JOYY Inc.
Q2 2021 Earnings Call Transcript

Published: 19 Aug 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s Second Quarter 2021 Earnings 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. I'd now like to hand the conference over to your host today, Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

[Jane Xie:]

Thank you, operator. Hello everyone. Welcome to JOYY's second quarter 2021 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Leo, the General Manager of Finance. For today's call, management will first provide a review of the quarter and then we will conduct a Q&A section. The second quarter 2021 financial results and webcast of this conference call are available at ir.joyy.sg. A replay of this call will also be available on our website in a few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which apply to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollar. I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please, go ahead, sir.

[David Xueling Li:]

Hello everyone. Welcome to our second quarter 2021 earnings call. We maintain our growth momentum in the second quarter, despite the negative impact from local holidays in certain regions. During the second quarter of 2021, we grew our total revenues by 39.7% year-over-year to $662 million, while Bigo's revenue increased by 38.4% year-over-year to $598 million. Notably, this quarter, on a non-GAAP basis, we almost achieved breakeven at Group level for the first time after we deconsolidated YY Live as Bigo's non-GAAP net margin continued to improve to 3.3% from 1.6% quarter-over-quarter, and its non-GAAP net profit increased to $19 million. Before we go into the detailed development of our products, we would like to share with you the latest progress in the further enhancement of our localized content offerings. As discussed on last quarter's call, we view our content ecosystem as one of our strategic course that determined the long-term competitiveness of our products. During the quarter, we have made great strides on expanding our product content priority and enlarging our premium content library. Based on our thorough insights into local users content preference, we partnered with gaming entertainment companies and local talent agencies and brought in a multitude of high quality streamers and content creators in categories such as gaming, reality shows, music, lifestyle and many others. In the entertainment content category, partnering with the local entertainment agencies and celebrities, we achieved the meaningful progress in further expanding our premium content and assembling top local talents in the music and reality show category. In the U.S., Bigo Live hosted as BIGO IDOL talent competition in May with our star lineup of judges such as Tamar Braxton, Kreesha Turner, and DJ WhooKid, attracting over 300,000 unique views. In Turkey, our platform attracted the king of Pop Music, Serdar Ortaç and the iconic new generation singer, İrem Derici become star streamers on Bigo Live. In talent, one of our Thai country music streamers on Bigo Live participated in Bonus Karaoke, a top music variety show and debuted to great fund fare to provide stage of other country music singers to showcase their talents, Bigo Live's female lead singers launched country music competition, bringing celebrity, advisors, and professional judges in collaboration with renowned local talent agency. After test running our gaming streaming channel on Bigo Live and officially launched our own eSports activities called BIGOFUN in the Middle East is the region in 2020, we have organized a variety of events, including video creation, challengers and contents covering multiple hit games. In the second quarter, we partnered with a number of gaming companies and further enriched the gaming content on our platform to better seek our users' enthusiastic demands. In June, we reached a strategic cooperation agreement with King of Avalon

[Alex Leo:]

Thanks, David. Hello, everyone. As JOYY, Finance General Manager, I'm going to talk about the financial results. Since majority of our revenues and expenses are now denominated in USD, starting from January 1, 2021, we have changed our reporting currency from RMB to US dollar to better illustrate our operational results. Please note that the financial information and the non-GAAP financial information disclosed in our second quarter earnings press release is presented on our continuing operations basis, unless otherwise specifically stated. Starting from the second quarter of 2020, the company deconsolidated Huya and accounts for our investment in Huya as an equity measured investment and applied the equity measure accounting one quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya. Also, the sale of YY Live was substantially completed on February 8, 2021 with certain customary matters to be completed in the near future. The historical financial results of YY Live are reflected in the company's consolidated financial statements as discontinued operations accordingly starting from the fourth quarter of 2020. During the second quarter of 2021, despite the negative impact from local holidays in certainly retails we maintain our strong growth momentum and delivered robust financial results. Our total net revenues for the second quarter increased by 39.7% year-over-year to $661.7 million from $473.5 million in the same period of 2020, primarily attributable to Bigo's continued user growth and enhanced monetization capabilities. In particular, our live streaming revenues for the second quarter increased by 79.7% year-over-year to $629.6 million driven by live streaming revenues growth from Bigo. Other revenues in the second quarter increased by 40.3% to $32.1 million. Cost of revenues for the second quarter increased by 32.2% year-over-year to $458.3 million. Revenue sharing fees and content cost increase to $289.1 million in the second quarter from $198.2 in the same period of 2020 which was in line with the increase in live streaming revenues. Bandwidth costs decreased to $27.5 million from $32.7 million in the same period of 2020, primary due to the company's improved emphasis and the commission of fab-based usage for India users after the India government's ban of Chinese apps in late June 2020, partially offset by their continued user-based expansion outside India. Gross Profit increased by 60.4% year-over-year to $203.4 million. Gross margins in the second quarter of 2021 improved to 30.7% from 26.8% in the same period of 2020. Operating expenses for the second quarter increased to $340 million from $247.6 million in the same period of 2020. Among the operating expenses, general and administrative expenses increased to $101.1 million in the period from $51.5 million in the same period of 2020, primarily due to impairment loss arising mainly from our investment made in the prior years. Our GAAP operating loss for the second quarter was $101.1 million from $119.9 million in the same period of 2020. Operating loss margin for the second quarter was narrowed to 15.3%, compared to 25.3% in the same period of 2020, primarily due to the increase of operating income of BIGO. Our non-GAAP operating loss for the second quarter, which excludes share-based compensation expenses, amortization of intangible assets from business acquisitions, as well as impairment of goodwill and investments and gain on disposal of subsidiaries and business decreased by 80.3% to US$13 million, compared to US$65.7 million in the same period of 2020. Non-GAAP operating loss margin for the second quarter was narrowed to 2% from 13.9% in the prior year period. GAAP net loss from continuing operations attributable to controlling interest of JOYY in the second quarter of 2021 was US$109.3 million, compared to US$28.5 million in the same period of 2020, mainly due to the impairment loss arising mainly from our investments made in the prior years. Net loss margin was 16.5% in the second quarter of 2021, compared to 6% in the corresponding period of 2020. Non-GAAP net loss from continuing operations attributable to controlling interest of JOYY was US$0.5 million in the second quarter, compared to US$50.5 million in the same period of 2020. Non-GAAP net loss margin was significantly narrowed 0.1% in the second quarter of 2021 from 10.7% in the same period of 2020. This means that we have almost achieved the breakeven at group level for the first time since we deconsolidated YY Live. Notably, Bigo has achieved a positive non-GAAP net income for the second quarter of US$19.4 million with non-GAAP net market improved to 3.3% from negative 3.8% in the prior year period. Diluted net loss per ADS in the second quarter of 2021 was US$1.43, compared to US$0.39 in the same period of 2020. Non-GAAP diluted net loss per ADS was narrowed to US$0.01 from US$0.63 in the same period of 2020. In addition, in accordance with our quarterly dividend plan approved on August 11, 2020, and on November 16, we will be distributing a dividend of US$0.51 per ADS for the second quarter of 2021, which is expected to be paid on September 29, 2021 to shareholders of record as of the close of business on September 10, 2021. Also, we would like to provide an update to our execution of the share repurchase program announced on May 2020, and which the company may repurchase up to US$300 million of its shares to August 2021. As of June 30, 2021, the company has repurchased approximately US$296.8 million of its shares. We will continue to invest in business development initiatives to further expand our global market reach, cultivate a highly engaged user community and enhanced our high-quality content offerings. We will also actively explore other ways to maximize shareholder value. Beginning in the second quarter, we have anticipated some negative impact on users' online social entertainment activities from the gradual lift of pandemic-related lockdowns in certain countries. We expect our net revenues for the third quarter to be between US$608 million and US$635 million, representing a year-over-year increase between 13.7% to 18.7% on a constant currency basis, excluding the revenue contribution from Huya and YY Live in the same period of last year. We currently have limited visibility surrounding the COVID-19 epidemic’s long-term impacts and geopolitical uncertainties on our business and the markets in which we operate. Therefore, this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Thomas Chong at Jefferies. Please go ahead.

[Thomas Chong:]

Thanks management for taking my questions. I have two questions. The first one is about the Q3 revenue guidance as well as the margin outlook in the second half? And my second question is about Bigo Live. Can management comments about the paying ratio, the people trend, as well as the live streaming revenue performance across different countries? Thank you.

[Alex Leo:]

This is Alex. I will answer your questions. Regarding Q3 guidance, starting from the end of the second quarter, some countries are gradually lifting lockdown bans during the pandemic. Therefore, we have anticipated some negative impact on users' social entertainment activities online, which may reduce time spent on online entertainment and therefore affect some users paying behavior spectrum. So far, we have limited visibility into the precise impact of the lockdown proposed; therefore, we have provided a relatively conservative estimation for our Q3 revenue, which implies a year-over-year growth of 13.7% to 18.7% at group level, mainly due to short-term fluctuation of Bigo Live paying ratio and ARPU. We'll provide further updates once we have better visibility. In terms of revenue growth for the whole year, we expect Bigo segment to remain in decent growth. As for the revenue distribution across the region, the group's revenue growth in the second quarter was mainly driven by developed countries and Southeast Asia region. The Middle East region underperformed mainly due to the Ramadan season. In terms of revenue distribution, our revenue is well diversified across the above mentored region. For Bigo Live in the second quarter, in MAU grow, same ratio, and ARPU expansion together drive to grow revenue. In terms of future trends, in the long run, we are positive about potential developed countries, including U.S., Europe, and Eastern Pacific region, as well as the Middle East market considering that users in these regions have better paying capability, and also better payment habits. We also extending our localized operations and content assets in Southeast Asia and also other developing countries, considering the huge user base and also that as we continue to cultivate users' behavior and habits in these regions, we believe that the monetization potential of these regions is also promising.

[Thomas Chung:]

Thank you.

[Operator:]

Our next question comes from Alex Poon at Morgan Stanley. Please go ahead.

[Alex Poon:]

My first question is related to Bigo Live new product and content strategies. Recently we have noted increasing penetration into game segments and also some casual games like Ludo? And also want to get an update around eCommerce strategy. And my second question is related to the use of cash and the status of the Baidu transaction. We have almost used up the share buyback program of $300 million, do we have plans to initiate new buyback program? And the use of -- any use of cash on other purposes if you can share? Thank you very much.

[David Xueling Li:]

This is David. In terms of the new contents related to game live streaming and Window games, because throughout our operation, we found that users in certain regions, especially in Europe, Middle East, and South America are very interested in gaming content. Therefore, in the past few quarters, we have gradually introduced more gaming content in these regions. As the global mobile game market has a very huge user base and that Bigo Live diverse content offerings and social interactivity fits mobile games naturally. In the long run, we believe that gaming content will be a important part of our diverse content offerings. And we will continue to partner with leading mobile game companies to create active and lively content community -- gaming content community. As for the Ludo games, this is a small attempt by us to encourage users to establish connections and interact with other users, enabling users to engage in social interactions, not only through live streaming, but also by playing casual games. So far, we have seen positive impact on Bigo Live user activity and engagement levels from these newly introduced gaming contents and Ludo games, but we might need longer time to draw any conclusion. The revenue contribution on gaming and Ludo game is still relatively small. As for cash usage, I believe that you could see from our earnings release that in the second quarter, we have repurchase around $100 million of our shares and we're still executing our quarterly dividend payouts. As for the remaining cash, as the sale of Wei Ya Live has been substantially completed, but to deal with some customer matters doing progress. We would love to wait till the full completion of the deal to determine the remaining cash you usage that we'd be able to give you a more clearer update. Thank you.

[Operator:]

Our next question comes from Yiwen Zhang at China Renaissance. Please go ahead.

[Yiwen Zhang:]

Thank you for taking my question. I have two. The first one is regarding accounting ecosystem, you mentioned a few times during the prepared remarks, can you share more color in localized content would help user official engagement and also to retention in a hope that could help differentiate us from the peers? And secondary on monetization, can you talk about the progress on now live stream monetization for example, advertisement? Thank you.

[David Xueling Li:]

This is David. I will answer your question. At this stage, the priority of Likee is still about content development, especially, the motivation and cultivation of content creators and the development of the content creator community. This quarter we have taken the first step. We have already seen positive impact on user retention rate, user time spend and frequency of user on platform. In the coming second half of the year, we will continue to launch more programs to better identify and cultivate creators and also bring more conducive updates regarding traffic allocation and provide diversify, monetization tools for creators, especially talented and outperform. So that we'll be able to enable creators to play a greater role on our platform. But we'll love to say is that compared with advertising, the cultivation of content ecosystem does not happen overnight. The improvement of content offerings and user experience is a gradual process. With few in the progress adjusting advertising, we believe that there will be time spent to gradually change users' using experience. We believe that it will have a positive impact on the health and sustainability of the product. Regarding diversify monetization, currently speaking, our revenue stream mainly including live streaming, advertising, and membership subscription. As of today, live streaming is still our biggest revenue stream, contributing around 95% of our revenue, while other revenues although growing at 40% year-over-year and close to 11%, quarter-over-quarter this quarter, in terms of the size is still relatively small. We're gradually progressing diversify monetization plans and will launch some new monetization features in the second half, which we believe will be beneficial to the content creators, as it will better connect the fans and content creators and cultivate users' paying habits and therefore driving further growth of our revenue. Thank you.

[Yiwen Zhang:]

Thank you.

[Operator:]

Our next question comes from Lei Zhang at Bank of America. Please go ahead.

[Lei Zhang:]

Thanks management for taking my question. Two questions here. First, can you give us more color on our regulatory environments in different overseas markets and any concern like data privacy, content, or the tipping behavior? Secondly want to follow-up on sales and marketing adjustments since last quarter. Since we have a good cash position and monetization remain good, well our competitors are actually investing overseas. So, want to know your thoughts? Do you have any concern user growth from the dynamic competition chain? Thank you.

[David Xueling Li:]

This is David. Regarding your first question about regulation, after the sale of Wei Ya Live, which has been successfully completed with certain customary matters to be completed. The majority of our business is located in non-DRT regions. But we do have R&D team located in China as there lots of experience come here. As for our global overseas market, as you can see on 2020, as we penetrate into multiple markets, such as Europe, Eastern Pacific region, the Middle East and other emerging countries, our revenue is actually well-distributed across different regions. So, the risk of any single region has been greatly reduced. And what we love to emphasize is that since the incorporation of JOYY, we have been strictly complying with local policy and laws, no matter in which countries we operate our business in. We will continue to execute our global strategy, reduce geopolitical risk to any particular region, to further diversify our revenue across multiple regions. Regarding your second question, we understand that previously, for any internet product, the usual logic of expansion is that early stage product might choose to effectively invest in advertising to grow a relatively sizable user base. Therefore, you can actually leverage on the advantage in terms of its user base to gain others competitive advantages in terms of attracting visitors, attracting advertising, vendors, and the third stage by all of these advantage lead to further user base expansion. That is a common logic of internet products. But we don't see that applicable for video, and it's not applicable for JOYY, because what we can see is that our main competitor right now is actually investing in dollar amount, way more than what we can afford. From what we know is that one of our key competitors have been expensed -- has been investing billions or even tens of billions of US dollar into user acquisition. And in such circumstances, if we invest couple hundred million US dollar or $1 billion into you the acquisition, it will not actually make any difference. So, I think that Likee would like to be more practical and take a relatively more balanced growth strategy whereby not to ensure the health and sustainability of the product, therefore, be more able to obtain average position from a longer term perspective. We believe that we still have opportunity to change once you obtain competitive advantage in the longer term. Thank you.

[Lei Zhang:]

Very helpful. Thank you.

[Operator:]

Our next question comes from Tian Hou at TH Capital. Please go ahead.

[Tian Hou:]

Wei Ya has doing live streaming for a long time