JOYY Inc.
Q1 2021 Earnings Call Transcript

Published: 27 May 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s First 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 first 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.

[David Xueling Li:]

Hello, everyone. Welcome to our first quarter 2021 earnings call. We reached another milestone in our product commercialization progress by executing our strategies of globalization through localization and short-form video plus live streaming. During the first quarter, total revenue of JOYY exceed Street expectations and grow by 88.1% year-over-year to US$643 million, especially revenue from Bigo grow by 92.5%, year-over-year to US$581 million, with paying user grow by 72.1% year-over-year to 1.67 million. Above all, Bigo’s non-GAAP net income turned positive during this quarter. We have always believed that how much we can harvest in the fall is determined by how much we have shown in the spring, and that's why we need to be long-term thinkers. As mentioned on our last quarter’s earnings call, Bigo’s achievement today is a result of our persistent execution of long-term business strategies over the past five years. Having reached a milestone in commercialization will remain goal oriented and long-term focused, where we’ll devote our resources to sharpening our competitive edge and expanding our marketing influence, so that we can sustain our growth trajectory for the long haul. At JOYY, we feel the social interactivity and content ecosystem as a strategic call that are fundamental to the long-term competitiveness of our products. JOYY has always been on a mission to cultivate an inclusive and global community where everyone can be heard and seen. During the first quarter of 2021, more than 17% of Bigo Live's active user hosted live streaming sessions and more than 19% of Likee's active user create their own short-form videos. Going forward, leveraging our product metrics combining short video content with live streaming, we seek to further expand user social connections via our content offerings, facilitate immersive social interactions through live streaming and help users forge intimate social relationships with one another. We aim to provide the user with a sense of collection, belonging and the gratification through social interactions in addition to relation and entertainment.

[Unidentified Company Representative:]

Okay. Thanks, David. Hello, everyone. JOYY’s Finance Controller, I will talk about the financial results. Since majority of our revenues and expenses are now denominated in USD, starting from January 1, 2020, we changed our reporting currency from Renminbi to US Dollar to better illustrate our operational results. Please note that the financial information and non-GAAP financial information disclosed in our first quarter earnings press release is present on a continuing operations basis, unless otherwise, specifically stated. After the deconsolidation of Huya, the company accounts for our investment in Huya as an equity measured investment and apply the equity measure accounting one quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of who we are? Also as the sale of YY Live was successfully completed on February, 8 2021 with certain customary matters to be completed in this 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 first quarter of 2021, we maintained our strong growth momentum and delivered robust financial and operating results. Our total net revenues for the first quarter increased by 88.1% year-over-year to $643.1 million from $342 million in the same period of 2020. In particular our large streaming revenues for the first quarter increased by 95.6% year-over-year to $614.5 million, driven by live streaming revenues growth from Bigo. Other revenues in the first quarter increased by 3.6% to $29 million. Cost of revenues for the first quarter increased by 76.5% year-over-year to $442.9 million. Revenue sharing fees and content costs increased to $282 million in the first quarter from $126.3 million in the same period of 2020 which was in line with the increase in live streaming revenues. Bandwidth costs decreased to $29.5 million from $33.2 million in the same period of 2020, primarily related to the company's improved emphasis and the commission of fan-based usage for users in India after age matters to block certain Chinese mobile apps in late June 2020, partially offset by the continued user-based expansion outside India.

[Operator:]

Thank you. Thank you. Our first question comes from Alex Poon at Morgan Stanley. Please, go ahead.

[Alex Poon:]

Thanks for taking my question. My first question is regarding, there are some rumors about the management change at the Bigo level. So, I would like to understand the actual situation and is there any impact on operation? My second question is regarding the Bigo key operating regions -- key operating countries about the user growth, user retention and paying ratio etcetera? Thank you very much.

[David Xueling Li:]

Hi. This is David. Let me answer your question. In the past 12 months Bigo did have some personnel changes. Such changes were made to better execute our long-term strategy and satisfy the evolving needs of business development. But what may remains unchanged with our conviction and confidence in the global market potential as mentioned before, we believe that Bigo Live still has four or even 5x potential of YY Live's revenue in the near future would mean that the global market potential is still unlimited for us to gradually exercise and execute in the following few years. As for Likee, there would be some strategy changes. As I mentioned in my prepared remarks, we have reduced our spending on advertising and prioritize our resources towards content ecosystem and our social community. We believe that the prior model of trying to seize more market share by aggressive advertising spending has to end. Previously, our business was more driven by our advantage in the technology sector. Going forward, we'd love to combine our technology advantage together with our operation advantages. Via that, we would love to gradually prioritize our resources in the content ecosystem, whereby we introduce more high-quality content creators and more premium content into our content pool and try to improve the retention rate and also on our content offerings by our localized operations. So I think that, for Bigo, it is already a company with five years' history and its business operations over the past few years have become more mature. As Bigo grows in scale and revenue, we seek to further establish a more mature system to recruit, develop and manage our talents. Going forward, we will continue to recruit more talent with technology expertise, global vision and also local acumen and further develop our team to better achieve our long-term business goals.

[Operator:]

Next question comes from Daniel Chen at JPMorgan. Please, go ahead.

[Daniel Chen:]

My question is related to the Baidu deal. So, could management provide related update on your transaction with Baidu on YY Live? Thank you.

[David Xueling Li:]

This is David. Regarding the latest updates of Baidu, we don't have any new information. As mentioned and disclosed in the SEC filings on February the 7 and March the 9, we have substantially completed the sale of YY Live to Baidu. There were still on customer matters that are still in progress. For further information, it will be disclosed when and as required by applicable security law. Thank you.

[Operator:]

Our next question comes from Thomas Chung at Jefferies. Please, go ahead.

[David Xueling Li:]

Hi, Thomas.

[Thomas Chung:]

Thanks management for taking my questions. My question is about the cost side. Can management share about the content cost trend, as well as the off packs and how we should think about margin trend going forward? Thank you.

[David Xueling Li:]

This is Alex. For clarification, the adjustment on product promotion synergy was mainly about prioritizing the allocation of resources. It means that the reduced spending on advertisement will be mainly redirected to product research and development, our content ecosystem and also other localized operational activity. In terms of profitability trend, as mentioned previously, Bigo Live itself it's already profitable. With the steady progress in terms of product monetization across other products, we believe that the operating margin of the whole Bigo segment will gradually improve. And given the economy of scale, we should be able to achieve more operating leverage on various expenses and cost items such as payment channel costs, bandwidth cost et cetera. The fact that Bigo's non-GAAP net margin turns positive this quarter marks a good start. So if we look at the full year, I think we should be able to achieve low single-digit non-GAAP net margin for Bigo as a whole.

[Thomas Chung:]

Thank you.

[Operator:]

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

[Tian Hou:]

So as Bigo is well-developed in overseas and the more users and user participation, I wonder if we have other ways to monetize this group of people. And also -- such as advertising, also in the last several calls, David, you mentioned about the new business. And I wonder if you could give us some clarification or updates on those new business? That's number one. Number two is that geopolitics. I do see more sensitivity in around geopolitics. So as a Chinese company to go overseas and operates in other countries, do you foresee any potential regulatory pressure on either live streaming or short video? Thank you. That's my two questions.

[David Xueling Li:]

And in terms of our other source of revenue, first of all, I’d love to clarify that we do believe that live streaming is a very healthy and promising monetization tool. And you will continue to see decent growth coming from live streaming monetization in the coming few year. As for advertising, we have been actively exploring in this sector as well. But we need to admit that even if we can achieve a certain scale from our global advertising revenues, it would still be very challenging for anyone to try to make advertising as a primary source of our revenue. You probably know that in the whole industry, we need to rely on Google and Facebook who are the two dominant platforms in terms of advertising, And if you like to start independent platform, you need very heavy investment into sales and marketing, probably hiring tens of thousands of sales and marketing staff to make sure that you've got sufficient source of sales -- of advertising customers. So, we do not see that that would be achieved within a short period of time. It's a more long-term and gradual process, but we do have higher interest in cross-border e-commerce. As I mentioned in our previous earnings calls as well, we still believe that over the coming few years, we do see that China's manufacturing still enjoys competitive advantages both in terms of supply chain efficiency and also product quality. So, we still love to participate in facilitating global trade and help to improve efficiency in such process. Thank you. For geopolitical risk, I think that the company has emphasized and have been well prepared in that sector. Since day one, we incorporated the company in Singapore and also have discrete and strictly abide by the policy and regulatory requirements of each region. In terms of our server network, we are also well distributed across the globe with data stored locally in different countries. And we have been hiring a lot of local employees. Currently our local employees total number has reached -- exceed several thousand. So, I think that we will continue to make sure that we stand by the policies and regulations of each local market that we operate. And you also can see that in 2020 and in the first quarter of this year as we penetrate into multiple markets such as Europe, Eastern Pacific regions the Middle East and other emerging countries on the risk of a single region assets greatly reduced. We will slightly adjust our user expansion and also operating strategies in accordance with the development of the overall situation to minimize the impact of geopolitical risks. Thank you.

[Operator:]

Thank you. That's all the time we have for questions. I will hand back to management for closing remarks.

[Jane Xie:]

Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.

[David Xueling Li:]

[Operator:]

Thank you. That does conclude the call today. Thank you so much for attending. You may now disconnect.