JOYY Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 30, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Joy Incorporated First Quarter 2023 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 Zee, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to Joy's Q1 2023 earnings conference call. Joining us today are Mr. David Shirlin Li, Chairman and CEO of Joy Ms.

Speaker 1

Jing 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 and A session. The financial results and webcast of this conference call are available at ir.joy.com. A replay of this call will also be available on our website in a few hours.

Speaker 1

Before we continue, I'd like to remind you that we may make forward looking statements, which are entirely 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.

Speaker 1

I will now turn the call over to our Chairman and CEO, Mr. David Shueling Li. Please go ahead, sir.

Speaker 2

Hello, everyone. Welcome to our Q1 2023 earnings call. We kick off 2023 was a strong quarter despite ongoing micro uncertainties. Let me first touch briefly Upon some of our most notable achievements, which I will discuss in more detail Firstly, first, during the quarter, we recorded 583.6 1,000,000 in revenues include $467,900,000 of revenue from Bigo. You're sitting in the high end of our guidance.

Speaker 2

Notably, we maintained our profit growth momentum. Our group's non GAAP net profit reached 49,900,000 representing a year over year increase of 138.7 percent With a non GAAP net margin of 8.5%, the Bigo segment recorded Non GAAP net profit of $56,800,000 with a non GAAP net margin of 12.1 percent. We also maintained a healthy positive operating cash flow of 67,500,000 during the quarter, further enhancing our robust financial position. 2nd, our global average mobile MAUs returned to positive quarter over quarter growth. In the Q4, our global average mobile MAUs reached 2 170 $2,900,000 increasing by 1.9% from the previous quarter.

Speaker 2

Big O Live's MAUs grew steadily increasing by 19% year over year. And 3rd, following 2 years of operational adjustment of and optimization, Lucky continued to make significant progress. Importantly, Lucky once again achieved financial breakeven After 1st hit its milestone in the second half of last year. At the same time, Nike's revenue increased by 9% Sequentially, and its core user base DAUs grew by 5.2% On a quarterly basis, while we have seen some green shots of recovery, We remain curiously optimistic regarding industry outlook, Given that ongoing micro economy uncertainties may still pressure Consumer's confidence and user spending on online social entertainment. Looking to the future, we remain committed to our long term growth strategy.

Speaker 2

Globalization remains a key driver of our business growth. We will continue to Properties are high quality, sustainable growth, improved monetization and profitability across all business units and further strengthened our financial resilience by Generating robust operation cash flows, harnessing our global Technical and localized operation capabilities continue to be our top priority and Fundamental to our worldwide business success, we will cultivate our Global user community and provide exceptional interactive experience to our users Through product innovation, drivers, content and localized offering, In line with our global positioning and commitment to high quality Substantible growth, we intend to further Concentrate our resources on building our core strengths and the global business that align with Our long term strategies involving Our call competencies in both global localized operations and Technically required continuous commitment, we have mentioned the mining of our recent efforts On localized operations, today, I would like to take this opportunity to discuss Some of our progress on technology implementation and development. Our technological approach has always been leveraging cutting edge technology to Drive product innovations, improve user experience and optimize our operation efficiency. At Bigo, we employed around RMB1400 percent, Including approximately 115 experts and engineers, especially in the development of AI.

Speaker 2

Their expertise spent 5th range of AI applications, including computer vision, facial recognition, Image comprehension and the natural language processing. Our team leveraged the AI to advance our text, Image and video recognition capabilities, analyze user behavior date, Improve intelligent recommendations to users and manage content quality. In Bigo Live and LaiQii, we use AI to identify constant user interest and Direct user toward more relevant and personalized content. It has also improved Our discovery process for talented creators and allow us to more efficiently channel Resources to them. This is highly valuable for developing our interest based communities and As we operate in over 150 countries and regions, we have established Local regulatory teams and professional content moderators all over the world to ensure Regulator complains and alienates our content with local cultural normals.

Speaker 2

AI has proven to be a powerful tool for improving content quality and cultivating our content ecosystem. By utilizing AI, we have significantly improved the efficiency of our content moderation. Have developed various AI Recognization Models based on a database of millions of Policy violations and then create directory for filtering Improperating content in more than 20 languages with approximately 1,500,000 to 1,600,000 live streaming rooms and 4,200,000 short videos on Bigo every day. We needed to review over 600,000,000 images on a daily basis. Our successful implementation of AI has reduced the manual moderation rate to mere 0.05% and brought the accuracy rate of our AI detection system to over 99.8%.

Speaker 2

We have also leveraged the technology to bring innovation, interactive experience to our users. For example, Hago's new 3 d space empowered user to create virtual avatars and Interact with each other in virtual 3 d virtual sense, enabling users to engage in Immersive social experience, Hago's 3 d Avata model can be generated and adjusting Various official impairment mentors all directly from photos Multilingual Pronunciation, mouse movements and For the karaoke scene, virtual characters can even dance to the rhythm of musical The rapid Evolution of AI Technology is set to transform the industry and the economies worldwide. It also presents a multitude of opportunities for companies to create value and enhance operational Efficiency across various applications. We are committed to exploring and Interacting ways to integrate AI into our business. In order to deliver accessible and captivating interactive experience to our user across the global, to further improve our operational efficiency.

Speaker 2

Now Let's take a closer look at our products. We will start with Big O Live. During the Q1, Bigo Live sustained its double digital user growth momentum for the first ConsiQT quarter with its MAUs increased by 19 point 19% year over year to 37,700,000 Growth was observed across several key regions with 7.3% growth in Europe, 13.2% growth in the Middle East and 23.6% growth in Southeast Asia and other emerging markets year over year. In terms of monetization, Bigo Live saw steady recovery in its paying user growth in the Q1. The number of paying users in Europe and North America increased year over year by 9.9% and 10.2%, respectively.

Speaker 2

Bigo Live's live streaming revenues in Europe, North America and Middle East All are bounded from the previous quarter. We launched a series of operational events across major regions in the Q1 and successfully engaged with And encouraged active participation from our creators and the users. In February, Bigos Live launched the Big Star Search event, a talent competition opened in North American And enable us to recruit the most exceptional creators across a wide range of categories such as dance, music, Costly, Cooking, etcetera. The events of 6 months' duration and the wide variety of content genres make its Bigo Life's largest, longest running, the most impactful talent Confident to date, in the Middle East, Bigo Live posted user Engagement, when it once again collaborated with mobile legend, Bonbon to Live streaming the Amfor World Championships, the quarter also marked the 1st, collaboration between Bigo Life and Ultra Harbour Harvey. Ultra Harbour Harvey is the 1st Middle East edition of the world famous Ultra Music Festival, Bigo Live Welcome to exhaustive live content service experience, exciting performances And behind this since footage to online audience, Bigo Life also set up both at the festival venue to interact with thousands of audience for enhancing its brand awareness in the local community.

Speaker 2

In terms of content development, Bigo Live remain focused on incentive in Bra channel content product. In the Q1, our strategic efforts to enhance Creating and distribution of high quality content result in 18.7% sequential Increase in video content in Bra. Furthermore, by utilizing computer vision technology, we have also improved the channel's Automatic content tagging and its recommendation algorithm, these improvements Resulted in 8.8 percent sequential growth in average impressor per user in the bar channel. For live streaming and social interaction, user engagement has continued to grow. This is mainly due to Optimize multi person room interfaces and view features include sound effects And interactive tools, sequentially, the number of multi user rooms Hosted increased by 9.3% and the number of user going live increased by 8.7%.

Speaker 2

Next, let's turn to Lucky. To ensure the Health needs and the sustainability of our ecosystem and growth model, We have been actively adjusting Lucky's marketing strategy since the Q1 of 2021 and the focus being on enhancing its monetization efficiency and organic user acquisition capabilities. We are happy to announce that we have seen some meaningful progress during the Q4. Lattice's revenue increased by 9% sequentially in the Q1. It's also achieved breakeven during the Quarter after the first hit of its milestone in the second half of last year.

Speaker 2

In terms of user engagement, LaiQi's interest based community grew and the quality of user interactions improved. During the Q4, largest core user base DUs increased by 5.2% sequentially. In the Q1, likely further optimized its creator services and We delved deeper into understanding creators' needs. The number of official creators increased by 6.2% sequentially. Lucky also reinforced its positioning As an interest based community, by collaborating with professionals in variety fields, including Music, racing, food and sports.

Speaker 2

This activity encouraged them to create high quality content on the platform, Bolstering an already vibrant content ecosystem, We also continued to integrate corporate social responsibility into our daily operations and Create a positive impact on the community. During Renanba, Nike partner with Jordanian Tactical Organization,

Speaker 3

for

Speaker 2

the share meal campaign. This initiative encourage user to post videos of their Reminden's experience and share blessing during the holiday for Every user who participated in the campaign likely donate a certain amount of money To TUA on their behalf, nearly 100,000 users participated in the event. Next, on to Hago. During the quarter, Hago Remained dedicated to enhance user activity by boosting social engagement. As we have mentioned previously, over the past 2 years, Hago has been gradually Tien Lin, it's a strategic focus to become a multi user social platform By utilizing social channels, including video and audio multiplayer chatroom, Hago Space and groups of Families Hago offers user a growing rate of social interaction Opportunities and it has created a highly interconnected user community.

Speaker 2

In the Q1, The penetration rate of Hago's social channels increased by 4.4% Sequentially, in addition, the daily average time spent by user continued to grow, reaching 90.8 minutes. We have also conducted Multiple rounds of net promoter score survey among users, the results of which indicated Consistent enhancement of user satisfaction, particularly In Indonesia and the Philippines, Brazil and Mexico, furthermore, many users have experienced their appreciation of For how Hago enhance their social experience, Hago will continue to adhere To a disciplined marketing spending strategy and optimize its Cost structures. We expect a gradual improvement in Hago's operating loss over the coming quarter. Finally, some updates on capital return. During the Q1, We bought back additional 15,700,000 of our shares Given recent market volatility, we will Set up our share repurchased in the Q2 to reward the long term support of our shareholders.

Speaker 2

To conclude, despite the near term macro challenges, we Delivered solid results in the Q1 as we maintained strong profitability at the group level and Achieved accelerated growth in BigoLife's MAUs. Looking ahead, we remain Committed to enrich lives through technologies, we will continue to Cultivate our global user community and provide exceptional interactive experience to our users through product innovations, diverse content and localized The offerings, we are confident that we are well placed to size long term growth opportunities and generate sustainable shareholders' value. This concludes my Prepared remarks. I will now turn the call to our Vice President of Finance, Thanks, Liu, for our financial updates.

Speaker 3

Thanks, David. Hello, everyone. Despite macro uncertainties, we achieved solid results In the Q1, our revenue in the Q1 exceeded the higher end of our guidance And we continued to deliver better profits, both at group level and at product level. Thanks to our effective execution of cost optimization measures and improved operational efficiency. We were also encouraged to see continued sequential recovery in Bigo's paying users for the 3rd Consecutive quarter as it increased by 7.8% year over year As we continued to cultivate diverse premium content and carry out effective localized regional activity, We boosted user engagement and drove further progress in user based expenses in the quarter.

Speaker 3

We reversed the change of our global MAUs in the Q1, which increased by 1.9% sequentially to $272,900,000 Next, let me walk you through our performance For the Q1 of 2023 in detail, average total net revenues were US583.6 million dollars in the Q1. Cost of revenues 4th quarter decreased to US379000000 dollars Amount of its annual revenue sharing fees And content cost decreased to US140 $1,000,000 Gross profit was US104.6 dollars in the quarter. Our gross margin improved to 35.1 percent from 32.2% in the same period of 2022, That's primarily due to optimization of revenue sharing costs and other original costs. Our operating expenses for the quarter were US105.3 million dollars increased from US100.6 million dollars in the same period of 2022. Among the operating expenses, sales and marketing expenses decreased to US97.6 million dollars from US1 $104,400,000 due to our effective control over market expenses and optimization of overall sales and marketing strategies.

Speaker 3

R and D expenses increased to US25.8 billion dollars from US64.1 million dollars in the same period of 2022, primarily due to increased R and D, personnel related expenses As we prioritize the resources into building our technological capabilities, Our GAAP operating income for the quarter was US2.5 million dollars Compared to operating income, US6.3 million dollars in the same period of 2022. Our non GAAP operating income for the quarter, which excludes SBC expenses, A multi decision of intangible assets from business acquisitions as well as impairment of goodwill and the investments was US27.8 million dollars in this quarter, compared to US33.3 million dollars in the was 4.8% compared to 5.3% in the prior year period. GAAP net income attributable to controlling interest of Joy in the quarter was US28 million dollars Compared to the net loss of US27.5 million dollars in the same period of 2022, GAAP net income margin was 4.8% in the Q1 of 2023 compared to net loss margin of 4.4% in the corresponding period of 2022. Non GAAP net income Attributable to controlling interest of Joy in the quarter was US49.9 million dollars Compared to $20,900,000 in the same period of 2022, The group's non GAAP net income margin was 8.5% in the quarter compared to 3.3% in the same period of 2022.

Speaker 3

Together with our improving profitability, We have maintained a strong operating cash flow as well. For the Q1 of 2023, We booked net cash inflows from operating activities of US67.5 million We remain a healthy balance sheet with a strong cash position of just RMB4.29 billion as of March 31, 2023. Importantly, we have continued to enhance returns to shareholders through dividends and share repurchase. In the quarter, we have in total repurchased approximately $15,700,000 of our shares and declared cash dividends in an aggregate amount of US35.5 million dollars This altogether represented 102.8 percent of our non GAAP net income. As of March 31, 2023, we still have around US684 million I utilized quarter and our 20 25 share repurchase program.

Speaker 3

Given the current market circumstance and our current test pricing, we will step up On a shelf repurchase in the 2nd quarter. As David just mentioned, In line with our global positioning and commitment to high quality, sustainable growth, We plan to strategically streamline some of our non core operations, So that we can concentrate our resources, both financial and management, towards building our core strengths and business that aligns with our long term strategic goals. Therefore, partially as a result of the adjustment for our business outlook, we expect our net revenues For the Q2 of 2023 to be between US520 million and US541 million dollars This forecast reflects our preliminary Views on the market and operational business and business assessment lies, which are subject to change. In summary, technology and our global localized operational capabilities Continues to be the backbone to our global business success. We will continue through product innovation, diverse content and localized offerings.

Speaker 3

In the meanwhile, we will continue to pursue high quality growth and improve operating efficiency Across all business units, we expect to continue to prioritize our resources into high potential business that align with our long term strategies and building our core capabilities, While maintaining self sufficient in our cash flow, with our robust financial position, We are confident that we are in good position to better seize long term growth opportunities and generate sustainable That concludes our prepared remarks. Operator, We would now like to open up the call to questions.

Operator

Thank Your first question comes from Thomas Chong with Jefferies. Please go ahead.

Speaker 2

Thanks management for taking my questions. My question is about Bigo Life. Can management comment about the expected

Speaker 3

Thank

Speaker 1

you. Thank you, This is David. I will take your first question. First of all, if we look at the performances of 1st quarter, Bigo Life actually beat our previous expectations. First of all, if you look at user growth, Bigo Life achieved Elevated user growth than the previous quarter, increasing its MAUs by 19% year over year.

Speaker 1

And we saw that the growth momentum was almost across all regions, including Europe, America, Middle East and Southeast Asia. All of these regions have recorded positive year over year and Q o Q growth. And this is mainly due to our effective user growth strategy, which empowers organic growth while we adhere to a disciplined marketing spend strategy. During the quarter, we further analyzed The interest of various regions and different user groups and carry out a deeper content layering and more targeted Cultivation of our content offerings and our collaboration with MLBB and Ultra Abu Dhabi Music Festival Examples of our efforts to introduce premium and diverse content and Bigo Big Star Search In North America, it's another example of our efforts to recruit top talents across the field. We also cooperated with influential KOLs and launched a series of online campaigns and offline roadshows, and that is consistent with our observation of users increasing offline activities post pandemic lockdown removal.

Speaker 1

And together, these assets have successfully enhanced our exposure and influence in the local user community, enabling us to reach a wider range of users and efficiently drive organic user growth. In the coming quarters, we expect Bigo Live to continue this strategy and maintain a strong user growth momentum.

Speaker 2

Jenny?

Speaker 1

If we look at the regional trends, Early signs of recovery can continue to be seen in Europe and North America. We saw that the number of paying users Both substantially increased quarter over quarter and the overall monetization improved for these Regions in this region for 2 consecutive quarters as well. In the Middle East, we saw monetization rebound from the previous quarter, driven by strong user growth. While Southeast Asia appeared to be more affected by weaker seasonality in Q1 as there were some traditional holidays during the quarter. As for Q2, we expect Ramadan in April to affect Middle East and some Southeast Asian countries.

Speaker 1

However, we believe that Bigo Life will gradually stabilize and resume Next question please.

Operator

Thank you. Your next question comes from Yuan Zhang with China Renaissance. Please go

Speaker 3

ahead. So thanks for taking my question. My question is about margin path. How should we think about our, for example, the cost optimization, operating expense trends and also margin outlook for second half? Thank you.

Speaker 1

Thank you, Yi Wen. This is Alex. I will take your questions. 1st of all, I'd like to elaborate a little bit more about our Q2 guidance. There are mainly 2 considerations.

Speaker 1

First, there is the impact of seasonality. Although we've seen some recovery in Q1 in some regions, the recovery is still relatively Moderate and Ramadan is due have some effect on the monetization of some regions. And second, as we've just mentioned, starting In Q2, in line with our global positioning, we plan to strategically streamline some of our non core operations So that we can concentrate our resources towards our core global businesses and the current guidance reflects the impact of And second on your question on profitability trends, if you look at our performance in the Q1, we actually Did better than our expectations. Bigo segment achieved a non GAAP operating margin of 13.6%, which is up by 1.6 percentage points from 12% last year, and that was mainly due to higher gross margin, which was improved From 34.7 percent to 37.4 percent. And if we look at the All Other segment, the non GAAP operating loss also further narrowed quite substantially by 18 0.2% despite the Q1 seasonality impact, and that was mainly due to our products improved Gross margin profile and also continued expenses optimization.

Speaker 1

So looking forward To Q2, we expect the above mentioned business adjustment might cause a sequential decline in our margins during the quarter. But as we enter into the second half of the year, when business growth accelerates, we expect both business segments To resume sequential margin improvement. To sum up, we will still prioritize high quality growth. And for the full year of 2023, we expect the non GAAP operating profit margin of the Bigo segment to remain roughly stable when compared with what we achieved in the year 2022. And at group level, we expect to remain profitable and self sufficient And our operating cash flows.

Speaker 1

Thank you. Next question please.

Operator

Your next question comes from Henry Sun with JPMorgan. Please go ahead.

Speaker 2

Thanks management for taking the question. So I have a question regarding the share repurchase program. Could management share some details on your

Speaker 1

Thank you, Henry, for your question. This is David. Regarding your question on capital return, If we look at the Q1 numbers, we have in total repurchased approximately 15,700,000 of our shares and declared cash dividends in an amount of RMB35.5 million And altogether representing approximately 103 percent of our non GAAP net profit. As of the end of Q1, we still have around We will step up our share repurchases in the Q2. And overall speaking, we will continue to maintain financially Flexible and strike a balance between keeping sufficient cash and investing in our core businesses while enhancing return For our shareholders.

Speaker 1

Next question please.

Operator

Your next question comes from Jasmine Wang with Credit Suisse. Please go ahead.

Speaker 4

My question is related to the overall product metrics strategy such as LIQI. So can management Share with us any color on the update of LIQI's development and the outlook? And then looking ahead, when are we going to see the year on year

Speaker 1

Thank you, Jasmine, for questions. This is David. As I mentioned in my Prepared remarks, LIKE made quite some significant progress during the quarter. First of all, we can see that LIKE's core user base, its DAUs grew by 5.2% on a quarterly basis. And secondly, if we look at monetization, despite the weak Seasonality in Q1, like his revenue increased by 9% sequentially and that was mainly due to uptick in live streaming penetration rate and also the substantial increase of its advertising revenue from the previous quarter.

Speaker 1

And thirdly, LaiQi once again achieved financial breakeven in the Q1 and even made a small profit after hitting this milestone in the second half of last year. These are all meaningful progress and should be considered a positive answer to our proactive strategy adjustments in the past 2 years. And yet we also we are also aware that it still takes a few additional steps for Lankey To get back on the full recovery track and going forward, Laiki will continue to focus on key markets such as the Middle East and Europe And continue to work on creative support, cultivating interest based content offerings and user community and also advancing Users' social interactions. So these are the fundamental drivers for sustainable organic growth of its user base and also monetization and profitability improvement. With our progress in Q1, we believe as Nike that has taken One step forward towards achieving full year breakeven and also reversing user growth trend in some key markets Shortly.

Speaker 1

So that's the end of our Q and A. And thank you so much for joining our call today. We look forward to speaking with everyone in the next quarter. Thank you.

Operator

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Financial performance: Q1 revenues reached $583.6 million (including $467.9 million from Bigo) at the top end of guidance, delivering a 138.7% YoY increase in non-GAAP net profit to $49.9 million and $67.5 million in positive operating cash flow.
  • User growth: Global average mobile MAUs rose 1.9% QoQ to 272.9 million, while Bigo Live MAUs climbed 19% YoY to 37.7 million with Europe, North America, and the Middle East all seeing QoQ increases in paying users.
  • Lucky turnaround: After two years of optimization, Lucky achieved financial breakeven again in Q1, with revenue up 9% sequentially and core DAUs up 5.2%, driven by enhanced creator services and interest-based community content.
  • AI-driven innovation: Joy expanded its AI team (15% of Bigo’s workforce) to improve content moderation accuracy (99.8%), reduce manual review to 0.05%, and power features like personalized recommendations and Hago’s 3D avatars.
  • Shareholder returns: Management repurchased $15.7 million of shares and paid $35.5 million in dividends (102.8% of non-GAAP net income) in Q1, plans to accelerate buybacks in Q2, and ends March with a robust cash balance.
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Earnings Conference Call
JOYY Q1 2023
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