: Before we move on to financials, I would like to mention that we at Yalla Group were extremely honored to win a 2022 Middle East Technology Excellence Award for the second year in a row.

Speaker 5: in the Internet media and entertainment category for Yellow Life, hosted by the Asian Business Review. These awards honor outstanding companies that have made exceptional contributions in pursuit of technological innovation and revolutionary products and solutions in their respective industries in the Middle East region.

Speaker 5: We viewed this

Speaker 5: will series award as further proof of our innovation capabilities and a powerful commendation of the leading online social networking and gaming ecosystem we have created.

Speaker 5: As a company deeply rooted in MENA, we are proud to contribute to the advancement of the digital world within the region. We are also pleased to announce that YALA was recently named BISS Voice Based Social Network UAE 2022 and BISS Entertainment Platform UAE 2022.

Speaker 5: by International Business Magazine. We are extremely proud to receive these two prestigious awards. Each accolade further inspire us to realize our vision of building the most popular destination for online social networking and entertainment activities in MENA.

Speaker 5: In conclusion, while 2022 was a year full of challenges, we successfully maintained the stable development of the company while continuing to explore new products and business.

Speaker 5: As we introduce the area, Yalda has been recognized as the largest MENA-based online social networking and gaming company. And as always, we remain dedicated.

Speaker 5: to leading the industry in serving MENA users evolving needs in this field. As we witness more and more conversations taking place between global stakeholders and this region every day, we are firmly convinced that the next five years will be crucial in MENA's digital transformation.

with our strong business fundamentals and outstanding product portfolio across social networking and gaming.

We are well positioned to capitalize on potential growth opportunities, and we look forward to delivering value to all of our stakeholders as we strive to achieve our mission.

With that, I will now turn the call over to our CFO , Karim, who will discuss our key financial and operational results.

Thank you, Sophie. Hello, everyone. Thank you for joining us.

We continue to focus on our quality group strategy in 2022.

For the first quarter, our revenues increased solidly by 11.2% year-over-year to US$75.1 million amid external challenges. Thanks to our constant efforts to enhance the gamification of our products and user engagement.

Our MAUs maintained double-digit growth during this quarter. Meanwhile, our paying user ratio further increased to 38.9% up 8.9 percentage points year-over-year. Each of these metrics...

highlights the effectiveness of our growth strategy.

Also, as we firmly executed our refined operation precise, we achieved healthy profitability with a gap net margin of 22.1%.

For four-year 2022, we maintain solid growth momentum with revenues of 11.2% to $303.6 million.

We were able to maintain our operating efficiency at an outstanding level.

Over the past year, the key field in which we increased our investment was R&D.

In the effort to build out our product portfolio, we continuously increased our R&D spending, bringing R&D expenses up to 8.1% of total revenues for 2022.

compared with 5.2% last year. Since marketing expenses as percentage of total revenue remained relatively stable at 16.4% throughout the year, well, GA's percentage of total revenues declined to 12%.

and the Maintain Nurse Team.

Cost of revenues as percentage of total revenues increased from 35.4% in the fourth quarter of 2021 to 36.5% in the fourth quarter of 2022.

Our selling and marketing expenses were $14.3 million in the fourth quarter of 2022.

a 7% increase from $13.3 million in the same period last year, primarily due to hair advertising and marketing, promotion expenses led by our continued user acquisition efforts, and expanding education educational skills for our Miss constructive