Yalla Group Limited
Q4 2020 Earnings Call Transcript

Published: 19 Mar 2021

[Operator:]

Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited’s Fourth Quarter and Full Year 2020 Earnings Conference Call. . After management’s prepared remarks, there will be a question-and-answer session. 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, ma'am.

[Kerry Gao:]

Thank you. Hello, everyone, and welcome to Yalla's Fourth Quarter and Full Year 2020 Earnings Conference Call. We have released our earnings results earlier today, and it is now available on our IR website as well as on Newswire services.

[Tao Yang:]

Thank you, Kerry, and thank you, everyone, for joining our fourth quarter and full year 2020 earnings conference call. 2020 was a milestone year for Yalla. We became the first UAE technology unicorn to be listed on the New York Stock Exchange, an accomplishment we are very proud of and a testament to our business model, our fundamentals and our perseverance. Operationally, we also saw strong growth momentum across the board as we continued to expand our user community and advance our monetization capabilities. We are pleased to report a very strong fourth quarter where Yalla Group’s total revenue increased 42.9% Q-on-Q and reached USD48.3 million in Q4, exceeding the upper end of the guidance range. We also maintained our non-GAAP net margin at 48.3%. While our successful IPO event in Dubai generated far-reaching brand awareness in the Middle East and North Africa region, also known as MENA, our highly experienced marketing team has been running innovative and resonating campaigns, tailored to the local culture.

[Saifi Ismail:]

Thanks, Tao. Hello, everyone. Thanks for joining us today. During our last earnings call, we introduced 2 new products to our pipeline

[Karen Hu:]

Thank you, Saifi. Hello, everyone. Thank you for joining us. Our leadership position as a voice-centric social networking and entertainment platform in MENA is clearly being demonstrated by our robust top line and bottom line growth that continued in the quarter. Our fourth quarter revenues grew 150.9% year-over-year to USD48.3 million, while our non-GAAP net income reached USD23.3 million with growth of 181.6%. Our non-GAAP net margin remained elevated at 48.3%, reflecting our unique business strategy, market positioning and strong operating efficiency. With 2021 well underway, we are very confident we can deliver another year of strong growth and profitability as we continue to execute on our strategic roadmap.

[Operator:]

We will now begin the question-and-answer session. . For the benefit of all participants on today’s call, if you wish to ask your question to management in Arabic or Chinese, please immediately repeat your question in English. . The first question comes from of Haitong International.

[Feiya Hao:]

Congrats on a solid quarter. I have one question for you. What is the MAU also for Yalla and Yalla Ludo in 2021? And what are your key strategies to reach a new target?

[Tao Yang:]

Thanks, Feiya. Actually, we expect both Yalla's and Yalla Ludo's MAUs to grow by 10% to 15% quarter-over-quarter this year. And that's around 50% to 70% growth (inaudible). But please note, this number is only for Yalla and Yalla Ludo. We haven't included potential contributions from our new products in this outlook. In terms of growth of the new products, we will need to get more feedback from the markets to get a better sense of it. We will keep monitoring the performance of our new products after we officially launch them, and we will keep you posted of our progress. Thank you.

[Feiya Hao:]

Thanks.

[Operator:]

Kai Fang from CICC.

[Kai Fang:]

Congratulations for a strong quarter. So I have a question about the competition. So we see some Chinese game companies had entered in the MENA market. How does management see the competition? And what's our strategy for this?

[Tao Yang:]

Hi, Kai Fang, this is Tao Yang. I'd like to take this question. Actually, we were not the first company that launched mobile games in MENA market. There were more than 100 ludo games apps in the MENA market before we introduced the Yalla Ludo. In addition, Yalla Ludo is also competing with other ball games, so it has been facing competition since day one. Against the competition, Yalla Ludo is the number-one ball game in the MENA region in terms of revenue generation. And the most important difference between Yalla Ludo and the other ludo platforms is that we have built very strong social features into it. And we run Yalla Ludo as not only a game platform, but also a social community. At this point, we haven't seen strong competitors in this vertical, but we will be alert to dynamic competitive landscape.

[Kai Fang:]

Okay. A follow-up question about the platform -- so we have several games and social networking apps. So can you give us more details about your plan about in the platform and the Yalla Chat?

[Tao Yang:]

Oh, yes, that is a very interesting question. Yes, building Yalla platform is important strategic move for us. We aim to build and strengthen the connections among our individual apps and create a synergistic ecosystem. We can draw our traffic from one of our apps to another through or operating activities. At this stage, we think Yalla Chat can be a good starting point to facilitate our implementation of this strategy. As Saifi mentioned earlier, our plan is to start Yalla Chat off as a communication platform and continue to add additional functionalities, connecting all of our apps and services into one large platform. Thank you, Kai Fang, for your question.

[Kai Fang:]

Okay. Very clear, thank you. Thank you.

[Operator:]

. Bo Pei of Oppenheimer.

[Bo Pei:]

Congrats on the strong results. So I have two questions. First, can you talk about what percentage of Ludo users use the Chat feature in 4Q? And then I notice we’ve entered South American market. Can you briefly discuss the geographic expansion of , for example, the total addressable market in South America? And also in terms of the competition, how does that compare with the MENA market? And then is there any other market, for example, Southeast Asia, or any other regions, you plan to enter as well?

[Tao Yang:]

Thank you, Bo Pei, and good morning. Currently, there's over 20% of the users from Yalla Ludo are using our matching function. And I think MENA -- and for the second question, I think MENA, for sure, it is our most important market and main focus for Yalla. One of the most important advantages we have is our team's deep understanding into the Arabic culture and our strong localization capabilities. When we consider expanding into other regions, we usually begin with countries, having seen the culture background. For example, our first flagship app, Yalla, only supported Arabic in the beginning, and we gradually added Turkish, Hindi, Urdu and Indonesian, etc. And our app is also available for download in more than 100 countries around the world. In addition, we also offer Spanish and Portuguese on Yalla. The culture of people who speak Spanish and Portuguese is very different from the cultures of other countries, and regions in which Yalla usually operates. Through operating products in Spanish-speaking countries and serving local users there, our team has gained valuable consumer insight and experiences from this market over the past 3 years. That's a good example. We found that Parchis is a very popular traditional board game in the South American market, and it's similar to Ludo. And with Yalla Parchis launch this year, we expect to grow our presence in this market. We will continue to monitor the South American market closely for future opportunities. Thank you.

[Bo Pei:]

Thank you.

[Operator:]

Iris Guo of CICC.

[Iris Guo:]

Congrats on your strong financial performance. My question is regarding your expense plan and the margins because historically, the non-GAAP net margins have been very high, almost 50%. I'm wondering can you please share more color on your investment and expense spend on sales, marketing, R&D and others? And how do you expect them to impact your margin level?

[Tao Yang:]

Thank you. That's a really interesting question. Our net margin has been at a very good level by about around 45% in the past several quarters. But this year, we don’t think retaining our margin is our top priority. With a new product line, app launch, we expect to increase our efforts to pursue new users, hence, our budget in the marketing. This is important for the company from a growth perspective and will benefit the company in the mid-to-long run. Thank you.

[Iris Guo:]

Thank you. That's very helpful.

[Operator:]

Vincent Yu of Needham & Company.

[Vincent Yu:]

My question is about monetization, a very general question. So we're seeing products in our products in the beta testing version. Any other -- any monetization opportunity that the company is most excited about in the next few years?

[Tao Yang:]

Thank you, Vincent. The current monetization capability is already very healthy and strong, I think. In the foreseeable future, social networking and entertainment will still be our main focus. And for apps, if we decide to give it a try, we will do it gradually and cautiously. For the other businesses, like e-commerce, it's not in our plan at this point. We will share with our investors if we have any OpEx on our company strategy or pipeline. Thank you, Vincent.

[Vincent Yu:]

Thank you.

[Operator:]

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

[Kerry Gao:]

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 Yalla’s investor relations through the contact information provided on our website or The Piacente Group Investor Relations.

[Operator:]

This concludes this conference call. You may now disconnect your line. Thank you.