JOYY - Q1 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to the JOYY Inc.'s first quarter 2024 earnings call. At this time, all participants are in 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, Jane Xie, the company's senior manager of investor relations. Please go ahead, Jane.

Jane Xie (Head of Investor Relations)

Thank you, Operator. Hello everyone, welcome to JOYY's first quarter 2024 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Liu, the Vice President of Finance. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session. The financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I would like to remind you that we may make forward-looking statements which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the SEC.

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 (Chairman and CEO)

Hello everyone, welcome to our first quarter 2022 earnings call. To start, let me briefly reveal our performance in the first quarter. We kick off 2024 with a solid quarter. Group's revenue came in at $565 million, with our core business Bigo segment contributing $505 million. Group's Non-GAAP net profit reached $67 million, and Bigo's Non-GAAP net profit hit $71 million, both surpassing our expectations. Bigo sustained its top-line recovery trend for the third consecutive quarter, achieving 8% year-over-year growth. Live streaming revenues from our core global products, which include Bigo Live, Likey, imo, increased by 2.8% year-over-year, driven by a continued expansion of paying users, which was upped by 6.9% on an annual basis.

We have prioritized and channeled our advertising spend and other operational resources toward premium users and developed countries where we observe improved ROI and spending settlement across all Bigo's markets. Developed countries continued to outperform, with live streaming revenues achieving double-digit growth year-over-year. Importantly, as we continue to strategically expand and diversify our revenue streams, Bigo's non-live streaming revenues, primarily advertising revenues, grew substantially year-over-year. At the same time, we continued to improve our profitability at group level. Our non-GAAP net profit reached $67 million in the fourth quarter, up 34.8% year-over-year. Non-GAAP net margin increased by 3.4 percentage points to 11.9%. Notably, despite the negative impact of seasonality, the overseas segment steadily narrowed its non-GAAP operating loss on a sequential basis. This improvement was driven by further cost optimization and enhanced operational and management efficiency at both the group and product levels.

We sustained our positive operating cash flow in the first quarter, generating a robust $75 million with its foundation of healthy cash flows and our solid financial position. We repurchased an additional $554.5 million worth of shares during the quarter. As we have outlined previously, despite the last developments regarding the sales of YY Live, we remain committed to retaining value to our shareholders. We will continue to actively execute our current share repurchase program and enhance execution consistency. Looking ahead, well, we have seen some green shoots of recovery. Global macroeconomic uncertainties persisted. Our live streaming ARPU was still down slightly year-over-year, and the regional recovery trends diverged and remained uneven. As such, we will maintain our efficiency-oriented approach to our operational investments. We will continue to focus on ROI and nimbly adjust our strategies to align with prevailing market dynamics.

Prevailing market dynamics, we expect to drive healthy, sustainable growth of our business while maintaining stable profitability and positive cash flow. Based on our current operational plans, we expect Bigo to resume sequentially growth in the second half of the year and maintain its year-over-year revenue recovery for the full year. We anticipate that Bigo's revenue mix will become more diversified in 2024 with further increase in the contribution from non-live streaming revenue on a year-over-year basis. Now, let's delve deeper into our operational strategies by optimizing product features, providing diverse premium content, and leveraging innovative marketing activities. We continuously enhance our users' content and social experience.

Notably, our global operations teams collaborated with KOLs and industry partners to execute a range of innovative online and offline marketing activities in the fourth quarter, in addition to hosting galas and cultural-themed regional activities that resonate deeply with our users. We elevated our presence in the offline exhibitions and road shows. We also hosted creator parties and family events to further connect with our community. These initiatives drove deeper engagement with our global communities of users and significantly enhanced both product awareness and our brand influence. Furthermore, as a global technology company, we remain steadfast in our commitment to promoting corporate social responsibilities and sustainable development and integrating these principles into the core of our local operations worldwide. In March, we launched a series of regional events in the Middle East and Southeast Asia to celebrate Ramadan, fostering a sense of community among users during this festival period.

We also forged partners with several international charitable organizations, including the Indonesia Cancer Foundation, Saudi Arabia's Nama Charity Association, and Bangladesh's Jaago Foundation. We made a number of donations to those international charitable organizations, inspiring thousands of our users to join our cause and provide assistance to local families, patients, and children in need. We have also actively engaged in dialogues with government agencies, industry leaders, entrepreneurs, and other stakeholders in our key markets to align our regional operations with the economic and sustainable development goals of local communities. For example, in January, we attended the Jordan-Singapore Tech Alliance Forum with Bigo and the Information and Communications Technology Association of Jordan jointly signed MOU. This partnership aimed to strengthen bilateral cooperation, promote regional technological innovation, and facilitate economic growth.

In March, Bigo participated in LEAP, the largest technology exhibition in the Middle East, where we showcased Bigo's technologies and AI-driven solutions. Bigo's presence underscores our support for the region's sustainable development and our commitment to promoting entrepreneurship, innovation, and digital transformation. Now, let's take a closer look at our product. We will start with Bigo Live. In the first quarter, Bigo Live's revenue continued its year-over-year rebound, especially revenue from developed countries grew by 40.8%, accompanied by a 17.2% increase in paying users in those regions. During the quarter, we remained focused on Bigo Live's user acquisition strategy, channeling more resources into developed countries to enhance our monetization efficiency. As a result, Bigo Live's MAU was slightly down year-over-year, settling at 37.1 million.

However, MAU in developed countries rose by 8.9% on an annual basis, in contrast with a 4% decline in Southeast Asia and other emerging markets. Moving forward, we will continue to execute on our focused user acquisition strategy as we strive to optimize Bigo Live's user mix. While we anticipate some short-term fluctuations in MAU growth, we are confident that these adjustments will enhance the long-term validity of Bigo Live. In the fourth quarter, Bigo Live organized a variety of innovative marketing initiatives, enriching the platform with diverse, high-quality content and broadening our reach within the global community. A highlight was our participation in the Sanremo Music Festival, the world-famous Italian song contest and award ceremony held in early February. As a part of the organizer, Bigo Live showcased 10 of our most talented streamers through our music extravaganza that was streamed worldwide.

In addition, Bigo Live launched an intelligent management system for streamers and agencies, which significantly streamlines the contracting and management process by reducing the average duration from days to mere hours. This efficiency boost led to a 4.9% quarter-over-quarter increase in newly contracted streamers. We anticipate the automation initiatives such as this will further improve our overall operational efficiency in the long run. Family-based operational activities also played a key role in this quarter, strengthening social bonds within our user community. On a sequential basis, our approach yielded a 1.1% increase in paying family users and a 1.5% rise in contracted streamers within families and a 6.2% uptick in daily active users in family groups. We also simplified and upgraded Bigo Live's homepage and rolled out a refined AI-driven content recommendation algorithm that better catered to our core users' preference and their real-time feedback.

This resulted in a sequential increase of 1.1% in next-day user retention and 5.4% in average viewer time spent per live session. Enhancement to live streaming room tools and interactive features contributed to a 5.3% sequential rise in average viewer time spent per live session and a 4.4% sequential increase in the number of users going live in multi-guest rooms. Next, let's take a look at Likey. In the first quarter, Likey's revenue continued to recover year-over-year, and it maintained its profitability. Advertising revenue grew by 1.1x on an annual basis, and the DAU in the core European market maintained sequential growth. Likey's recent launch of interactive gaming features has been instrumental in breaking the ice and fostering connections between users, leading to substantial growth in paying users. During the fourth quarter, Likey launched a series of engaging community events for creators, users, and brands.

This included the Global Likey Party and the MENA Gala in the Middle East, co-hosted with Bigo Live. As Likey continued to enhance its creators' services and expanded its optimization tools and incentives for premier creators, its number of core creators increased by 30.6% quarter-over-quarter. Finally, turning to Hago, Hago sustained positive operating cash flow during the fourth quarter. Hago's implementation of more gaming field interactions and paid features has effectively boosted user engagement and monetization. Standout success was the role of the Fly Across the World event, spanning Hago's major operation countries. By participating in the event, users could travel virtually to various countries, collect charters, claim and nurture their travel companies' paths, and keep virtual gifts tailored to each location's unique culture and traditions. The event received enthusiastic feedback with nearly one-third of Hago's total paid users participating.

User engagement on Hago also increased notably with daily average time spent in social channels, rising by 2.8% to 102 minutes, and time spent in multi-guest audio live streaming rooms upped by 2.9% from the previous quarter. To sum up, we are off to a good start in 2022. Bigo has sustained its year-over-year revenue recovery trajectory while further diversifying its revenue mix. The group has delivered profit growth. Look ahead. We will continue to harness our product experience and drive operational innovations. At the same time, we will further optimize our efficiencies to propel sustainable, profitable growth across our global business. This concludes my prepared remarks. I will now turn the call to our Vice President of Finance, Alex Liu, for our financial updates.

Alex Liu (VP of Finance)

Thanks, David. Hello, everyone. Before I go into the details, we would like to remind you that despite the latest development in the sale of YY Live, as of the date of this press release, we have not obtained control over YY Live and, therefore, have not consolidated the business. The financial results presented in our press release and this conference call primarily consisted of Bigo and all other segments, excluding YY Live. I will now provide a recap of some key financial highlights for the first quarter. Overall, we observed improving fundamentals supported by Bigo's continued top-line recovery and efficiency improvement at group level. Our total net revenues were $564.6 million in the first quarter. Revenues from Bigo segment were $505.2 million, up 8% year-over-year.

In particular, Bigo's non-live streaming revenues were $63 million, which was up substantially year-over-year, primarily due to the increase of advertising revenues. Geographically speaking, as we prioritized to allocate our operational resources towards developed countries, our revenues from developed countries were up by double digits year-over-year, outperforming all other regions. Cost of revenues for the quarter decreased to $369.2 million, among which our revenue sharing fees and content costs increased to $268.4 million. Bigo's cost of revenues were $328.6 million, which was up year-over-year, consistent with the rebound in revenue and elevated creator support during the quarter. Gross profit was $195.4 million in the quarter, with a gross margin of 34.6%. Bigo's gross profit was $176.6 million, with a gross margin of 35%.

Bigo Live's gross margin was lower year-over-year due to change of revenue mix and higher contribution of Bigo Audience Network advertising revenues. Our group's operating expenses for the quarter were $195.4 million, compared with $205.3 million in the same period of 2023. Among the operating expenses, R&D expenses decreased to $69 million from $75.8 million, primarily due to decreased personal expenses and share-based compensation expenses. Our sales and marketing expenses decreased to $94.6 million from $97.6 million in the same period of 2023. Bigo Live's total operating expenses for the quarter were $129.5 million, which was slight year-over-year, while its total operating expenses ratio was 25.6% during the quarter, down from 27.6% last year. Our group's net operating income for the quarter was $3.5 million.

Our group's non-GAAP operating income for the quarter, with excluded SBC expenses, amortization of intangible assets from business acquisitions, loss on deconsolidation and the disposal of subsidiaries, as well as impairment of goodwill and investments, was $24.8 million in this quarter, with a non-GAAP operating income margin of 4.4%. Bigo's net operating income for the quarter was $50.4 million, and Bigo's non-GAAP operating income was $63 million, representing a non-GAAP operating income margin of 12.5%. The gap in non-GAAP operating loss for all other segments during the quarter was further narrowed to $46.8 million and $38.2 million on a sequential basis, respectively, despite the negative impact of seasonality. Our group's net income excluding non-controlling interests of JOYY in the quarter was $45.3 million, compared to $28 million in the same period of 2023.

Net income margin was 8% in the first quarter of 2024, compared to 4.8% in the same period of 2023. Bigo's net income in the quarter was $69 million, with a net margin of 12.1%, up from 9.3% in the same period last year. Net income excluding non-controlling interests of JOYY in the quarter was $67.2 million, compared to $49.9 million in the same period of 2023. The group's net income margin was 11.9% in the quarter, compared to 8.5% in the same period of 2023. Bigo's net income was $71.2 million, compared with $56.8 million in the same period of 2023. Bigo's net margin was 14.1% in the quarter, up from 12.1% in the same period last year. For the first quarter of 2024, we booked net cash inflows from operating activities of $75 million.

We maintained a healthy balance sheet with a strong cash position of $3.6 billion as of March 31st, 2024. In the first quarter, we continued to enhance returns to shareholders and repurchased an additional approximately $54.5 million of our shares. As of the end of March, we still have around $472 million unutilized quota in our current share repurchase program. We intend to actively utilize our current share repurchase program and proceed with a steady execution of additional share buyback in 2024. Turning now to our business outlook, we anticipate continued top-line recovery in the Bigo segment. However, due to the ongoing uncertainty in the global macro landscape, we recognize that the pace of recovery may be uneven across different markets, and there may be short-term fluctuations in user paying segments.

At group level, we expect our net revenues for the second quarter of 2024 to be between $538 million and $569 million. This forecast reflects our preliminary views on the market and operational conditions, which are subject to changes. Looking forward, we will remain dedicated to our strategic priorities, optimizing product and innovating our operations to create value for our users and stakeholders. We continue to execute our ROI-oriented operational strategy in order to deliver profitable, sustainable growth. That concludes our prepared remarks. Operator, we would now like to open up the call to questions.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. Your first question comes from Henry Sun with J.P. Morgan.

Henry Sun (Analyst)

[foreign language]... I'll translate myself. Thanks, management, for taking my question. My question is about the revenue and Bigo Live. Could management share the revenue outlook for 2024, and what are the expected trends for Bigo Live by region in the second half of this year? Thanks.

David Xueling Li (Chairman and CEO)

[foreign language]...

Speaker 8

Hi, this is David. I will take your questions. First, let's review the monetization trends for Q1. In the first quarter, Bigo's three core products saw positive year-over-year growth in their live streaming revenue, although there was a QoQ decline, primarily due to the impact of a low season. The current revenue recovery is primarily driven by the growth in paying users, while our ARPU is still showing a year-over-year decline. Looking at the trends across different markets, the revenue in developed countries maintained double-digit growth year-over-year in the first quarter, while other regions such as the Middle East and Southeast Asia have not yet returned to recovery trends. Taking the ARPU decline and the uneven trend across different regions, we believe that uncertainties and risks still persist regarding the global macro environment.

Therefore, we still need to remain focused and targeted, spend our money wisely with our ROI and efficiency as the top priorities, seeking a healthy growth based on stable profitability and healthy cash flows. Maintaining a targeted and focused operational strategy actually requires the combined efforts of multiple teams, including our user acquisition, our content operation, and our content recommendation algorithm team. This actually involves the in-depth analysis of different demographics of users, content, and also tipping behavior and their ROI. Based on those data, we then flexibly adjust our advertising spend, our content recommendation, and our monetization-driven activities accordingly, making sure that these adjustments are coordinated and synchronized. While doing that process, we figured that actually our platform's diverse culture provides extra and unique emotional values to users.

Those who value such aspects tend to have a higher ARPU than the overall average and exhibit very strong loyalty. Therefore, we will continue to uphold our value to cultivate a diverse and inclusive culture and combine it with our targeted operational strategy and amplify our advantages of diverse culture and multi-market operation. Looking ahead to the revenue trend in the following quarters, first of all, for Q2, because of the influence of Ramadan and the celebration of Eid, during which we believe users' offline social activities will increase. And also together with some of our optimization of content policies in certain regions, we expect a relatively softer Q2, and that was reflected in our current guidance.

However, given that we expect to have elevated levels of operational activities and marketing activities in the second half of the year, we still expect Bigo's revenue growth will be better in the second half of the year. For the full year of 2024, we're still expecting Bigo to maintain a revenue recovery trend on a year-over-year basis. Thank you. Next question, please.

Operator (participant)

Your next question comes from Alex Poon with Morgan Stanley.

Alex Poon (Wall Street Analyst)

[foreign language]... Thank you, management, for taking my question. My question is related to our group margin trend and Bigo margin trend in the rest of the year. Thank you very much.

Alex Liu (VP of Finance)

Alex, ...[foreign language]...

Speaker 8

Thank you. This is Alex. I will take your question. In the first quarter, the group's Non-GAAP net profit achieved a year-over-year increase of 34.8%. First, looking at Bigo segment, Bigo's Non-GAAP net profit grew by 25.3% year-over-year. The amount of Non-GAAP operating profit was flattish, in line with our expectations. In Q1, Bigo's Non-GAAP gross margin was 35%, declining year-over-year, mainly due to the strategic upgrade of Bigo's advertising business and some change in the revenue mix. Excluding that impact, Bigo's Q1 gross margin is consistent with our expectations for a low season. In terms of operating expenses, thanks to our continued cost optimization and improvement of our operational efficiency, Bigo's operating expenses increased by a slower rate than its revenue growth.

Regarding the overseas segment, despite the impact of a low season and also the proactive adjustment of certain non-core audio live streaming business that we did last year, the segment continued to book reduced operating losses in Q1 on a sequential basis, with its Non-GAAP operating losses narrowing by 2.1% QoQ. So looking ahead to the rest of 2024, we expect to continue to focus on ROI and efficiency. For Bigo segment, we expect Bigo to continue its top-line recovery year-over-year and deliver a stable amount of Non-GAAP operating profit while excluding the impact of some adjustments to non-core audio live streaming business. And for the overseas segment, we expect it to further narrow its Non-GAAP operating losses QoQ. Thank you. Next question, please.

Operator (participant)

Your next question comes from Lei Zhang with Bank of America.

Lei Zhang (Senior Equity Research Analyst)

[foreign language]... Thanks, management, for taking my question. Want to follow up on the share repurchase plan? What can we expect in the following quarter since we have repurchased almost $55 billion in the fourth quarter? Thank you.

Alex Liu (VP of Finance)

[foreign language]...

Speaker 8

Thank you, Lei. This is Alex. I will take a question. As we've just mentioned, although the sale of YY Live is not yet conclusive, we remain committed to returning value to our shareholders. In the first quarter, you can see that we have repurchased an additional $54.5 million worth of our shares. As of the end of Q1, we still have around $772 million unutilized quota under our current share repurchase program. We intend to continue to execute additional share repurchases and will strive to improve our execution consistency in 2024. Thank you. Our last question, please.

Operator (participant)

Your last question comes from Yiyuan Zheng with China Renaissance.

Yiyuan Zheng (Analyst)

[foreign language]... So thanks for taking my question. My question is regarding our Non-Live Streaming business. Can you discuss the latest trend there and our future plan? Thank you.

David Xueling Li (Chairman and CEO)

[foreign language]...

Speaker 8

Thank you. This is David. I will answer your question. Currently, our Non-Live Streaming revenue primarily includes advertising revenues, which could be further diverted into two categories, including advertising revenues generated on our own social platforms and advertising revenues generated on Bigo Audience Network, where we work with third-party traffic. Looking back at the year of 2023, we've made some progress regarding our Non-Live Streaming business, with Bigo's Non-Live Streaming revenue increased by 14% year-over-year and Bigo's advertising revenue increased by nearly 2.5x year-over-year. In Q1, we continue to see significant year-over-year growth in Bigo's Non-Live Streaming revenues. That was partially driven by the strategic upgrade of our Bigo Audience Network advertising business. Excluding our network advertising revenues, Bigo's Non-Live Streaming revenue grew by over 50% year-over-year. Among this, Bigo's advertising revenue increased by 1.1x in the quarter.

However, I would like to acknowledge that our advertising business is still in a relatively early stage. We will continue to optimize our products and services, focus on growing our core market DAU and also our merchant advertiser corporation network. We expect to continue to expand and diversify our revenue streams and drive a long-term sustainable growth with a much diversified engine. So that was the last question. Thank you so much for joining our call. We look forward to speaking with everyone next quarter.

Operator (participant)

That does conclude our conference for today. Thank you for participating. You may now disconnect.