JOYY Inc. (JOYY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s Third Quarter 2021 Earnings Call. [Operator Instructions] 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.

Thank you, operator. Hello, everyone. Welcome to JOYY's Third 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 Liu, 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 session. The third quarter 2021 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 refer you to our safe harbor statement in our earnings press release, which apply to this call as well 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. dollars. I will now turn the call over to our Chairman and CEO, Mr. David Xeuling Li. Please go ahead, sir.

Hello, everyone. Welcome to our third quarter 2021 earnings call. Despite the increasing uncertainty due to COVID-19, we had another solid quarter as we grew our total quarterly revenues by 21.7% year-over-year to $651 million, while BIGO's revenue increased by 60.1% year-over-year to $569 million. Notably, we attended a non-GAAP profitability at the group level for the first time, since we consolidated Y-o-Y life and booked $35.1 million in non-GAAP net profit. This was mainly attributed to BIGO's margin expansion and improved operating leverage at the group level. During the quarter, BIGO's non-GAAP net profit expand to $49.6 million, while it's -- non-GAAP net margin improved from 3.3% to 8.7% in the previous quarter. The persistent execution of our globalization strategy has enabled us to deliver steady progress across multiple aspects, including, one, the continued expansion of our global business. Two, diversify content offering on various products that nature interest -- nurture interest-base interactive social connections, three, and better synergy among multiple products that drive steady improvements in profitability at the group level. Next, let me share greater detail on some quarterly updates for each of our core product line. Let's start with BIGO LIVE. Despite global economy uncertainties and other challenges posted by the resurgence of COVID-19, our business demonstrated resilience as we entered the post-pandemic era. BIGO LIVE's live streaming revenue increased by 8.6% year-over-year in the third quarter. Our efforts to cultivate a global diversified content pool has been effective in further expanding the product reach of BIGO LIVE as BIGO LIVE MAU increased by 10.7% year-over-year to $31 million in the quarter. The continued execution of our localized operation strategy has contributed to gradual buildup in the paying behaviors of our users as the number of paid users increased by 60.1% year-over-year. We also continued to deliver a robust performance of BIGO LIVE in multiple regions. In particular, on a year-over-year basis, revenue and pay user from Europe increased by 50.6% and 26.7%, respectively. While revenues and pay users from Southeast Asia and other emerging regions increased by 29.6% and 31.7%, respectively. As we expand BIGO LIVE's operations into multiple regions, our revenue mix continued to diversify, awarding reliance on any individual markets. Looking at the development of the global live streaming industry, we believe that the penetration rates for live streaming remains at very low levels, leaving us with tremendous growth opportunities ahead. Going forward, we will continue to deepen penetration in multiple key markets include North America, Europe, Middle East and Eastern Pacific regions, and dedicate more resources towards the emerging markets as well. In doing so, we will further solidify our leading global market position in the social and entertainment live streaming sector. With regards to our content efforts, in the past few quarters, we have been enlarging our talent pool of content creators and expanding our local live's premium content library via various cross-industry partnerships and a series of localized operational activities. We have focused on a handful of categories, including,pan-entertainment, gaming and lifestyles and further expanded our product reach. For example, for the pan-entertainment category, the first live broadcast content, music, competition, Voice of BIGO, wrapped up recently achieving a huge success in Thailand, attracting more than 100,000 people concurrent relievers for its final event. In North America, BIGO LIVE launched a new channel feature and attracted many influencers to create their own personal channels on the platform, covering some of the hottest products and pop culture, including Canadian singer, Kreesha Turner's finance channel, Sam Asghari's fitness channel and American Reality star and singer, Farrah Abraham, mental health channel. On one other hand, we provide a platform for those influencers to showcase their talent and creativity. On the other hand, we leveraged our influencer to promote content diversification and high-quality engagements on BIGO LIVE platform. In the gaming category, we partnered with 2 mobile game heavyweights in July, further enriching BIGO LIVE's gaming content. In France, BIGO LIVE partner with a popular mobile RPG, Saint Seya KotZ, which was published globally by GTarcade and hospital -- series of incentive events for BIGO LIVE's gaming content creators. Meanwhile, through our cooperation with Garena, we hosted and streaming the Free Fire League, a national level eSport tournaments in South Asia. As a result, we further enrich our gaming UGC during the quarter. We are also further expanding our connections while unlocking new interactive sectors. In the lifestyle category, we made our initial foray into e-commerce live streaming in Southeast Asia. In August, we launched the BIGO marketplace channel in Indonesia, Malaysia and Thailand. And we conducted controlled beta test of the In-App Shop feature, which enables small group of pellet users to complete their purchase through PunchOut things. With registered third-party merchants, while BIGO markets is still in its infancy in terms of development. It has the potential to expand our product reach by providing a diversified interactive experience for our users. During the quarter, we continued to introduce innovative product features on BIGO LIVE to further improve our user experience. New features include the future in picture, new live streaming mode supporting 12 to 18 years streamers for multiuser chat room and more. As a result, the number of streamers of multiuser chat room increased by 2.3% and average duration per live streaming session increased by 5.3% sequentially. In addition, we updated BIGO LIVE's nonreal-time content sharing feature BAR and improved its user engagement further achieving 8.1% sequential increase in average user time spent between postings also by optimizing its content recommendation algorithm with more precious user profiling, we eased BIGO LIVE user discovery of interested based content beyond live streaming rooms increasing its next day user retention rates by 0.5%. Going forward, we plan to further enrich our localized content offerings. We believe that it will help our users establish more fulfilling interest-based social connections, further expand our product reach to our user base expansion and ultimately help build drivers inclusive global community. Next, on Likee. In line with our emphasis long-term growth and sustainability, we have been finding turning Likee's smart marketing strategy since the first quarter of this year and the priority in being our investment on our content and social ecosystem. As a result, Likee's overall MAU experienced some short-term in flow -- short-term flow quotations and declined to $76.8 million. However, we are starting to see a slowdown in the downward chain, especially in the Gulf Suites from the Middle East region. Therefore, Likee's Live streaming revenue grew further by 58.1% year-over-year, mainly driven by the Middle East region as the revenues from the Middle East increased by 1.5x year-over-year. In the past quarter, our efforts have been centered on identifying, cultivating and supporting talent content creators to cultivate a friendly and vibrant content creation community. We launched a series of incentive programs offering both user traffic and other economic rewards to influential content creators with more than 10,000 stems. At the same time, we continue to uncover the most talent content creators through a variety of localized stems, event and challenge. As a result, the number of certified creators increased by 17% sequentially in the third quarter. As part of the incentive programs, Likee introduced new product features called SuperLike in Russia and Indonesia, the Middle East and other regions. With the new feature, users are able to obtain SuperLike either through purchasing or building in-app commercials and then grant them to their favorite creators and short videos. Essentially, SuperLike enables creators to engage with a large range of same group in non-real-time manner, stimulating social interactions and adding a diversified monetization tool for creators, motivating the production of more premium content. As a result, in Russia, for example, Likee's launch of SuperLike guaranteed widespread garnered widespread interest from creators and evidenced by 7.1% month-to-month increase the number of certified creators joined the Likee community. Looking ahead, with the recruitment of an increasing number of talented creators, we should be able to argument Likee's reach and dynamic content ecosystem and pave the way towards the revival of its user base expansion. Lastly, on HAGO. HAGO's live streaming revenue continued its rapid growth momentum as its revenue grew by 78.8% year-over-year, and its number of paying users increased by 1.5x. In terms of product development, over the last few quarters, we made some strategic change to HAGO's positioning, transitioning from the interactive platform primarily focused on casual games to audio and video multiplayer social interaction and entertainment platform. We made successive launches of features, updates in the past few quarters, including the HAGO 4.0 update with a major revamp for its channel feature focusing on the improvement of multi-user social interactive activities. The virtual family group function and most recently the [indiscernible] audio live streaming service for mobile games. Those new features enable users to continue making the envelope for entertainment and interactions needs for our users. Following the series of adjustments, we have achieved a preliminary transformation in HAGO's traffic structure driving significant improvements in user interaction. On a sequential basis, channel penetration rates increased by 4.0%. In the penetration of our virtual family group, function increased by 9.9%. The average duration of voice chat room increased by 40.3% to 80 minutes while the penetration rates of team up audio live streaming service for mobile games increased significantly from 0 to 6.6% -- 4.4%. In the future, we will continue to provide users with a more diverse, more clear, interactive entertainment experience and cultivate interest-based social entertainment community. All in all, during the third quarter, despite the recent volatility in the macro element and the increased uncertainty during -- due to COVID-19, our persistent execution of our globalization strategy helped us to achieve substantial programs in multiple fronts. Our efforts of enhancing our diversified and localized content ecosystem have helped BIGO LIVE to further expand its product reach and user base while continuing the cultivation of talented content creators and effectively increasing engagement levels in Likee's content community through the combination of improved synergy among various product enhanced operation, leverage and prudent marketing strategy. We have achieved a steady expansion in profitability for both BIGO segment and for the entire group. Going forward, we will continue to cultivate our local lines, the content and social ecosystems, nurture interest-based interactive social connections, and pursue long-term sustainable growth for our global business. Lastly, in light of the current market conditions on top of the current USD 200 million, new share purchase plan announced in September 2021, our Board of Directors has just authorized additional share purchased plan, under which the company may purchase up to USD 1 billion of our shares till November 2021 to demonstrate our confidence in the company's long-term growth perspective -- prospects, and to reward our shareholders for their long-term support of the company. This concludes my prepared remarks. I will now turn the call to our General Manager of Finance, Alex Liu, for a more detailed explanation of our quarterly financial results.

Thanks, David. Hello everyone. As JOYY's Financial General Manager. I will talk about the financial results. Since a 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 non-GAAP financial information disclosed in our third quarter earnings press release is presented on a continuing operations basis unless otherwise specifically stated. As the still of VAVA LIVE was substantially completed on February 8, 2021 with certain customary matters to be completed in the near future. The historical financial results of VAVA LIVE are reflected in the company's consolidated financial statements as discontinued operations accordingly, starting from the fourth quarter of 2020. During the third quarter of 2021, despite the recent volatility in the macro environment and increased uncertainty due to COVID-19, we continued to deliver promising financial results. Our total net revenues for the third quarter increased by 21.7% year-over-year to USD 650.5 million from USD 534.4 million in the same period of 2020, primarily attributable to the continued paying users growth of BIGO. In particular, our live streaming revenues for the third quarter increased by 19.7% year-over-year to USD 612.2 million and other revenues in the third quarter increased by 66.8% to USD 38.4 million. Through the combination of improved synergy among multiple products, enhanced operating leverage and prudent marketing strategy, we have achieved a steady expansion in profitability for both BIGO segment and for the entire group. Cost of revenues for the third quarter increased by 16.1% year-over-year to USD 439.8 million. Revenue sharing fees and content costs increased to USD 290.1 million in the third quarter from USD 234 million in the same period of 2020, which was in line with the increase in live streaming revenues. Bandwidth cost decreased to USD 19 million from USD 27.6 million in the same period of 2020. Primarily due to the company's improved efficiency and the termination of bandwidth usage for India users after the India government ban of Chinese apps in later June 2020, partially offset by user-based extension upside India. Gross profit increased by 35.5% year-over-year to USD 210.8 million. Gross margin in the third quarter of 2020 improved to 32.4% from 29.1% in the same period of 2020. Operating expenses for the third quarter decreased to USD 208.7 million from USD 249.4 million in the same period of 2020. Among the operating expenses, sales and marketing expenses decreased to USD 106.3 million from USD 134.6 million due to disciplined spending on user acquisition via advertisement for certain products, including Likee and HAGO. Our GAAP operating income for the third quarter was USD 6.9 million compared to operating loss of USD 89.3 million in the same period of 2020. Operating income margin for the third quarter was 1.1%, compared to operating loss margin of 16.7% in the same period of 2020. Our non-GAAP operating income for the third quarter, which excludes share-based compensation expenses, amortization of intangible assets from business acquisitions as well as impairment of goodwill and net investments and a gain on the total subsidiaries and business was USD 31.3 million in the quarter compared to non-GAAP operating loss of USD 39.5 million in the same period of 2020. Our non-GAAP operating income margin for the third quarter was 4.8% compared to non-GAAP operating loss margin of 7.4% in the prior year period. GAAP net income from continuing operations attributable to controlling interest of JOYY in the third quarter of 2021 was USD 7.5 million compared to net income of USD 191 million in the same period of 2020. Net income margin was 1.2% in the third quarter of 2021 compared to 35.7% in the corresponding period of 2020. Our net income was higher in the same period last year, mainly due to the gain from the partial disposal of equity interest in Huya. Non-GAAP net income from continuing operations attributable to controlling interest of JOYY was USD 35.1 million in the third quarter compared to non-GAAP net loss of USD 26.6 million in the same period of 2020. Non-GAAP net income margin was 5.4% in the third quarter of 2021 compared to non-GAAP net loss margin of 5% in the same period of 2020. This means that we have attained non-GAAP profitability at group level for the first time this quarter since the consolidated VAVA LIVE. Notably, BIGO continued to achieve a positive non-GAAP net income for 3 quarters as its non-GAAP net income expanded to USD 49.6 million in the third quarter with non-GAAP net income margin improved to 8.7% from non-GAAP net loss margin 2.1% in the prior year period. Diluted net income per ADS in the third quarter of 2021 was USD 0.07 compared to USD 2.22 in the same period of 2020. Non-GAAP diluted net income per ADS was USD 0.02 compared to non-GAAP diluted net loss of USD 0.33 per ADS in the same period of 2020. In addition, in accordance with our quarterly dividend plan approved on August 11, 2020, and on November 16, 2020, we will be distributing a dividend of USD 0.51 per ADS for the third quarter of 2021, this is expected to be paid on December 23, 2021 to shareholders of record as of the close of business on December 10, 2021. Also, we would love to provide an update to our execution of the share repurchase program announced in August 2019 and later extended in May 2020. The Board of Directors has authorized a share repurchase program in which the company may repurchase up to USD 300 million of its shares to August 2021. As of September 30, 2021 such share repurchase program already expired. The company had almost fully executed this share repurchase program and repurchased approximately USD 300 million of its shares. In September 2021, the company announced that its Board of Directors has authorized a new share repurchase line in which the company may repurchase up to USD 200 million of its shares till September 2022. As of September 30, 2021, the company had repurchased approximately USD 16.7 million of its shares under this program. Earlier today, our Board of Directors has authorized an additional share repurchase plan in which the company may repurchase up to USD 1 billion of our shares until November 2022 to demonstrate our confidence in the company's long-term growth prospects and to reward our shareholders for their long-term support of the company. As David just mentioned, we will continue to further expand our global market rates, cultivate a highly engaged user community and enhance our high-quality content offerings. We will also continue to 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 fourth quarter to be between USD 652 million and USD 661 million, representing a year-over-year increase between 14.7% to 16.3% on a constant currency basis excluding the revenue contribution from VAVA LIVE in the same period of last year. We currently have limited visibility surrounding the COVID-19 epidemic's long-term impact 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 business which are subject to change. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.

[Operator Instructions] Your first question comes from the line of Thomas Chong from Jefferies.

[Foreign Language] [Interpreted] I have 3 questions. The first question is about the COVID situation. And how would that impact the user behavior in terms of the time spent, engagement, and how that actually affects our monetization? And can we talk about by geography, how does that impact these metrics? And then my second question is about the Q4 revenue guidance. Can management elaborate a bit more about the trend for different business lines? And my first question is about the cost and expense trend. How we should think about it going forward?

[Foreign Language] [Interpreted] Thank you, Thomas. I will answer your first question. So if you recall, last year, we realized very substantial growth in our global business. Our year-over-year growth in many quarters have actually surpassed 100% for multiple quarters. So on top of that, when COVID -- there has been some short-term fluctuation caused by COVID-19, it has put some extra pressure for us to realize or maintain such a high level of growth continuing is. So you can see that starting since the second -- at the end of second quarter, we have encountered increased uncertainty due to COVID-19. On the 1 hand, you see some countries gradually lifting lockdown bans, and there has been negative impact on users, online social entertainment activity. And on the other hand, with the resurgence of COVID-19 in certain areas, we've seen weakened consumer confidence on the economy, which has negative impact on users paying behavior and these varies across different regions as well. But we have seen that with our assets to continue to introduce diversified content and new product features, which have improved user engagement, we see BIGO LIVE user time spend and retention rate in key markets have remained stable, but there has been some short-term fluctuation of BIGO's monetization capabilities such as paying ratio in ARPU in certain regions such as U.S. and the Middle East. So far, we do have limited visibility into the precise impact related to COVID-19. That's why we have provided a relatively conservative estimate for our Q4 revenue, which implies a year-over-year growth of 14.7% to 16.3% at group level. We will provide further updates once we have better visibility.

[Foreign Language] [Interpreted] And this is Alex. I will answer your second question. As there would be an increased number of marketing and operating activities in Q4, we expect our content costs and sales and marketing expenses to increase modestly in the fourth quarter, both in terms of absolute amount and expense margin over the third quarter level, resulting in a slight decrease in our gross margin and non-GAAP net margin for BIGO segment in Q4 on a sequential basis. But as you can notice, BIGO has achieved non-GAAP net profit for consecutive of 3 quarters. So for the full year, we believe that BIGO segment will achieve a low single-digit non-GAAP net margin. And for year 2022, after a few quarters of marketing spend adjustment to Likee, we have seen some positive preliminary results to the product. We will continue to observe Likee's user engagement level retention rate and content ecosystem progress and flexibly adjust Likee's marketing spend in the coming years. So overall speaking, we will ensure a steady and balanced growth strategy, balance growth and profitability of our global business in 2022 and increase investment in sales and marketing activities and further expand our global localized operational team. We expect BIGO segment to achieve steady growth in terms of revenue and will remain profitable in 2022. And in the longer term, with the group's multiple products gradually moving towards breakeven, we believe that the overall profit margin will be gradually increased.

Your next question comes from the line of Alex Poon from Morgan Stanley.

[Foreign Language] [Interpreted] My first question is related to BIGO LIVE and Likee. Can management share some of the new features and content, the user feedback, revenue contribution from these features in Q3? And going forward, what new features and content are we looking for to expand into? My second question is related to our deal progress update with Baidu.

[Foreign Language] [Interpreted] Thank you, Alex. This is David. I will answer your question. So both for BIGO LIVE and Likee, we have been trying out new content and new product features in the past few quarters. So in early August, I've just mentioned that for BIGO LIVE, we have beta tested the BIGO Pasar Malam, which is the night market e-commerce live stream channel in Malaysia and received some preliminary positive user reaction with average user views per live streaming session reached 150,000 to 200,000 per live streaming session. In the response, in late August, we officially launched the BIGO marketplace channel in Malaysia, Indonesia and Thailand. The viewers DAU penetration rate was as high as 25% in certain regions. While BIGO marketplace is still in its infancy in terms of development, it has the potential to expand our product outreach by providing a diversified interactive experience for our users. We do not charge the merchants any commission at this stage yet. So there would be no contribution to revenue at this stage. In Q4, we would be launching gifting function under our nonreal time content community, the BAR feature to further improve the engagement level of BAR feature. And for like, as I've just mentioned in my prepared remarks, we introduced a feature called SuperLike in Russia, Indonesia, Middle East, and also in the U.S. in late August. We have seen SuperLike MAU penetration rate reached 7.7% in the first month in certain regions. So as the creators could actually obtain revenue share from SuperLike, we believe that the feature could motivate the production of more premium content and help creators better engaged with their fan groups. So as of today, as there is a few limits available, revenue contribution from SuperLike at this stage is very limited, and we will continue to monitor our user feedback. And in addition to SuperLike in Q4, we are planning to launch subscription feature under Likee to continue our support for the KOLs and to help them pursue content creation as a lifelong area.

[Foreign Language] [Interpreted] As for the update of the YY Live deal, there hasn't been new information since our previous communication. As mentioned in the SEC filings that the company released, we have substantially completed the sale of our YY LIVE to Baidu, and there are still customer matters in progress. So both sides have agreed to extend the launch update of the proposed transaction to a day mutually agreed upon by the parties. So if there is any further updates, we will disclose it when and as required by applicable security laws.

Your next question comes from the line of Zhang from China Renaissance.

[Foreign Language] [Interpreted] So the first question is regarding Likee marketing. You mentioned more like flexible marketing strategy. Can you share more color on this? Does this depend on the landscape or the user acquisition costs or other factors? And what's our present rate thoughts on the Likee marketing trend into 2022? And then secondly, can you give us an update on the overseas live streaming and your competition landscape?

[Foreign Language] [Interpreted] So the first of all, I'd like to separate 2 questions and begin with some thoughts on live streaming first. We've got the impression that the market is actually very concerned about the potential negative impact live streaming platforms might have from the mega social platforms with huge traffic. But actually, based on our observation of the Chinese peers and also competitors' data, we've seen that for these larger-scale social platform, their monetization efficiency via live streaming is actually very low. It's lower than BIGO LIVE, and it's lower than their own advertising business. That's why you never see for these social platforms to put live streaming business as their priority of growth engine because they would believe that the efficiency and the ROI is actually lower than them pursuing an advertising-driven model. So what we'd love to emphasize here is that for these mega relatively larger-scale social platform, they do not actually compete with our business directly because that is by nature of priority of their business growth model. And we believe that we will still be able to obtain a longer-term sustainable growth from our live streaming business.

[Foreign Language] [Interpreted] As for Likee, what I'd like to emphasize is that we've not only adjusted the marketing spend of IT, we have also changed our product strategy as well. You can see that as compared to our competitors, we are actually going through a different direction. We are advertising -- advocating private traffic, enabling KOLs, celebrities, gaming companies with existing or established fan groups to establish or to attract their fan groups on to Likee and also to be able to monetize the fan group via the platform. If you look at the appearance of SuperLike, it looks like a gifting feature in the zone. But actually, in nature, it's about helping these KOLs, helping these influencers to be able to locate the fan groups who are willing to pay for their content and be able to enable these KOLs and influencers to monetize their fan group, and the introduction of the new feature subscription is also 1 of the monetization tools that we will provide for these KOLs. So you can see that -- if you look at our competitors' platforms, you can see that a lot of the traffic distribution is prioritizing the public domain centering, emphasizing the platform's control over traffic, distribution and diminishing the KOLs and influencers own -- personally influenced on their fan group. So what we would like to do is the opposite. We would like to advocate private traffic, help these users, help these KOLs and influencers to drive their own fan group -- established fan groups from other product or platforms to Likee. And we -- by providing such diversifying monetization tools, including the existing live streaming, supervised subscription and even e-commerce, a diversified monetization toolbox to these KOLs and influencers so that we will be able to drive the further growth of Likee. So all in all, you can see that we love to see a big change to Likee's business model where not only the marketing strategy is adjusted, but also we have to go for a differentiated product strategy, which avoids direct competition with other platforms. So going forward, you'll be able to see that we'll be able continue to grow Likee's revenue with narrowing loss and in the future by continuing centering private traffic, domain for these KOLs we'd be able to further empower these KOLs and influencers and be able to drive further expansion both for our user base and monetization level.

I would now like to hand the conference back to the management for closing remarks. Please continue.

That concludes the end of this call, and we look forward to speaking with everyone next quarter. Thank you.

This does concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]