Q3 2024 Yalla Group Ltd Earnings Call
Speaker Change: Good morning and good evening ladies and gentlemen. Thank you for standing by for YALA Group Limited's third quarter 2024 earnings conference call.
Speaker Change: At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session.
Speaker Change: Today's conference call is being recorded. Now I will turn the call over to your speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead.
Kerry Gao: Hello everyone and welcome to YALA's 3rd Quarter 2024 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's Outlets.
Kerry Gao: 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 Security Certification Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.
Kerry Gao: 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.
Kerry Gao: 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. YALA's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
Kerry Gao: Today we 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. Saif Ismail, the company's President, who will briefly review our recent business developments.
Kerry Gao: Mrs. Karen Hu, our Chief Financial Officer, will then 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.
Speaker Change: Mr. Jeff Xu, our Chief Operating Officer, will join the Q&A section. 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.
Thank you.
Thank you. Thank you.
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Speaker Change: Our third quarter revenues reached 88.9 million USD, exceeding the upper end of our guidance by 8%.
while our net income increased by 11.2%.
Speaker Change: year-over-year to USD 39.2 million. Behind this impressive performance was our continuous commitment to deepening our localization capabilities.
Speaker Change: which enabled us to keep rolling out new communications features and operating events that fulfill MENA users' social and entertainment needs.
Speaker Change: Driving quality revenue growth while improving operating efficiencies has been a key company objective this year.
Speaker Change: To that end, the team has consistently refined operational procedures and optimized user acquisition strategies over the past several quarters.
Speaker Change: Moving forward, we will remain focused on user experience and product excellence, enriching our product ecosystem.
and pursuing high quality
sustainable development.
Speaker Change: Nina's digital transformation has progressed rapidly this year, drawing a series of global attention.
talent and investment to the region.
Speaker Change: We have seen gaming emerge as one of the critical drivers of this digital transformation.
Speaker Change: GCC countries are introducing supportive policies and initiatives to facilitate the development of the gaming and eSports sectors.
This summer.
Speaker Change: The Esports World Cup puts Saudi Arabia in the global spotlight for gamers and industry professionals worldwide.
Speaker Change: with over 1,500 players worldwide, competing across multiple games for a record-breaking USD $60 million prize.
Speaker Change: The event showcases key countries' policy commitments to the gaming industry and their infrastructure capacity.
for large-scale events.
as a crucial growth market for the global gaming industry.
Mina still holds immense potential.
Thank you very much.
which is quite revealing.
and Li.
Speaker Change: Looking at the group's business, gaming services are now a revenue contributor with growing importance within our group.
the propulsion of Ramleys.
Speaker Change: Attributable to gaming services has surpassed 30% over the past few years.
In addition, our keen insight into MENA's gaming industry dynamics.
Speaker Change: have left you our proactive entry into the Nicole and Harco game market with Yala Games.
We currently have
Thank you. Bye-bye.
Now, develop it.
Speaker Change: Michael and Hasso Gabe, and expect to begin testing some of them by year-end.
Speaker Change: are designed to bring premium polished screens to market at optimal time to capture their corresponding user base and market share.
Speaker Change: And we look forward to seeing this new initiative for fresh growth in the upcoming years.
Speaker Change: Expanding from casual games to medical and hardcore game is a milestone, not a sprint. We are committed to elevating Yara Games' standing in MIA's medical and hardcore game market.
Speaker Change: capitalizing on our wealth of experience and know-how in casual games to drive success.
guided by Yalat Koh
Organizational Value, MUFP, right.
Speaker Change: especially the last two letters for simple and target. We will continue to refine every YALA game product by taking a straightforward and
pragmatic approach.
Speaker Change: We are confident that we can engage our loyal users in a region whom we've feared for nearly a decade.
with high quality gain.
Speaker Change: along with the YALA brand, while also leveraging this new gain to broaden YALA Group's product ecosystem and market reach.
In conclusion,
The faith is always out.
Speaker Change: of Digital Transformation Initiatives across MENA countries is steadily unlocking the market's growth potential.
Speaker Change: and the largest online social networking and gaming platform in MENA.
Speaker Change: We will seize every opportunity to contribute to this transformation and the economic development of the region. With strong business fundamentals and an increasingly robust product ecosystem, we have full capital confidence.
Saifi Ismail, for a closer look at our recent development.
Hello, everyone. Thanks for joining us today.
Speaker Change: Let's move on to our third quarter operations and the performance of our products.
Speaker Change: We continue to broaden our user base thanks to our strong execution of effective user acquisition strategies.
Speaker Change: Our average monthly active users grew to 40.2 million, up 14.5% year-over-year.
Speaker Change: as we dedicated to enhancing our product gamification and user experience.
Speaker Change: During the quarter, our products demonstrated remarkable strength, with Yalla Ludo and 101 OK Yalla both setting new quarterly revenue records.
Speaker Change: We were delighted to reach new heights within our casual game matrix and look forward to replicating Yalla Ludo's success with other products.
Speaker Change: As we advance the company's development, we continue to identify and create products with deep cultural roots that attract a strong user base in MENA while keeping a close eye on market dynamics and user changing needs.
Speaker Change: Our highly skilled team boosts a profound understanding of MENA users' preferences, empowering the consistent development of products as well as online and offline events.
with enduring appeal.
Speaker Change: For instance, this quarter we expanded the regional footprint of our Ludo Champion Offline Tournament series.
Speaker Change: Our team not only hosted two tournaments in Abu Dhabi and Egypt, but also teamed up with the UAE Esports Federation to host an additional Yellow Ludo Offline tournament in Abu Dhabi. This steady stream of offline events has deepened our brand awareness.
Speaker Change: solidifying Yalla Ludo's industry leadership while also meeting MENA users' entertainment needs.
Speaker Change: We will continue to cooperate with local and global industry participants to increase user engagement and facilitate development across MENA's gaming industry.
Speaker Change: We also upgraded Yalla! our flagship products with a diverse array of fresh features. We were pleased to see Yalla! users investing significant time and game currency into our engaging on-trend activities. This quarter, we embedded
Speaker Change: A crazy soccer game in yellow chatroom. Tabbing into this soccer frenzy currently sweeping the Middle East.
Speaker Change: Chatroom users compete in teams and make plays by sending messages and gifts in the chatroom fostering stronger social ties and deeper user engagement
Speaker Change: On a related note, I was honored to be invited for an interview this quarter by Bukit Gamer.
Speaker Change: A globally recognized media leader in the mobile gaming industry, celebrated for its cutting-edge news and insights.
Speaker Change: We delved into the emerging trends shaping MENA's social networking and gaming industry during our in-depth exchange.
Speaker Change: with a particular focus on the crucial importance of content localization.
We are grateful to Bukit Gamer for this opportunity.
Speaker Change: and its recognition of Yalla Group's leadership in MENA's social networking and gaming industry.
Speaker Change: As a leading MENA-based internet company, we remain dedicated to creating social and economic value by enhancing digital lifestyles and advancing the region's digital transformation.
Speaker Change: To sum up, as MENA's leader in online social networking and gaming, we will continue delivering high-quality products and services to our users while playing an active role in the region's digital transformation. We are poised to broaden our reach.
Speaker Change: to broaden our business horizon and enhance external collaboration, consistently elevating our brand's influence. And as always,
Speaker Change: We will stay true to our vision to become the largest online social networking and entertainment platform in the MENA region. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.
Karen Hu: Thank you, Saifi. Hello, everyone. Thank you for joining us today. During the third quarter, we continue to execute high-quality growth strategies.
Karen Hu: Leading to our revenues reaching an all-time high, we also continue to boost efficiency and operating leverage.
Karen Hu: As a result, we enhanced our profitability with expanded net margin of 44.1% and excluding share-based compensation, non-GAAP net margin of 47.9%.
Karen Hu: Our fundamentals remain solid, strongly supporting our current business operations as well as our investments in further development. We will continue to pursue high-quality, sustainable development, creating long-term value for all our stakeholders.
Karen Hu: 85.2 million U.S. dollars in the third quarter of last year.
Karen Hu: Now let's take a look at our costs and expenses. Our total costs and expenses were $56.4 million in the third quarter of 2024, a 6.9% increase from $52.8 million in the third quarter of last year.
Karen Hu: Our cost of revenues was $31.8 million in the third quarter of 2024, a 14.6% increase from $27.8 million in the same period last year.
Karen Hu: Primarily due to higher commission fees paid to third-party payment platforms as a result of increasing revenues generated.
Karen Hu: cost of revenues as a percentage of total revenues increased to
Karen Hu: 35.8% in the third quarter of 2024 from 32.6% in the third quarter of last year.
Karen Hu: Selling and marketing expenses as percentage of total revenue decreased to 8.3% in Q3 of 2024 from 13.3% in Q3 of last year.
Karen Hu: Our general and administrative expenses were 10.1 million U.S. dollars in the third quarter of 2024.
Karen Hu: A 38.3% increase from 7.3 million U.S. dollars in the same period last year.
Karen Hu: Our technology and product development expenses were 7.1 million U.S. dollars in the third quarter of 2024.
Karen Hu: An 11.1% increase from 6.4 million U.S. dollars in the same period of last year, primarily due to an increase in salaries and benefits for our technology and product development staff.
Karen Hu: Technology and product development expenses as a percentage of total revenues increased to 8% in the third quarter of 2024 from 7.5% in the third quarter of last year.
Karen Hu: As such, our operating income remained relatively stable at $32.5 million in Q3 2024.
Karen Hu: Our interest income was $7.8 million in Q3 of 2024, compared with $5.6 million in Q3 of last year.
Karen Hu: primarily due to an increase in interest rates applicable to the company's bank deposits.
Karen Hu: As a result of foregoing, our net income was $39.2 million in Q3 of 2024, an 11.2% increase from $35.2 million in Q3 of last year.
Turning to our liquidity and capital resources.
Our cash position remains solid.
Karen Hu: As of September 30, 2024, we had cash and cash equivalents.
Karen Hu: term deposits, and short-term investments of $570.1 million compared with $535.7 million as of December 31, 2023.
Karen Hu: Under our $150 million U.S. share repurchase program that began May 21, 2021 and has since been extended by our board through May 21, 2025, we had weak repurchases.
Karen Hu: 1,736,383 ADFs, or Class A Ordinary Shares, in the open market cash repurchases, totaling approximately $7 million in Q3 of 2024.
Cumulatively, we have repurchased
Karen Hu: Moving to our outlook, for the fourth quarter of 2024, we expect our revenues to be between $77 million and $84 million.
Karen Hu: which are all subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
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Speaker Change: Thank you very much. We will now begin our question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: To remove yourself from the question queue, you may press star then 2. At this time, we will pause momentarily to assemble our roster.
I'm a little bit nervous.
Speaker Change: Today's first question comes from Chuking Zhang with CICC. Please go ahead.
Speaker Change: Thanks, management, for taking my question. Congratulations on another solid contract. I have two questions. The first one is about game business. Can management share more information about your new game products, such as testing and launching schedules? And how does management feel the performance of game business in 2025? And my second question is about flagship products.
Speaker Change: Regarding flagship products, we have seen some new gameplay attempts on YALA this year. Could management share your strategies for flagship products moving forward? And what's the trend for flagship products in Q4 and next year? Thank you.
Speaker Change: Thank you, Xueqin, for your question. I'll be taking the first one and leave the second one to our CEO, Mr. Tao Yang.
Speaker Change: Currently, we have three new self-developed mid-core games in our pipeline. Some of these will enter testing in Q4 2024.
Speaker Change: After connecting user feedback and then refining the products, we will start promoting them at scale. Looking ahead at the game business in 2025, first of all, we expect Yellow Ludo's performance to remain strong and stable with single-digit percentage growth next year.
Speaker Change: Besides that, more upside or additional growth will come from our new products, as mentioned, as well as potential external collaboration.
Speaker Change: We will provide more accurate guidance on that after we get a better sense of their product potential from the testing. Thank you.
Speaker Change: Good morning, Shijing. This is Tao. Regarding our flagship products, as you mentioned, we upgraded Yala with a diverse area of
Speaker Change: Fresh features this quarter. We will continue to roll out new features for YALA during the rest of 2024 and into 2025.
Speaker Change: We will also keep launching interactive operational events and maybe even new gameplay to boost user engagement.
Speaker Change: In terms of revenue growth, we are confident that in 2025, both flagship products will maintain their current scale and have the potential to achieve single-digit growth.
Thank you. Thank you.
Thank you for watching!
Speaker Change: Thank you. The next question comes from Shenghao Li with CICC. Please go ahead.
Shenghao Li: Hi, many, many thanks for taking my question and congratulations on another robust quarter.
Speaker Change: My question is about our game business. Regarding casual game products, we mentioned that Yala Ludo and 101OK Yala both achieved new quarterly revenue records. Could the management elaborate more on drivers or growth on these two products? Thank you.
Speaker Change: Thank you Xinghao, this is Saifi, I will answer your question.
Speaker Change: So overall, our consistent efforts to optimize user experience and refine operational procedures have paid off.
Speaker Change: In the second half of the quarter, users enthusiastically appreciated Yallaludo's diverse operational events. Meanwhile, Yallaludo once again successfully held two offline tournaments, further strengthening our brand's local impact.
Speaker Change: Regarding 101 OK Yalla, it has been deeply involved in the Turkish market for a few years now, and our team has been constantly enhancing the user experience.
Speaker Change: One of the new features we launched this quarter has gained excellent feedback, which I believe underscores our link's long-term localization capabilities and deep understanding of our user needs. Thank you.
Speaker Change: Thank you. The next question comes from Sarah Hu with Haipeng International. Please go ahead.
Sarah Hu: Hello, management. Thank you for taking my questions and congratulations on a solid quarter. So, can management give us an update on the shareholder returns? Thank you.
Karen Hu: Hello, Sarah. Morning. This is Karen. I will answer your question.
Karen Hu: Yalan is committed to return value to shareholders through our share repurchase program. This quarter we repurchased more than 1.7 million ADS in the open market for an aggregate amount of approximately 7 million U.S. dollars.
Karen Hu: Given our solid fundamentals, we will continue to conduct our share repurchase program while considering cash dividend payments in due course.
Karen Hu: We will keep you posted if we have more updates. In short, we believe strongly in YALA's long-term potential and dedicate to generating value for all parties involved. I hope this answers your question. Thank you.
Speaker Change: Thank you. The next question is from Kaifeng Jia with CITIC. Please go ahead.
Speaker Change: Hi, management. Thanks for taking my question and congratulations for the short question. So could management share about any updates about the external cooperation and expansion into new areas? Thank you.
Good morning, Kaifong. Thank you for your question.
Speaker Change: With MENA's ongoing digital transformation and our company's deep local root and business development experience is raging.
Speaker Change: YALA has begun engaging in more discussions with top tier overseas internet companies interested in exploring this market.
Speaker Change: We will take pride in our localization capabilities and potential perspectives.
Speaker Change: which position us well to assist in the development of localized content, as well as gay distribution in the Middle East. In terms of word codes, social networking and gaming remain our core focus areas.
Speaker Change: South America, and Southeast Asia. If in the future we see new products with suitable content, we may consider conducting global promotions.
Thank you, Kaifeng.
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: Thank you. The next question is from Rachel Guo with Nomura. Please go ahead.
Rachel Guo: Hello, thank you for giving me the opportunity to ask the question. My question is about thermogen. How do we think about thermogen change in the first quarter of 2024?
Thanks for watching!
Speaker Change: Hi Rachel, thanks for your questions. Regarding our profitability for Q4, as we continue to improve our operating efficiency, we are confident that we can maintain our net margin of the 40% level and potentially reach around 45%.
Hope this answers your question. Thanks.
[inaudible]
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Speaker Change: As there are no further questions now, I would like to turn the call back over to management for closing remarks.
Speaker Change: Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yalas Investor Relations or PSNT Financial Communications. Both parties' contact information is available in today's press release as well as on our company website. Thank you.
Speaker Change: This concludes today's conference call. You may now disconnect your line. Thank you.