Yalla Group Limited
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Operator:]

Good morning and good evening ladies and gentlemen. Thank you for standing by for Yalla Group Limited's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. 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:]

Hello, everyone, and welcome to Yalla's First Quarter 2021 Earnings Conference Call. We released our earnings earlier today, and the release is now available on our IR website as well as on newswire services. 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. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today.

[Tao Yang:]

Thank you, Kerry, and thank you everyone for joining our 2021 first quarter earnings conference call. 2021 is off to a remarkable start. Yalla Group’s total revenue increased almost by 40% Q-on-Q and reached $67.6 million exceeding the upper end of our guidance range by 7.4%. This stellar performance was driven by our continued efforts to grow our user community, the effective conversion of active users into paying users, and the further advancement of our monetization capabilities and initiatives. In the first quarter of 2021, we also maintained robust profitability, as demonstrated by our non-GAAP net margin of 49.7%. With the strong execution of our efforts to raise brand awareness across the Middle East and North Africa region, and our effective marketing campaigns tailored to the local culture, monthly active users for our group increased by 14.6% Q-on-Q and we reached $18.8 million. In addition, increasing user engagement on our platform drove Yalla Group’s paying users up by 11.5% quarter-over-quarter to 5.8 million, leading to outstanding paying ratio of 31.0%. Our ability to monetize also continued to improve as our group's ARPPU grew rapidly by 25.5% quarter-over-quarter, reaching $11.6 in Q1. During previous earnings calls, we announced 4 new products in our pipeline.

[Saifi Ismail:]

Thanks Tao. Hello, everyone. Thanks for joining us today. As we continue to enrich our product portfolio, including Yalla, Yalla Ludo, and the four new products in the pipeline, we are looking to boost synergies among individual apps to develop a more integrated ecosystem, which will help us improve efficiency in acquiring new users going forward. With this move, we expect to see an increase in the flow of users from application to application, especially between the chatrooms available on each of our products. We also anticipate seeing an increase in users' awareness of the multiple products and services provided by the Yalla Group, which will as a whole, lead to a larger user base, longer time spent in Yalla's ecosystem and deeper brand loyalty in the long run. We recently tested the effectiveness of advertising Yalla on Yalla Ludo in a few regions, and the resulting traffic gain for Yalla was solid. While we have observed good potential for cross-selling on Yalla Ludo, before we decide to launch this project officially we plan to run more trials

[Karen Hu:]

Thank you, Saifi. Hello, everyone. Thank you for joining us. Our strong performance sustained into the first quarter, as we steadfastly executed our growth strategy that prioritizes user experience and the community development. Our first quarter revenues grew by 221% year-over-year to $67.6 million while our non-GAAP net income reached $33.6 million with a growth rate of 263.7% year-over-year. Our non-GAAP net margin remained elevated at 49.7%, reflecting our unique monetization strategy, market positioning and strong operating efficiency. Now I would like to walk through our financial details for the first quarter of 2021. Our revenues were $67.6 million in the first quarter of 2021, a 221% increase from $21.1 million in the same period last year. The increase was primarily driven by the widening of both Yalla's and Yalla Ludo's user base and the enhancement in Yalla Group's monetization capability. Our average MAUs increased by 206.9% from 6.1 million in the first quarter of 2020 to 18.8 million in the first quarter of 2021. Yalla’s MAUs increased by 81.6 % to 7.3 million in the first quarter of 2021 from 4.0 million in the same period of last year; and Yalla Ludo’s MAUs increased by 445.4% to 11.5 million in the first quarter of 2021 from 2.1 million in the same period of last year. In addition, another primary contributor to our solid revenue growth was the significant increase in the number of paying users, which grew from 1.6 million in the first quarter of 2020 to 5.8 million in the first quarter of 2021. Now let's look at our costs and expenses. Our cost of revenues was $24.0 million in the first quarter of 2021. Excluding share-based compensation expenses, cost of revenues in the first quarter of 2021 were $22.3 million, a 227.2% increase from $6.8 million for the same quarter last year. The increase was primarily due to an increase in commission fees for third-party payment platforms resulting from our expanding business scale. Excluding share-based compensation expenses, other components of cost of revenues as a percentage of our total revenues remained relatively stable at 33% in the first quarter of 2021, compared with 32.3% in the same period in 2020. Our selling and marketing expenses were $8.4 million in the first quarter of 2021. Excluding share-based compensation expenses, other components of selling and marketing expenses for the first quarter of 2021 were $5.1 million, an 81.7% increase from $2.8 million for the same quarter last year. The increase was primarily due to higher advertising and marketing promotional expenses as a result of our continued user acquisition efforts.

[Operator:]

Thank you. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. The first question today comes from Feiya Zhao with Haitong International. Please go ahead.

[Feiya Zhao:]

I will translate for myself. Now, thank you management for taking my questions and congrats on your strong quarter. So, my question is mainly related to the Yalla Parchis. Could you please provide some colors to the current page of Yalla Parchis, such as MAU revenue, user profile content and user paying behavior? And what is the most active country for Yalla Parchis now and when are you going to officially launch the product? Thanks.

[Tao Yang:]

Well, hi Feiya. I will answer the question. But there's only feedback we received which clearly showed that Yalla Parchis were launched it in South American market. You'll believe Parchis has the potential to become a partner product in this region. We have already started with promotions at the Yalla Parchis from Q1. And according to the Afghan Interim you need to worry -- normally took part in six countries under the Okey and category and joined. We will continue to monitor the engagement channel and look forward to sharing more back and there are with you next quarter. Again we will we're starting to strengthen our campaigns in Q2. The members like to be and they use the other opportunity and every one for the night looking for a deeper ride in you. And meeting with the next morning too.

[Feiya Zhao:]

Thank you, Mr. Yang.

[Operator:]

The next question comes from Bo Pei with Oppenheimer. Please go ahead.

[Bo Pei:]

Hi management, thanks for taking my question. So, I do have two quick questions here. So, first is I guess our non-GAAP margin as they improve sequentially in 1Q? I guess, that's because we haven’t started standing on ourselves and marketing, yes. So, my question is when do we tend to spend more on sales and marketing for especially for our new products, right? And then when we do that, what was going to be the impact on our net income margin. And then, the second question is about our MAU growth outlook, so last time we talked about 10% to 15% sequential growth for each quarter of this year. So, can management comment on that, any update on that and then how should we think about the MAU outlook for the new products. For example by the end of in this year like what's going to be the user size with new products? Thank you.

[Karen Hu:]

Thank you Bo, thank you for your question. So, for Q1, Yalla actually delighted in net margin again. And for Q2, since we have going Q4 and promotions and I'm new to that -- we see some increase from that into our margin. Insurance of how much we are going to spend in searching that I might put in. And very intense angry with feedback and last Q dynamic. We have just our promotion strategy accordingly and in time to next month the efficiency outstanding. But so that, Yalla the Group I mean use our loops. As we mentioned in the last quarter, we think that in both products and I knew outgrow by change of plans with change to 50% quarter-over-to-quarter in the 2021. And for the new products, MAUs outlook is impacted, that’s found on the user's feedback. And so, the there's very much of team progress. Thank you for your question.

[Bo Pei:]

Got it, thank you.

[Operator:]

The next question comes from Kai Fang with CITIC. Please go ahead.

[Kai Fang:]

Hi, management. Thanks for taking my question and congratulation for done quarter. So, my question got is a Yalla Chat, some interim on the instant message product. How do you see the competition from other products like voice-chat and what do you hedge, Ludo and timeline for Yalla Chat. Thank you.

[Tao Yang:]

Hi, good morning Kai Fang. A well countered question. And the company with blue coat team based in UAE. We are dedicated to offering the end product with that pillar to Arabic user's lots of menus and new thing have its own culture's here. Which is the main difference to chain Yalla Chat and WhatsApp. Where we've been to many localized features for this product and continue you and find data on local user feedback. And in terms of user growth strategy, when we're seeing the product is ready, will introduce the Yalla Chat to your that gave in now a Yalla Community. And from Yalla and Yalla Ludo and other product. And encourage them to give it a try. In this way, we will be able to leverage the community we have built. And the social connections we have bolstered over the frontiers. That is better?

[Kai Fang:]

Okay, thank you.

[Tao Yang:]

God bless you.

[Operator:]

The next question comes from Chitty Ji with CICC. Please go ahead.

[Unidentified Analyst:]

Thanks management for taking my question. First I would like to congratulate for another strong quarter. I have questions regarding your product pipeline. Currently both of Yalla's products are video-centric, since are voice-centric and some video entertainment applications have gained a lot of attention these days, do you have any plans to launch video-centric products in the future. Can you please share more color about that. Thank you.

[Tao Yang:]

Hi, Chitty. At this point, we don’t have video-centric product in our profile. Well, it remain that we have an only 4% growth strategy product. We will take much mainly our users need a chatting shorter networking and entertainment. And we will continue to update our strategy accordingly. Thank you.

[Chitty Ji:]

Thank you.

[Operator:]

The next question comes from Cienna Sam with Jefferies. Please go ahead.

[Unidentified Analyst:]

Hi management, thanks for taking my question. So, you know congratulations on the great beta also. I have two questions. So, the first question is about the strategies of this obligation. I would like to ask are there any differences of these acquisition strategies for a different product in different regions. So, like for example we launch new product in a part of America. So, what will be the marked strategies there? And my second question is about major long-term outlook. So, management share some colours about outlooks for -- thought you're doing this from now like geographic expansion and business line expansion the products offers. Thanks.

[Jeff Xu:]

Thanks, Cienna. Good question. This is Jeff, I'll be answering the question. Two really lasting campaigns on Yalla and Yalla Ludo over the past five years. Our team has gained valuable experiences and gradually gives profitability in master. A high user acquisition, acquisition they can be demonstrated by our excellent accent controls without the masking and the consistent input in our MAUs. Without it's -- which reach now user acquisition to add advertising on media both of our Yalla and Yalla Ludo has also shown strong organic growth. And at the same time because of the high quality of the product and debloatization, our product have also been recommended for free, the top tier platforms like Yahoo and Google. We will transmit it to our successful user acquisition. With every new product, we design marketing trend, they can or understanding of the product special characteristic and will always follow our own patent execution and adjust our strategy and go in to the feedback, give magic that we keep on to. As it's always a then -- there are many programs. We'll also have different trends payloads for different credits to maximize the efficiency of paying. For the upcoming promotion of our new product, whether constantly our teams inability to achieve strong results. Entry for a passing game.

[Tao Yang:]

And I'll be answering the second question. Simply next to three years, MENA will certainly be our main focus. And with, we got a project launch, we will keep our eye on these data marking market and see if there are any other potential opportunities. In addition to Yalla, Yalla Ludo and four new product we've introduced earlier, in that we have continued to monitor look or user name in preferences. And then five whether opportunities to work MENA U.K. At the same time, as we introduced earlier, when then gradually start to drive traffic from one product for another. There'll be dedication to build and develop another Yalla ecosystem which will as a whole lead to a more integrated user community, longer time spent in Yalla's reconfigurator and deeper brand loyalty in the long run. Thank you, Cienna.

[Operator:]

As there are no further questions now, I'd like to turn the call back over to management for any 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 Relation through the comeback information provided at our website or the Piacente Group Investor Relation.

[Operator:]

This concludes the conference call. You may now disconnect your line. Thank you for attending.