JOYY Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 29, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Joys, Inc. 2nd 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 Shear, the company's Senior Manager of Investor Relations.

Operator

Please go ahead, Jane.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to Joy's Q2 2023 earnings conference call. Joining us today are Mr. David Shirling Li, Chairman and CEO of Joy's 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.

Speaker 1

A replay of this call will also be available on our Web 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.

Speaker 1

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

Speaker 2

Hello, everyone. Welcome to our Q2 2023 earnings call. Let's begin by reviewing our overall performance for the Q2. During the Q2, we delivered a Our group revenue Coming above the high end of our guidance at RMB 547.3 million. We received a non GAAP net profit of RMB97.3 million 89.1 percent Year over year increased with a non GAAP net margin of 17.8%.

Speaker 2

Importantly, we maintained a positive operating cash flow of $61,800,000 which posted our already solid financial position. The Bigo segment recorded revenue of RMB471,100,000, a Slide quarter over quarter increase. Demonstrating further signs of the suddenization, Its non GAAP operating profit reached $75,500,000 and its Future expanded its non GAAP operating profit margin to 16%. In the Q2, our global MAUs grew to 270 $5,600,000 a quarterly increase of 1% and a slight annual increase, Showing continued recovery and our effective product strategy, even as we are headed In particular, Bigo Life's MAU sustained its strong growth momentum, increasing by 18% year over year to RMB38.5 million. This was the 5th consecutive quarter in which CIGO Live recorded a Double digit year over year MAU growth.

Speaker 2

Our performance in the second quarter was largely driven by our Effective product strategy as we continue to enhance our users' content and social experience through and localized operations. On the product front, we constantly evaluate And strengthen our platform's content and the social interaction features. For instance, we have harnessed AI to refine our understanding of user profiles on BigoLive. This helps us Optimize our recommendation, outreach and deliver personal Content that the better sales users' individual interest. At the same time, We expanded the active approach and social scenarios to enhance interaction between users As we enable user interaction in a range of virtual elements such as living streaming sessions, Interest based communications and a suite to match channels where users meet and Chat with new people.

Speaker 2

We cater to broader and much more diverse set of social needs. We're also actively piloting and testing some new AIGC related features to facilitate content Christian and streamer, Sam, Communications. Heading into the second half of 2023, we will explore new ways to future improve users' content and social experience Through product upgrades, we believe Tuniu's efforts to The improved product experience and the facilities engaging social interactions are fundamental Elements for sustainable user growth and paying user conversion. On the operational activities front, we partner with diverse Spectrum of KOLs and institutions during the quarter. This has enriched our diverse high quality localized content and successfully enhanced our brand

Operator

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Speaker 2

Meanwhile, as a global tech company Dedicated to predicting lives and delivering value to our users and local communities, We are actively and progressively embedding social responsibility into our basic operations. During the remainder, we launched a wide range of online Compains across the Middle East, Southeast Asia and other regions, Encouraging users to participate and share their thanks and our clients to embracing to Faxibo 3. We raised the funds through multiple online contentions on our platforms and extend our Support to various programs under several international Authorities such as the Indonesia Cancer Foundation, the Charles Cancer Center of Le Banyan and Jordan's TUA, being a community try platform, Giving back to some society crucial part of our values, such as we remain Looking ahead to the second half of twenty twenty three, while there have been some continued sign of We remain cautiously optimistic regarding industry outlook, Given that ongoing macroeconomic uncertainties may still pressure consumers' spending, We will continue to drive effective high quality growth through ongoing product and Operational innovations. Moreover, as communicated in the previous quarter, Globalization remains a key drive of our business growth and our top priority. We intend to further concentrate our resources on building our core strength and Global business that aligned with our long term strategies and actively pressure Growth Opportunities.

Speaker 2

Before we move on to the detailed product updates, I would like to provide an update on capital return. We significantly stepped up our share buyback during the second quarter And about that additional $215,300,000 of our shares. Since 2020, we have distributed around US1. $32,000,000,000 of capital to our shareholders through low share buybacks and dividends. This represents 5.4 times of our total non GAAP net profit, Excluding discontinued operations over That period, a substantial amount, especially when compared to our market cap.

Speaker 2

This demonstrates our ongoing dedication to reward our shareholders' long term support. We remain committed to create and return value to our shareholders, and we will Continue to actively utilize our share buyback program going forward. Now let's take a closer look at our product we will start with Big O Live. In the Q2, Bigo Live remained its double digit user growth momentum for the With MAUs increasing by 80% year over year to 38,500,000, We observed growth across every key regions with year over year growth rates of 10.3% in Europe, 16.9% in Middle East and 20.8 BigoLife's revenue continued to stabilize during the quarter, and we saw recovery from In various regions, especially Europe, Japan and Korean, Bigo Life launched a series of Send activities across various regions in the second quarter, delivering a Continuous stream of diverse local and premium content to users. In April, Big O Line partnered with social media investors who cried and launched a Realty's Beijing show in North America.

Speaker 2

This innovative content provide extremely popular This was the 2nd original Big O Live reality show following the Successful launch of its previous series, Game Charter, back in February. The production process for both shows include screen cleaning, Artist management, filming production and marketing, we carry out by Big O Live's local team. The success of these series showcase our ongoing dedication Similarly, in June, Bigo Live partnered with Revolution Music Festival in To provide users with 8 hour live broadcasting of events, this gave user The ultimate music festival experience and attracted 100 of 1000 of Viewers worldwide. We actively encourage the user engagement on Bigo Life's Social communities through a number of online events. Our family feature launched in 2019 brings Geyser's streamer fans and other Unity by similar interest to uphold the honor of their respective families.

Speaker 2

It has become a visible bonding element of our user community. In May, we introduced the FamilyMart to further strengthen these funds. During this This Bigo Live held a number of activities and contests With family rent and award based on participation and interaction levels. In the Middle East, Bigo Live had an offline meetup for the top local families, We created a unique opportunity for family members to build offline Connections. Family moms generated significant user interest and attention and posted rapid growth in family sizes.

Speaker 2

The number of contracted streamers who are members of a family grew by 1.1% From the Q1 and daily paying user with family membership rose 3.8 percent. On the content development front, Bigo Line Retained its focus on incentivizing the creation of video content in the Our introduction of newly refined video, prison tools and implementation Station of reward system to encourage creation, consumption and share On selling on Baa. Those at 26.5 Sequential increase in the amount of far video content produced in the 2nd quarter. With the total Number of video shares and the download doubling over the same period. During the quarter, we also upgraded Our user interface and optimized our content recommendation average.

Speaker 2

These initiatives Further improved users overall will be experienced in VAR and average The impressions per user increased by 5.7% sequentially In the Q2, at the same time, we enhanced the social interactions by introducing the ability to Send the image and the video games within live session on Bigo Live. This fulfilled 1% sequential increase in the number of users going live In multi GAAP rooms, along with 50.1% Sequential increase in the number of users actively engaging per live session. Next, let's move on to LaiKey. LaiKey's focus remains set on improving product monetization efficiency and organic user acquisition capabilities. During the Q2, Black Tea increased its revenue by 11.2% sequentially And continued to deliver profitability at the product level.

Speaker 2

This marks its second After initially doing so in the second half of last year, despite a sequential Decline in likely the MAUs this quarter is the CAUs saw a slight increase quarter over quarter. In the Q2, ISP further developed its Twitter services and improved User content and social experience. To increase creators' efficiency, YYI roll out Video collection feature to streamline the video production process. Let me also

Speaker 3

furnished the

Speaker 2

printers with data and analytic tools to help them find Their confidence and the value line is with the interest of their audience. Thank you. It has also supported its content creators by connecting them with e commerce platforms and brand merchants to generate additional monetization channels. In June, Lucky House is the 1st ever summer party. The event aimed to acknowledge our Send increases from the past year and boost their visibility on the platform.

Speaker 2

It's brought together 100 of top talent and brands, listen to it, encouraging in person interactions and networking. As a result, the number of official creatures likely increased by 4% sequentially in the Q2. I also further enhanced user interactions within In the Q2, I'm penetration rates continued to grow, increased by 6.8% sequentially. Overall, user engagement as measured While the ratio of DAU to MAU grew by 4.2% sequentially, while average user time spending increased by 50.8 percent. Finally, Let's turn to Hago.

Speaker 2

In the Q2, Hago's revenue increased by 6.4% sequentially and For the narrowed, it's operating loss through the continued cost optimization. Importantly, Hanfu's operation cash flow turned positive during the quarter, reaching another milestone on the road During the quarter, Han Kou Upgraded a number of features for further enhanced monetization efficiency and improved user social engagement. To improve through user paying segments And the enhanced monetization, Hago launched a celebration room, a new kind of multi gas room We also introduced a multi feature to multi guest rooms and enable additional Declaration and communication privileges to HAGO couples. Hapo also optimized distribution of multi gas real time interactive rooms Across the different regions, effectively upgrade the users' interactive social experience Through the gaming facilities of dressing up 3 d These product development Results resulted in 1.2% sequentially increase in the Financial risk of Hago's social channels. Average user client spend on Hago per day rose as well, Growing by 5.2 percent from the Q1.

Speaker 2

To summarize By the ongoing macroeconomic uncertainties, our strong Execution enabled us to deliver a solid financial performance in the second quarter. Through continuous product improvements and operational enhancements, we successfully Navigated the high wins and improved its operating margin. We Spiegel Live sustained its Strong user growth momentum. We also significantly set up our share repurchase During the quarter, underscoring our confidence In our future growth prospects and Our commitment to reward the long term support of our shareholders. Looking ahead to the second half of twenty twenty three, we will continue to Effective high quality growth through ongoing products and operational innovations.

Speaker 2

We will further concentrate our resources on building our core strengths And the global business that align with our long term settings and actively pursue growth opportunities. With our proven execution capabilities and robust financial position, We are well positioned to size growth opportunities and generate value for our shareholders. This concludes my prepared remarks. I will now turn the call to our Vice President of Finance, Art Liu, for our financial updates.

Speaker 3

Thanks, David. Hello, everyone. Despite macro uncertainties, we achieved solid results in the 2nd quarter. Our revenues in the 2nd quarter exceeded the higher end of our guidance and we continued to deliver better profits. Thanks to our strong execution to enhance our product experience and improve operational efficiency.

Speaker 3

Notably, Bigo segment showed more signs of stabilization by delivering a slight positive sequential growth in its revenue, while further improving its non GAAP operating margin to 16%. Our operating metrics are also continuing on its growth track. We booked a positive year over year and quarter over quarter growth for our total global MAU, Even as they adhere to our disciplined marketing spend. Importantly, Bigo Life maintained its strong user growth momentum, increasing its MEO by 18% year over year to $38,500,000 in the 2nd quarter, achieving double digit year over year growth for our 5th Consecutive quarters. Those demonstrated our effective product strategy and enhanced User acquisition efficiency.

Speaker 3

Next, let me walk you through our group performance For the Q2 of 2023 in detail, our total net revenues were $547,300,000 in the 2nd quarter. Revenues from Bigo segment were for $171,100,000 Cost of revenues for the quarter decreased to US349.6 million dollars among which our revenue sharing fees and content costs decreased to US122.6 million Bigo's cost of revenues were US287.6 million dollars down by 7% year over year. Gross profit was US197 point made in the quarter with a gross margin of 36.1%. Bigo's gross profit was $183,500,000 with a gross margin of 38 point 9%, up from 38.5% in the same period last year. Our gross operating expenses for the quarter were US191.7 million dollars increased from $185,000,000 in the same period of 2022.

Speaker 3

Among the operating expenses, sales and marketing expenses decreased to US87.2 million from $98,400,000 due to our effective control over marketing expenses and optimization of overall sales and marketing strategy. R and D expenses increased to $75,500,000 from $62,900,000 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. Legal operating expenses Forward the quarter were $125,000,000 down by 8% year over year. Our Group's GAAP operating income for the quarter was US9.4 million dollars Our non GAAP operating income for the quarter, which excludes SBC expenses, A multi season of intangible assets from business acquisitions as well as impairment of goodwill and investments was US34.4 million dollars in this quarter, with a non GAAP operating income margin of 6.3%. Bigo's GAAP operating income for the quarter was $60,400,000 and Bigo's non GAAP operating income was $75,500,000 representing a non GAAP operating income margin of 16%, up from 15.5% in the same period last year.

Speaker 3

Our group's GAAP net income attributable to controlling interest of Joy In the quarter was $155,100,000 compared to net income of $18,700,000 in the same period of 2022. GAAP net income margin was 28.3% in the Q2 of 2023 compared to net income margin of 3.1% in the corresponding period of 2022. Our group's GAAP net income was larger in the Q2 this year, mainly due to the realized gains From the disposal of certain XT investments, increased interest income driven by higher market interest rates and foreign currency exchange gains during the quarter. Bigo's GAAP net income in the quarter was $83,700,000 increasing by 26.6 year over year. Bigo's GAAP net margin was 17.8%, up from 13.1% in the same period last year.

Speaker 3

Non GAAP net income attributable to controlling interest of Joy in the quarter was $97,300,000 compared to $51,500,000 in the same period of 20 The group's non GAAP net income margin was 17.8% in the quarter compared to 8.6% in the same period of 2022. Bigo's non GAAP net income was US99.7 million dollars increasing by 15.5% year over year. Bigo's non GAAP net margin was 21.2%, up from 17.2% in the same period last year. For the Q2 of 2023, we booked net cash inflows from operating activities of $61,200,000 We remain a healthy balance sheet with a strong cash position of US3.8 billion dollars as of June 30, 2023. Our cash pricing decreased quarter over quarter as we repurchased US400 and $32,000,000 of our 2025 convertible note and our accelerated share buyback, partially offset by proceeds received from the follow-up certain equity investments during the quarter.

Speaker 3

In the Q2, we continued to enhance returns to shareholders through dividends and share repurchase. We have substantially accelerated our share buyback and repurchased approximately 214,300,000 of our shares and declared cash dividends in an aggregate amount of $34,200,000 which altogether representing 255% of of our non GAAP net income. We will continue to actively utilize our share repurchase program in the coming quarters. As communicated last quarter, In line with our global operation and commitment to high quality sustainable growth, We have strategically streamlined and implemented certain proactive adjustments to sum up our non core reasons since last quarter, so that we can concentrate our resources Towards building our cost strength and business that align with our long term strategic goals And further enhance healthiness of our ecosystem. Therefore, personally as a result of these adjustments For our business outlook, we expect our net revenues for the Q3 of 2023 to be between US537 $1,000,000 US567 million dollars This forecast reflects our preliminary views on the market and operational conditions and business adjustments, which are subject to change.

Speaker 3

In conclusion, we have made meaningful progress In the past same low quarters, in our efforts to enhance our efficiency, expand our profitability, We have also strengthened our execution capabilities and improved the healthiness of our global ecosystem. Going forward, we will continue to cultivate our global user community and provide better interactive experiences to our users through constant product innovation and operational enhancements. We expect to continue to prioritize ARMOUR sources into high potential business that along with our long term strategic and building our core capabilities, While maintaining self sufficient in our cash flows with our robust financial position, We are confident that we are well positioned to seize growth opportunities and generate sustainable shareholder value. That concludes our prepared remarks. Operator, we would now like to open up the call to questions.

Speaker 3

Thanks. Thank

Operator

Your first question comes from Ms. Chong with Jefferies. Please

Speaker 4

Thanks management for taking my questions. My question is on Bigo Life. Can management comment about the trend across different regions in the second half? How should we think about the overall user base as well as the monetization trend? Thank you.

Speaker 5

Thank you, Thomas, for your question. This is David. I will answer your first question. So first, let's look at the recent monetization trends across The developed countries region have shown a gradual recovery trend In the past quarters and in the second quarter, we saw that trend continue with Europe, Japan and Korea Deliver a better Q02 growth than other countries and regions. The fact that the developed countries that are first recover is related to the macro environment, which turned out this macro economy turned out to be much more resilient And it's also related to our operational strategy in recent quarters.

Speaker 5

We consciously tilted our operation Strategy, including our user acquisition spending, operational resources and product optimizations Towards users with higher paying potentials, the developed countries generally have more users with the higher paying Looking ahead to the second half of the year, we expect Eagle Life's revenue to return to positive growth As we enter into a peak season of operational activities and the implied QoQ growth For Eagle Life in our current Q3 guidance, it's in the low single digit to Mid and high single digit range. Given the current macro uncertainties, I believe we still need to remain Cautiously optimistic regarding industry outlook. We will continue to closely monitor the changing environment, Flexibly adjust our operational strategy and steadily drive high quality growth. And for your second question on user growth, in the second quarter, you can see our group's MAU realized positive growth both year on year and quarter over quarter. And importantly, Beagle Live sustained its strong user growth momentum With its MAU increasing by 18% year over year and that was actually accelerated especially when compared to at the same period last year.

Speaker 5

And this was achieved even as we adhere to our disciplined marketing spend And it means that we have a larger contribution from organic growth. And we attribute the enhanced Our user growth efficiency to several aspects, first of all, we conducted in-depth analysis of user profiles in each region and introduce a more refined content segregation and differentiated recommendation algorithm on Bigo Live, which we believe improved user experience and retention. And for Bigo Life, this is a product that operates in more than 150 countries with content in 30 Languages and a very diverse user community. We believe there is plenty of room for refined and differentiated operation of content. And technically, there is no end to the continuous optimizations of operations in this regard.

Speaker 5

So we continue to work on that and we expect that to continue to drive better user experience and also retention. And second, our innovative local operations, we believe, have successfully brought increased amount of organic traffic. During the quarter, we continue to work with a diverse spectrum of KOLs and those events continue to bring abundant Traffic, especially in Southeast Asia. And as I just mentioned in my prepared remarks, Our local campaigns such as the original variety show in North America, the Revolution Music Festival in Vietnam, All help us reach a wider user base. And lastly, as a result of our Enhanced user experience, our ratings in the app stores have indeed improved, and therefore, we obtained Greater traffic due to the recommendations by these app stores.

Speaker 5

So to conclude, given our performance In the past few quarters, I believe, Bigo Life user growth strategy has been effective. We will continue to enhance our user experience through product optimization, feature innovation and refine operations and drive efficient user growth. Thank you.

Operator

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

Speaker 2

Thanks management for taking my question. Could management share more details on deployment AIGC application into the product planning, what are the current progress in application? Thank you.

Speaker 5

This is David. I will answer your question on AI and AI GST. Actually, we have been having a huge commitment in AI and heavily invested into our AI team as well. As we've shared in our previous quarters, our team mainly leverages AI for in-depth User profiling, differentiated intelligent recommendations and content quality management. And AI has enabled us to Identify user interest and direct users toward more relevant and personalized content.

Speaker 5

And it has also improved our users' social and content experience. We believe that AI has been very valuable for developing our interest based community. And we're also actively Exploring other applications, especially on improving user interactions and also helping users To freely spread their digital personality, for example, in HAGO's previously launched 3 d space feature. It empowers users to create their own 3 d virtual avatars and interact With each other in various virtual scenes and it actually enables users to engage in an immersive social experience. And by simply uploading a photo or videos of those users, users can easily Create their personalized 3 d digital avatar and you could drive the movement of mouth, Facial expressions, body gestures of the avatar in real time within with the input of text and audio.

Speaker 5

And recently, and we can also recreate the voice of a real person through the in the 3 d avatar as well. And recently at Bigo Live, we are testing our AI enabled Chatbot, which can serve as an assistant to streamers and interact Intelligently with their fans, improving the efficiency of streamer fan communication and potentially helping the KOL to further expand their fan base. So currently, these AIGC related features We are still in the early stage of development, and therefore, we need to continue to iterate and optimize based on user feedback. We remain committed to bring innovative interactive experiences to our users. Thank you.

Speaker 5

Next question please.

Operator

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

Speaker 4

Thanks management for taking my questions. My question is about the cost side. Can management comment about our cost optimization strategy as well as the trend in operating expenses And as well as margin outlook in the second half and twenty twenty four. Thank you.

Speaker 5

This is Alex. I will answer your questions. So for the Q2, we actually deliver better than expected Profits, especially for Eagle segment, it achieved a non GAAP operating margin of 16%, up by 2.4 percentage points from 13.6% in Q1 And Bigo's non GAAP gross margin was improved from 37.4% to 39% and that was mainly due to optimization of content cost, our server depreciation expenses and payment channel expenses. And in addition, LaiQi continued to deliver in Q2 and contributed to profit improvement in the Bigo segment. As I just mentioned in my prepared remarks, Starting from Q2, in line with our global positioning, we have strategically streamlined and implemented certain proactive Adjustments to some of our non core operations so that we can concentrate our resources towards our core global business and further enhance the Healthiness of our global ecosystem, we expect these adjustments would have adverse impacts on our top line and bottom line in Q2 and the following quarters.

Speaker 5

Looking ahead To the second half of the year, we expect Bigo's revenue to resume positive 2 0Q growth. And as we enter the peak season of operational activities, we expect Bigo's sales and marketing expenses to increase QoQ as well. Therefore, Because non GAAP operating margins in the second half will likely be lower as compared to the first half of the year. However, given how much we have already achieved in First half of the year regarding operational efficiency improvement, for the full year of 2023, we still expect the non GAAP operating profit margin of Bigo to remain roughly stable compared to last year. To sum up, we continue to value profit and Cash flow self sufficiency and we will drive further improvement in our operational efficiency and at group level we expect to remain profitable And continue to generate positive operating cash flow.

Speaker 5

Thank you. Next question please.

Operator

Thank you. Your next question comes from Yaiwen Jiang with China Renaissance. Please go ahead.

Speaker 3

My question is on shareholder return. So can you update us on what latest progress on share buyback? And how should we think about future buyback pace? Thank you.

Speaker 5

Thank you for the question. This is Alex. In Q2, as mentioned last quarter, we substantially accelerated our Share repurchases and buyback approximately 214,000,000 of our shares during the quarter. So For the first half of this year in total, including our share buybacks and dividends, we have returned around 300,000,000 From that number, as of the end of Q2, we still have around RMB 570,000,000 unutilized quota under our current share repurchase program. We will continue to actively utilize share buyback in the following quarters to reward support of our shareholders.

Speaker 5

Thank you. So that was the end of our call. Thank you so much for joining today. We look forward to

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Key Takeaways

  • Joys delivered Q2 revenue of RMB 547.3 million, topping the high end of guidance, with a non-GAAP net profit of RMB 97.3 million (up 89% YoY) and positive operating cash flow of $61.8 million.
  • The Bigo segment showed stabilization with RMB 471.1 million in revenue (Q/Q growth), a non-GAAP operating profit of RMB 75.5 million (16% margin), global MAUs of 275.6 million (+1% Q/Q) and Bigo Live MAUs up 18% YoY to 38.5 million.
  • Continued focus on product innovation includes AI-driven user profiling and personalized recommendations, new AIGC features (chatbots, 3D avatars) and enhanced social interaction tools to boost engagement.
  • Shareholder returns remain a priority, with an accelerated buyback of $215.3 million in Q2 and a total of ~$1.32 billion returned since 2020 through buybacks and dividends, with further repurchases planned.
  • Looking ahead, management is cautiously optimistic amid macro uncertainty and will prioritize global expansion, product upgrades and cost efficiencies to drive high-quality growth in the second half of 2023.
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Earnings Conference Call
JOYY Q2 2023
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