JOYY Q4 2023 Earnings Call Transcript

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March 18, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Joy Inc. 4th Quarter and Full Year 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 Shih, the company's Senior Manager of Investor Relations.

Operator

Please go ahead, Jane.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to Joy's Q4 2023 earnings conference call. Joining us today are Mr. David Shilling Li, Chairman and CEO of Joy Ms.

Speaker 1

Ding 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 would 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 Shilin Li. Please go ahead, sir.

Speaker 2

Hello, everyone. Welcome to our Q4 2023 earnings call. First, we will provide a quick review of our performance for the quarter and the full year. During the Q4, our group revenue come to at RMB570 1,000,000. Our core business segment, Bigo, recorded revenue for 491,000,000 dollars a year over year increase for 3.1%.

Speaker 2

Group's non GAAP net profit is $64,200,000 with Bigo contributing 63,500,000 For the full year of 2023, group revenue reached $2,270,000,000 with around $1,92,000,000 coming from Bigo. On reflection, 2023 provide to be a year of progress. Our focus on continuous product enhancement, Nivo operational strategies and our strong execution yield positive results despite the providing micro changes. First, our relentless optimization of operational efficiencies generated enhanced profitability for the 3rd consecutive year. In 2023, our non GAAP net profit reached $293,000,000 increased by 46.8% year over year.

Speaker 2

Our non GAAP net margin was 12.9%, up by 4.6 percentage points year over year. Bigo's non GAAP operation profit reached $288,000,000 representing non GAAP operation margin of 15%, higher than our expectation. Notably, our social products under the Bigo segment include Bigo Live, LITI and others will pro form a 5 people in 2023. Additionally, HAGO under the all other segments generated a positive operation cash flow for the year. 2nd, our global average mobile MAUs have now resumed year over year growth for the 3 consecutive quarters even as we adhere to a disciplined marketing spending strategy.

Speaker 2

In the Q1, our global average mobile MAUs increased by 2.6% year over year to $275,000,000 3rd, we solidified our relationship position within the global social entertainment industry. According to Data AI's state of mobile report released in January 2024, Bigo Live retained its position as the world's 2nd largest social ad based on consumer spending on 2023. Out of the 29 countries and regions spanning the Americas, Europe, the Middle East and the Asia Pacific covered by data AI. BigoLive ranked among the top 5 social apps in 18 countries and regions and among the top 10 social apps in 7 countries and regions in terms of customers' spending. Other social products also achieved significant breakthrough in K markets in 2023.

Speaker 2

In terms of customer spending, Lucky claimed the 3rd place among social apps in Saudi Arab, where HAGO secured a top 10 position in both Indonesia and the Philippines. Despite this progress, the group and the Bigo segment revenues were down by 6% and 3.6%, respectively, year over year. The decline was primarily due to 2 facts. First, despite middle single digital growth in Bigo's pay user throughout the Q4, Bigo's ARPU was still down year over year, primarily due to high inflation, which negatively affected the users paying segment. 2nd, to strengthen our global positioning and sustainable growth, we proactively made proactive adjustments to certain non call live streaming operations starting in the Q2.

Speaker 2

Those adjustments had a negative impact on our live streaming revenues in certain regions. However, by fine tuning our operations and focusing resources on the more resilient developed countries region. We saw Bigo's ARPUs stabilize and a recovery in Bigo's revenue in the 2 most recent quarters. With our more focused operational strategy, we believe Bigo will continue to recover and grow steadily during the 2024. Looking ahead, we believe there's a sample room for growth.

Speaker 2

To capture such potential, the key is to deliver unique experience and value to users, stay relevant and achieve sustainable growth such as our priorities for 2024 are as follows. 1st, we remain committed to our globalization strategy, while we acknowledge inquiries regarding the potential impact of YY Live transaction on our future strategies. We are currently in discussion with Baidu on the next step following the termination of the SPA. And we are unable to disclose any further information at this time. However, we can confirm that our globalization strategy will remain unchanged.

Speaker 2

Globalization through localization was has been our foremost strategy and our strong global localized operational capabilities are the cornerstone of our global success. In 2024, we will double down our emphasize on local talent and drive innovative operations to further build our brand's global influence. Our elevate collaborations with KOLs and local partners were instrumental and in enhancing product awareness and catalyzing user growth in 2023. Building on these success, we will uphold our efforts to drive further steady growth of our global user community. 2nd, we will continue to strike a balance between growth and efficiency.

Speaker 2

In 2024, while we anticipate the sustained recovery of Bigo. We also expect to maintain profitability and our positive cash flows at the group level. This year, we remain committed to these dedicated resources to build our cost strengths, which encompass both our global operational capacity and our technology. At the same time, we will prudently explore long term growth opportunities by driving innovations at the products and operational levels. We have been exploring new monetization models and beyond live streaming and achieved meaningful progress.

Speaker 2

In 2023, revenue from our non live streaming business made up to 12.7% of our total revenues, up from 5.4% in 2021. We expect this upward trend to continue in 2024, further expanding the diversifying our revenue streams. And ultimately, fortifying multi level growth engine for our long term development. Now let's take a closer look at our products. We will start Bigo Live.

Speaker 2

Bigo Live maintained its user growth momentum in the 4th quarter with MAUs We saw growth across several regions with year over year MAU increased of 10.9% in Europe, 8.4% in East Pacific region and 12.6% in the Middle East. BigoLife's revenue and the paying users sustained their recovery trend and sequential growth. The Q4 is typical the peak reason of local operational activities worldwide. To capitalize on this, Bigo Live organized a series of events to discover both outstanding creators across various domains and inspire new and diverse content creation. On October, Bigo Live hosted the 2nd season of Bigo's most talented creator content in North America.

Speaker 2

This event attracted talented dancers, musicians, comedians and more. FIGO Live also introduced a brand new creator incentive program across major regions around the world. While Big O Line continues to support to experienced professional streamers and PUGC as program with a stronger emphasis on major streamers and UGC As well as generous economic rewards, Bigo Live provides comprehensive training course for amateur streamers, helping newcomers to develop their skill and learn the ropes of successful streaming. As of the end of 2023, the UGC incentive program has already attracted over 300,000 major streamers. In January, we hold our annual year end flagship event, the People's Award Gala in Las Vegas.

Speaker 2

The online live streaming of the event attracted over 1,200,000 viewers from across the global. This year, we also hosted supplementary region galas in various locations include Indonesia, Miami and the Philippines. Both the flagship and regional gala saw Bigo Line recognize the most outstanding streamers and families of 2023 and talented creators were invited to give captivation diverse performance. The Bigo Award, Scala, established training of the Big O Live has helped members of exceptional creatures enhance their influence and gain exposure on the global stage. Our galas remained essential component of our committee to support our creators in their growth journeys and help them maximize their value creation.

Speaker 2

On the Q4, our family based activities encourage the user to further explore and envision in family events. Families provide robust social contributors and regional with users and we amplified these to drive user acquisition, nurturing long tail streamers and convert free users to paying users. On a sequential basis, revenue contributes by family members increased by 5.7%. The number of contracted streamers in families rose by 16.5% and average DU's in families increased by 5.5%. Throughout the Q1, we personalized the user experience by refining recommendation algorithm for our diverse user base.

Speaker 2

Recommendations will continue as fine tuned based on user behavior, ensuring each user receives the most relevant fees. As a result, user engagement, user retention and average viewer's time spent per live sessions all improved. The next day user retention rate in the Q4 rose by 2.3% sequentially, while average wafer time spent per session surged by 6.4%. BigoLive's Real Match feature continues to bolster high quality social connection among users by refining and optimizing the overall matching progress, including user profiles and matching strategies, we successfully leveraged the Real Match to cultivate a great number of stable user connection. In the Q1, the total number of connections increased by 23.3% sequentially and the number of direct chat message between matched user grew by 14.8%.

Speaker 2

Next, let's take a look at Lacky. Lucky maintained its strategy focused on its core Middle East and Europe markets. In recent quarters, LaiQii implemented a series of targeted operational and product optimization to drive user recovery and simulate monetization growth in its core regions. Although like its overall, MAUs turned down sequentially during the Q4, it's DAU in the core developed country, especially Europe and maintained high single digit growth for the past 4 quarters. In terms of monetization, Lagic's revenue for the full year was up year over year in 2023.

Speaker 2

The recovery of DAUs in its core region and involving creators' services ecosystem and more established business and creators' marketplace all contributed to LITI's advertising revenue growing by nearly 2.4 times for the full year of 2023. Despite a decline in its live streaming ARPU which was a negative effect by macroeconomic uncertainties. The number of Lakis paying user has grown for 4th consecutive quarters. That's its progress on monetization and disciplined spending, Lankey maintained its profitability during the Q4. This means that Lankey achieved the 1st full year profitability in 2024, another significant milestone.

Speaker 2

On the product front, Leki continues to focus on delivering comprehensive creator services, incentive within a vast content creation and fostering community interactions. In the Q4, Lucky introduced text and image posting features alongside new monetization options, enabling user subscription for both video collections and individual videos. Those features offer creators greater flexibility in terms of content formats and open up new opportunities for monetization. Becky also rolled out variety of interactive games in the Q4 to better alien with users involving entertainment preferences. During the Q4, LaiQiq continued to enhance its content production quality, leading to 2.7% sequential growth in average user time spending.

Speaker 2

Thanks to upgrade interactive features, overall user engagement as measured by the ratio of daily use and annual use improved by 2.2 percent in the same period. Now turning to Hago. The Q4 Hago Innovative Year End Events and New Operational features strong mid single digital sequential revenue growth. Hago continued to generate positive operating cash flow in the quarter and therefore achieved its 1st full year operation cash flow breakeven in 2023. HAGOS user social interactions also improved during the Q1.

Speaker 2

Average time spending per user in social channels increased by 4%, sequentially surpassed 99 minutes. Average time spending per user in multi guest voice room saw similar trends increased by 4.9% Q over Q. Finally, let me provide some updates on cash flow and capital return. We continue to generate robust positive operational cash flow reaching $97,200,000 in the 4th quarter. Our commitment to create and receiving value to our shareholders remains important property and priority.

Speaker 2

And our track record is a testament to our long term dedication. Over the course of 2023, we repurchased the share and distributed cash dividends in aggregate amount of 355,000,000 dollars I pre balance to 121.5 percent of our annual non GAAP net profit from 2020 to 2023, we have in total distributed approximately RMB1.38 billion in capital returns. As of the end of the Q4, we still have had approximately RMB 530,000,000 on utilized quarter under our current share repurchase program. We intend to steadily execute additional share buybacks under the program in 2024. Looking ahead, we will continue to cultivate our content and social ecosystem to steadily grow our thriving user community and reinforce our leadership in core geography regions.

Speaker 2

At the same time, we will further dedicate our resources to build our core strengths and carefully explore long term growth opportunities. By driving innovations in both our products and operations, we expect to further diversify our revenue streams and capture long term sustainable growth. This concludes my prepared remarks. I will now turn the call to our Vice President of Finance, Axel Liu for our financial updates.

Speaker 3

Thanks, David. Hello, everyone. Before I go into our financial details, we would like to remind you that despite the latest development in the show of VAVA Life, to the date of this press release, we have not obtained control over VAMA Live and therefore have not consolidated the business. The financial results presented in our press release and this conference call primarily consisted of Bigo, excluding Baba Life. Now, let me go through the details of our financial results.

Speaker 3

Despite the ongoing macro uncertainty, the ended 2023 with another strong quarter. Our total net revenues were $569,800,000 in the 4th quarter. Revenues from Bigo segment were $491,300,000 up by 3.1% year over year, driven by a strong annual increase of 7.9% in Bigo's quarterly paying users and stabilizing app, which was down by 2.6%. Geographically speaking, as we prioritize our operational resources towards developed countries and regions. Revenues from developed countries was up by double digit year over year, outperforming other regions.

Speaker 3

Cost of revenues for the quarter decreased to $368,400,000 among which our revenue sharing fees and content costs decreased to $242,200,000 Bigo's cost of revenues was $309,000,000 which was up year over year consistent with the rebound in last streaming revenue and elevated creator support during the quarter. Gross profit was $201,500,000 in the quarter with a gross margin of 35.4%. Eagle's gross profit was $182,300,000 with a gross margin of 37.1%. Our gross operating expenses for the quarter were 199,400,000 dollars compared with $231,200,000 in the same period of 2022. Among the operating expenses, sales and marketing expenses decreased to $92,300,000 from $100,800,000 in the same period of 2022, primarily due to the optimization of overall sales and marketing strategies across various product lines to be more focused on ROI and effectiveness of user acquisition.

Speaker 3

R and D expenses was $32,600,000 dollars compared with $73,600,000 in the same period of 2022. General and administrative expenses decreased to $34,600,000 from 41 $900,000 in the same period of 2022, mainly due to the company's efforts to improve management efficiency during the year. Bigo's operating expenses for the quarter were $131,300,000 compared with $127,800,000 in the same period of 2022. Our group's GAAP operating income for the quarter was $4,800,000 Our non GAAP operating income for the quarter, which excludes SEC expenses, amortization of intangible assets from business acquisitions, loss of the consolidation and disposal of subsidiaries, as well as impairment of goodwill and investments was $27,900,000 in the quarter with a non GAAP operating income margin of 4.9%. Bigo's GAAP operating income for the quarter was 53,000,000 dollars and Bigo's non GAAP operating income was $67,000,000 representing a non GAAP operating income margin of 13.6%.

Speaker 3

Our group's GAAP net income attributable to controlling interest of Joy in the quarter was $45,800,000 compared to net loss of $377,500,000 in the same period of 2022. GAAP net income margin was 8% in the Q4 of 2023 compared to net loss margin of 62.4% in the same period of 2022. Our net loss last year was primarily due to an impairment loss from an equity investment recognized in that quarter. Bigo's GAAP net income in the quarter was $52,000,000 with a GAAP net margin of 10.6%. Non GAAP net income attributable to controlling interest of Joy in the quarter was $64,200,000 compared to $50,000,000 in the same period of 2022.

Speaker 3

The group's non GAAP net income margin was 11.3% in the quarter, compared to 8.3% in the same period of 2022. Eagle's non GAAP net income was 63,100,000 dollars with a non GAAP net margin of 12.9%. For the Q4 of 2023, we booked net cash inflows from operating activities of 97,200,000 We remain a healthy balance sheet with a strong cash position of 3,700,000,000 as of December 31, of 2023. Now, I would like to briefly walk through the full year financial highlights. Our total net revenues for the full year were 27,267,900,000 compared to $7,411,500,000 in 2022.

Speaker 3

Bighorn's revenues for the full year were 179,300,000 dollars which had enhanced profitability at the group level for the 3rd consecutive year. Common non GAAP net income attributable to controlling interest and common shareholders of Joy for the full year of 2023 was $292,500,000 up by 46.8 percent from $199,300,000 in 2022. Non GAAP net income margin for the full year of 2023 was 12.9%, up from 8.3% in 2022. Notably, Bigo's non GAAP net income expanded to $302,000,000 in 2023 with its non GAAP net income margin improved to 15.7% from 14.4% in the prior year. Importantly, we have continued to enhance returns to shareholders through dividends and share repurchase.

Speaker 3

In the full year of 2023, we have retained an aggregate amount of 355,400,000 dollars to our shareholders through share buybacks and cash dividends, with altogether repelling 121.5 percent of our non GAAP net income. As of the end of 2023, we still have around 530,000,000 utilized quarter under our current share repurchase program. We intend to proceed with a steady execution of additional share buyback in 2024. Turning now to our business outlook. We anticipate continued top line recovery in the Bigo segment.

Speaker 3

However, due to the ongoing uncertainty in the global macro landscape, we recognize that the pace of recovery may vary across different markets and there may be short term fluctuations in users' premium sentiments. Separately, as we have implemented some proactive adjustments to certain operations in the previous quarters. We have had and will continue to have a negative impact on our revenues. At group level, we expect our net revenues for the Q1 of 2024 to be between 5 $43,000,000 $560,000,000 This forecast reflects our preliminary views on the market and operational conditions and business adjustments, which are subject to changes. In conclusion, the balancing between growth and efficiency remains a priority in 2024.

Speaker 3

We remain committed to dedicating resources to building our cost basis and prudently explore long term growth opportunities. With our proven execution capabilities and the robust financial position, we are confident that we are well positioned to seize growth opportunities and deliver sustainable value to our shareholders. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.

Operator

Thank Your first question comes from Yuan Zhang from China Renaissance. Please go ahead.

Speaker 2

My question regarding our 2024 use and monetization growth trend. Could you discuss like your role respectively? Thank you.

Speaker 1

1st of all, let's look back at the monetization trend in Q4, thanks to elevated operational activities such as our year end gala, our revenue came in line with our expectation with Bigo sustaining its top line year over year growth for the 2nd consecutive quarter. And in particular, Bigo's 3 core social global products achieved mid single digit year over year growth in terms of revenue. And this was mainly attributed to a strong growth in their number of paying users and a stabilizing ARPU. And geographically speaking, considering that we have a more targeted operational strategy with prioritizing high end users and the developed countries, We can see a continued recovery in the developed countries region. In Q4, the top line growth rate from developed countries actually reached double digits year over year for the Bigo segment.

Speaker 1

In 2024, we expect to maintain our nimble and targeted operational strategy dependent on ROI and also the recovery pace of the global markets, we will continue to prioritize our resources towards regions with stronger growth, and we expect Bigo segment to continue its top line recovery trend in

Speaker 3

2024?

Speaker 1

And in terms of our growth drivers, as we mentioned earlier, in the past 2 years, we've been exploring new monetization models beyond live streaming and achieved meaningful progress. Revenue contributed by our non live streaming businesses has contributed a higher percentage of our group's revenue in the year 2023. And for the coming year of 'twenty four, to better satisfy the development needs of our non live streaming business, we've made some business upgrades and strategy upgrades on to these non live streaming businesses. And we expect our non live streaming business to further grow and to take up a higher percentage of the group's revenue in the year 2024. Eventually, we'd like to fortify a multilevel growth engine for our long term development.

Speaker 1

And in terms of user growth, our group's MAU has resumed positive year over year growth for 3 consecutive quarters. Going forward in even as we continue to adhere to our disciplined marketing spend strategy And going forward into the year 2024, we expect to continue to adopt a balanced and sustainable growth strategy at all products, focusing on the quality of user growth and continue to enhance our overall user acquisition efficiency. Next question, please.

Operator

Thank you. The next question comes from Alex Poon from Morgan Stanley. Please go ahead.

Speaker 3

Thanks management for taking my question. My question is related to our margin trend for Bigo and overall group levels in 2024. Thank you very much.

Speaker 1

This is Alex. I will take your question. If you look at our results for the full year, we actually delivered better than expected profits. In particular, if you're looking at Bigo segment, the non GAAP gross margin of Bigo segment has been was 38.3%, up from 37.6% in 2022. And the non GAAP operating margin has been improved to 15%, up from 14.4% in prior year.

Speaker 1

And that was mainly due to our continued optimization of our payment channel expenses, server, depreciation expenses and also our sales and marketing expenses. And looking forward to the year 24, we will continue to optimize our cost structure and improve our operational and management efficiency. At the same time, we expect to prudently reinvest some of our operating profits into operational activities that can drive further revenue growth and also businesses that align with our long term strategy. For example, we intend to prudently expand our collaboration with KOL and their incentives. Therefore, specifically for the V Go segment, while excluding the impact from the proactive adjustment to some non core live streaming business that we made since the second half of the year twenty twenty three, We expect V Go to continue its top line recovery and with its non GAAP operating profit, the amount of non GAAP operating profit to be roughly stable compared to the year of 2023.

Speaker 1

And for the all other segments, also excluding the impact from the proactive adjustments that we made to certain non core live streaming businesses since the Q2 of 2023, We expect to continue to narrow the amount of non GAAP operating loss of this segment for the year of 2024 as well. So all in all, at group level, we will continue to strike a balance between profit and growth, and we will value profit and cash flow self sufficiency and drive further improvement of our operational efficiencies. All in all, at group level, we expect to maintain profitable, maintain a positive operating cash flow and drive a long term sustainable growth of the group's business. Thank you. Next question please.

Operator

Thank you. Your next question comes from Brian Gong from Citi. Please go ahead.

Speaker 1

Thank you, Brian. This is David. I will take a question. So since we established our globalization strategy, it's been 9 years and you can see that we have actually built a very global business with a diversified and balanced revenue mix across different regions. And looking at our group's live streaming revenue for the year 2023, developed countries and regions actually contributed around 38%, Middle East around 22%, Mainland China around 14% and the remaining 25 percent came from Southeast Asia and other area, which you can see is very, very diversified and balanced.

Speaker 1

And even within the developed countries region, we can further break it down into 2nd tier sub region such as North America, Europe, Eastern Pacific and others. And the contribution among these 2nd tier sub regions are also very dispersed taking North America as an example. It only accounts for low teens in terms of percentage contribution to the group's overall revenue. Therefore, you can see that due to the comprehensive differences across the markets, either in terms of politics, economics, cultural and industry development differences. A multi national company will definitely encounter more operational complexity and greater macroeconomic and geopolitical uncertainties in terms of business operation than those who operate in a single market.

Speaker 1

However, as we have established our own global operational capacity and accumulated a business of scale and also have a relatively proven business model, a globalization strategy with a balanced mix can actually significantly lower the concentration risk of operating in a single market and it also enables us to tap into a much greater growth opportunities at the global level. Therefore, moving forward, we will continue to pursue a balanced globalization strategy and remain nimble and targeted in our operational strategy. We will continue to prioritize our resources investment into regions with a stronger growth potential dependent on ROI and also market recovery. Thank you. Next question final question please.

Operator

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

Speaker 2

Thanks management for taking my question. My question is about shareholder return. Could you share any new thoughts and outlook in this area? Thanks a lot.

Speaker 1

This is Alex. I will answer your question. In the year 'twenty three, we remain very active in returning value to our shareholders. For the full year, we have dedicated around US355 million dollars in shareholder return, which contributed which is equivalent to around 121.5 percent of the group's annual non GAAP net profit. And for the year 2024, we would say that creating and returning value to our shareholders remain an important priority for the management.

Speaker 1

As of the end of 2023, we still have around 530,000,000 unutilized quota under our share repurchase program. And actually, from January to March 15, we have already repurchased an additional 25,000,000 of our shares. And for the year 2024, we expect to continue to execute additional share buybacks and strive to improve our execution of consistency in the New Year. So that was the end of this conference call. Thank you so much for joining today, and we expect to speaking with everyone next quarter.

Speaker 1

Thank you.

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