JOYY Inc.
Q4 2020 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the JOYY Inc.'s Fourth Quarter and Full year 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the 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, Ms. Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

[Jane Xie:]

Thank you, operator. Good morning and good evening everyone. Welcome to JOYY's fourth quarter and full year 2020 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; our CFO, Mr. Bing Jin and COO, Ms. Ting Li.

[David Xueling Li:]

Hello everyone and welcome to our fourth quarter of 2020 earnings conference today. 2020 marks a develop, and capitalize on a number of growth initiatives, including YY Live, Huya, Bigo Live, Likee, Hago, and more. Today, excluding YY Live, JOYY serves over 350 million users worldwide, through a diverse portfolio of online entertainment products in live streaming, short-form video, casual games, instant messaging, and audio based social media. After nearly five years of development. Our overseas business, Bigo has already generated larger revenue than YY Live in 2020. Our track record of success has validated not only our long-term growth strategy, but also our unique capability in leading continuous innovation and our commitment to generate impressive ROI for shareholders. Going forward, we will remain focused on filling our live streaming and show from video growth engines. Accelerating our overseas expansion, including JOYY into our inclusively, vibrant, diverse and engaging social entertainment ecosystem. We firmly believe that Bigo Live has the potential to create at least four times the scale of YY Live in terms of revenue. We also foresee great monetization potential for Likee. As it enjoy substantial competitive advantage in low-entry barrier for user content production, high user engagement and interactivity and intrinsic social features. We plan to realize the potential of both platforms through a combination of global footprints and localized operations. To further localize our product offerings and business operations, we will further strengthen our talent team with technology expertise, global vision and local knowledge. As of December 2020, over 25% of Bigo staff were hired locally. Armed with local language, cultural backgrounds and consumer insights, our employees are able to tailor our products to the unique user preferences in each target market, and thus expand our local user base.

[Operator:]

You may go ahead.

[Bing Jin:]

Thanks. Thanks David. Hello everyone. As David noted, I will leave my current position as the company's CFO at the end of April to pursue a new job opportunity. I would like to start off by saying that it has been a true honor to serve as JOYY's CFO and grow together with the company over the past several years. I will always cherish this experience and would like to thank David and all of my colleagues here for their guidance, support, and friendship. Looking ahead, I firmly believe that this company remains well-positioned to continue developing its competitive advantage, increasing its share of global social entertainment market, and delivering outstanding results. Now, as JOYY's CFO, I will talk about the financial results. Please note that the financial information and non-GAAP financial information disclosed in our fourth quarter earnings press release is presented on a continuing operational basis unless otherwise specifically stated. After the deconsolidation of Huya, the company accounts for our investment in Huya as an equity method investment and applied the equity method accounting one quarter in the arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya. Also at the company entered into definitive agreements with Baidu on November 16, 2020 pursuant to which, Baidu will acquire JOYY's domestic video-based and its entertainment live streaming business YY Live and the sale of YY Live was substantially completed on February 8, 2021. 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.

[Operator:]

Thank you. We will now begin the question-and-answer session. Also when asking your question, please state your question in Chinese first then immediately repeat your question in English. Thank you. Our first question comes from Thomas Chong at Jefferies. Please go ahead.

[Thomas Chong:]

Thanks management for taking my questions and congratulations on a strong set of results. My question is about Bigo Live, can management share about the paying ratio as well as the people at the moment? And with regard to our 2020 revenue growth, what’s the contribution coming from user paying ratio as well as our people? Thank you.

[David Xueling Li:]

Thank you, Thomas. Let me address those questions. In terms of the current paying ratio ARPU of Bigo Live, let's talk about the paying ratio first. The paying ratio of Bigo Live is still lower than in China YY Live, but we have seen a good ramp up of the paying ratio for people, particular Bigo Live strategies penetrating the developed markets. Developed markets as revenue contribution to Bigo Live is over 43% already. So, as we had a couple more developed markets, the paying behavior, the paying capability of those developed markets users, obviously is much higher than the original emerging markets. So, we will continue to see a ramp up of the paying ratio, but it's still lower than in China at this stage. We see a good future potential. In terms of the ARPU, as we explained to the industry before and analysts before, the general ARPU of Bigo Live is around three times of YY Live. And as we penetrate to more developed markets, we will also see a future ramp up of the ARPU level for Bigo Live in general. In terms of the contribution for our revenue in 2020, as you can see we have achieved more than 110% year-on-year growth for revenue contribution. I will say, roughly, one-third is from the user expansion, meaning the MAU growth for Bigo Live, particularly driven by growth markets as I mentioned, and one-third for paying ratio expansion and also one-third for ARPU expansion. Thank you.

[Thomas Chong:]

Thank you.

[Operator:]

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

[Alex Poon:]

My question is related to Likee, could management please share the user and revenue target in the next one to two years. And in terms of the user engagement revenue diversification, geographical distribution how is it different from Bigo Live? And in terms of user behavior, is there any notable difference between Likee and short video platforms in China? Thank you very much.

[David Xueling Li:]

Hi. This is David. Let me answer your question. As I mentioned in the previous speech, Likee just started modernization recently and in the past three years of development, we have focused on user expansion and also community cultivation. I believe that in the long run, we expect some changes to Likee’s long term strategy in the following aspects, especially on in terms of – understanding of the competitive landscape, would like to prioritize key features of our Likee. First one is, the social community and user interaction. Second, it's our content creators. I believe that if we continue to cultivate our social community, improve user interaction and continue to empower our content creators in all aspects, we'll be able to achieve a differentiated competitive advantage against our competitors, especially, based on our understanding and our knowledge, we believe that a lot of our competitors are still having a very completely different ecosystem, whereby it's more like a media feature, whereby the KOLs are dominated platforms, while Likee is more content on -- it's more a community which emphasizes user interactions and also content creator focus. So I believe that on based on such a long-term strategy, we'd be able to have differentiated competitive advantage in the global industry and that would also help the company and Likee to achieve a long-term sustainable growth. Thank you.

[Alex Poon:]

[Operator:]

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

[Yiwen Zhang:]

Thank you management for taking my question. So, my question is on the overseas live streaming. When entering into this market for five to six years, and when entered a different market in different time, can we discuss what stage of live streaming in each market primarily used also on America and Europe? Also, can you touch on any recent change that you're seeing in live streaming in that any overseas market? Thank you.

[David Xueling Li:]

This is David. Let me take your question. I'd love to clarify here is that, if you look at our quarterly over quarter growth rates for BIGO in RMB, you might consider growth rate relatively flat with minor decrease. But if you actually exclude the FX loss fluctuation and you look at it on a constant currency basis in terms of U.S. dollar, we actually accomplish a quarterly over quarter increase of 4% and year-over-year increase of 82%. So that actually proves our point that the overseas live streaming industry is actually growing at a very fast speed. In terms of, especially if you look at the scale of BIGO’s revenue, right now we have already surpassed the RMB 10 billion in terms of revenue for the full year, and the fact that we'll be able to still grow our revenue at such a rapid speed, at such scale, increase that, the potential of the overseas live streaming industry. And also on -- in the past, it was a tradition for the market to believe that the U.S. users does not actually have a habit of clipping on live streaming platforms, while actually in the past few years of business practice, we actually witness a very strong growth in the live streaming sector in the U.S. market. So it's not a China specific business model, it's already a well-established, a well-accepted business model to monetize your users. And we believe that it's actually a quite, not only mature but very user friendly business model in a way that it does not interrupt the users from enjoying the use of these applications and it does not interrupt the users user experience improvement while using their apps. So, it's actually a very good business model as compared to a lot of other monetization tools. So, if you look back, as we launch our audio live streaming and video live streaming back in 2010, I think that on – we've witnessed the growth process, the trajectory in the past 10 years. And we've seen that today it has come to a point in China that almost all internet companies, small and big, have all included live streaming, as a very essential and important or even main monetization tool. So I think that it will be the same for US and also the other overseas countries, especially in US for platforms such as YouTube, Instagram or Facebook. I think it's very likely that they will all kick-off monetization via live streaming soon. So it's just a matter of time, and the difference in terms of, on the stage of development between the PRC live streaming sector and the overseas sector. We believe that on such involvement will continue to drive the market potential of the overseas live streaming sector to even larger, and also, everyone will be able to contribute to the whole ecosystem. In China, we have seen that, even with the major, the big conglomerates entering into live streaming sector, it actually does not affect those existing players, market share, or their revenue scale. It's because, what we saw was that the market begin to recognize or increasingly recognize the business model and the scale of the total market begin to increase to a new level. And I think that's on – and also on for the applications, it was previously mainly focus on entertainment live streaming, and then throughout the development in several years, we began to see multiple applications via live streaming in areas such as education, e-commerce, and also other abundant applications. So I think that such trend is likely to replicate in the overseas sector, and we believe that we'd be able to see the potential of the whole market, and be able to continue to capture such market potential. Thank you.

[Operator:]

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

[Lei Zhang:]

Thanks management for taking my question. Can you give us more color on the use of cash? And does that imply for Bigo oversea markets then how should we look at emerging trends for Bigo in 2021? Thanks.

[Bing Jin:]

Thanks, Zhang Lei. Let me address those two questions. First is regarding the use of proceeds. We had a good cash balance right now and obviously after Baidu's acquisition of Wireless is completely down we have additional use of coming in, and then we will have several matters of utilize this cash. One is, obviously, we still need to organic grow our business, particularly given the global overseas market is much bigger potential, so we will continue to invest in terms of sales marketing, R&D, artificial intelligence, et cetera. Secondly, we had a $1 billion convertible bond outstanding. So, at the right time we will pay back that convertible bond, so that's another $1 billion cash usage. Typically, as we mentioned in the prepared remarks, we are thinking about a potential dividend or additional share buyback programs, albeit depending on the share price of returning more values to shareholders, so we'll keep flexible in terms of the cash usage. We will not do big scale M&A at this stage. So in general we will make sure that we generate good value for the shareholders. Certainly, in terms of investment for Bigo, there are two parts, one, is Bigo Live. Bigo Live is already very profitable over 20% margin profile. So I think the margin of Bigo Live will continue to improve given that we will further enhance the overseas payment channel efficiency, and then with the rapid revenue growth scale, we will achieve more operating leverage on various expense and cost items. For Likee, the strategy going forward will be a more balanced approach. We will pay more attention to the ROI of the spending and focus on the key areas where Likee has very strong presence, and we will find a way of further monetizing the Likee's user base. So as a result, I think the investment of Likee will also be further, I will say monitored according to the ROI return. So in general, if you combine these two together, the non-GAAP net margin for Bigo will obviously be positive. As we said, we have already achieved breakeven for two consecutive quarters. If we look at the full year 2021, I think we will be able to achieve a kind of low single-digit margin profile for Bigo as a whole. Hopefully that answers your question.

[Lei Zhang:]

Thank you. Very clear.

[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.

[Bing Jin:]

Thank you, everyone.

[Ting Li:]

Thank you. Bye, bye.